The Denied Claim and the Two Plans
Binh works for a 14-employee engineering firm in Anchorage whose fully insured group health plan covers him, his wife Lan, and their daughter Mai. Lan is also enrolled in her own employer's plan. Mai, 23, is a full-time student and is carried as a dependent on Binh's plan. Lan has a $28,000 thyroidectomy. Her own plan applies a $1,000 deductible and 80/20 coinsurance to the allowed amount. Binh's plan denies the claim entirely, citing hypothyroidism diagnosed four years earlier as a preexisting condition, and the denial letter offers no appeal instructions. Binh's agent had also sold the family a short-term limited-duration policy in the fall as a backup.
1. Which plan pays first, and how much does each pay on the $28,000 claim?
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Lan's own employer plan is primary. The plan that covers a person as the employee (or subscriber) pays before the plan that covers her as a dependent of a spouse. This is the first rule of coordination of benefits, ahead of any birthday rule, which applies to dependent children of two parents.
Primary plan math:
- Allowed amount: $28,000
- Less deductible: $1,000 → $27,000
- Plan pays 80%: $21,600
- Lan's balance: $1,000 + $5,400 = $6,400
Secondary plan: Binh's plan then considers the $6,400 balance, subject to its own deductible, coinsurance, and the rule that it will not pay more than it would have paid as primary. In practice the secondary plan may cover most or all of the residual, but it never duplicates the $21,600 already paid.
Mai's coverage is unaffected by this claim; her 23 years and student status are within the dependent-coverage age limit.
2. Is the preexisting-condition denial valid, and what are the family's procedural rights?
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The denial is very likely invalid. Non-grandfathered group and individual major medical plans may not exclude or limit coverage for a preexisting condition, and may not vary premiums based on health status. A thyroid condition diagnosed four years earlier cannot be used to deny a covered surgical claim. The proper role of that history is at most medical-necessity review of the surgery itself.
Procedural failures compound the substantive one. The adverse determination must explain the specific reason, cite the plan provision and the internal rule relied upon, and describe the appeal process, including the deadline. A letter that omits appeal instructions is itself a violation of the claims-regulation requirements.
Rights the family has:
- Internal appeal - generally must be filed within 180 days of the denial.
- External independent review after exhausting internal appeals, for medical-judgment denials and rescissions.
- Expedited review where the timeline could seriously jeopardize life or health.
- Continuation of coverage and protection from retaliation for appealing.
First step: request the claim file and the plan document in writing, and file the internal appeal well inside 180 days.
3. What should the agent tell the family about the short-term limited-duration policy they bought as a backup?
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It is not a substitute for major medical coverage, and the agent should say so plainly. Short-term limited-duration policies are not required to cover essential health benefits, may exclude or limit coverage for preexisting conditions, may impose dollar limits, often exclude maternity and mental health, and generally do not satisfy the individual mandate-style minimum coverage concepts. They also do not coordinate as creditable coverage under the COB rules the way a group plan does.
What it does not do here: it would not pay the thyroid claim; the hypothyroidism is exactly the kind of history such a policy may underwrite against.
Sales-practice caution: presenting a short-term policy as "backup" coverage alongside a comprehensive group plan risks a suitability and replacement complaint. The correct framing is that the family already has two coordinated group plans and needs no supplemental product for this claim; if they want supplemental benefits, accident, critical illness, or hospital indemnity products should be described for what they are. Any recommended change should be documented with the reason.