Before you buy travel insurance, look at your current insurance policies to find out which insurance underwriter would pay first and how that payout will affect your lifetime maximum benefit. You may be better off buying supplemental travel health insurance coverage from your current health insurance provider, even if it is more expensive than a separate travel insurance policy, in order to avoid a potential reduction of your lifetime maximum benefit.
A Canadian Case Study
In March 2016, the Canadian Broadcasting Corporation published an article that focused on the complex, important topics of first payer and subrogation clauses in travel insurance policies. The article tells the story of a Canadian couple who bought travel medical insurance, vacationed in the US, and experienced a catastrophic health issue. The wife contracted a life-threatening infection and was hospitalized. When she was healthy enough to travel home, they filed a claim and the travel insurance company paid.
What the couple didn't know, however, was that the travel insurance company, like just about every insurance underwriter everywhere, included a subrogation clause and a first payer clause in its policy certificate, allowing the company to collect some of the claim money from the couple's extended health insurance provider – the insurer that pays for treatment not entirely covered under Canada's national health plan.
That payment counted against the wife's lifetime maximum benefit of CDN 500,000, reducing it by over CDN 97,000. For someone who expects to live many more years – she's 67 – this could be disastrous, as she may run out of insurance money to pay for prescriptions, physical therapy and, possibly, other treatments received outside her home province.
First Payer Clauses
First payer clauses are common in the insurance industry. Short-term policies, such as travel insurance or collision damage waiver insurance for your rental car, will generally pay for a claim only after your long term policies pay. This means that your health insurance, automotive insurance or homeowner's insurance company will pay first, and the travel insurance company or rental car company will then handle any unpaid claims.
If you make a claim against a travel insurance underwriter or rental car company, the first payer clause will probably apply. In the case of automobile insurance claims, the worst thing that can happen would be cancellation of your automotive insurance policy due to excessive claims. Health insurance, as our example above shows, can be more problematic.
How Subrogation Works
The standard subrogation clause in a travel insurance policy certificate looks something like this:
"To the extent the Insurer pays for a Loss suffered by an Insured, the Insurer will take over the rights and remedies the Insured had relating to the Loss. This is known as subrogation. The Insured must help the Insurer preserve its rights against those responsible for its Loss.
This may involve signing any papers and taking any other steps the Insurer may reasonably require." (Source: TravelGuard)
This clause gives your travel insurance underwriter permission to seek recompense from other insurers or parties who may be considered first payers on your claim, either because the parties were at fault (that is, legally responsible) or because the insurance companies were named as first payers in your travel insurance policy. By agreeing to a subrogation clause, you are giving the insurance company permission to act on your behalf to contact other insurers and obtain this recompense.
Subrogation isn't confined to travel insurance claims. If you are in a car accident, for example, your insurance company may pay for damage to your car or for your medical treatments, but, if the other driver is determined to be at fault, your insurance company will ask the driver's insurer to reimburse them for those expenses, sometimes without telling you.
Depending on where you live and what type of insurance coverage you have, first payer clauses and subrogation agreements may have no effect on your future insurance benefits, or they may significantly affect your lifetime maximum benefit.
Residents of Different Countries Face Different Travel Insurance Issues
United Kingdom citizens enjoy reciprocity health insurance agreements with most countries in the European Economic Area and with Switzerland and Australia. Consequently, travel insurance providers may refuse to pay medical claims filed by travelers from the UK who do not obtain a European Health Insurance Card (EHIC) before traveling or do not enroll in Australia's Medicare (national health insurance) system when seeking medical care in that country. Limited reciprocity agreements with several other countries may allow UK residents to obtain free or subsidized health care while traveling; consult the National Health Service website for details.
I live in the United States, and, after reading the CBC article mentioned above, I looked at all available policy and benefits information for my health insurance plan. I do not, as far as I know, have a lifetime cap on benefits – at least as long as I am able to afford this plan. My health insurance underwriter would have to pay first if I bought a travel insurance policy and filed a claim, but I would not lose future benefits as part of this process. Canadian travelers with extended health insurance policies are in a completely different situation.
Keep in mind that the problems that affected the Canadian couple in the CBC article referenced above are related to the fact that Canadian citizens can, and often do, purchase extended health insurance coverage in addition to the national health insurance program all citizens receive. That coverage comes with a lifetime maximum benefit, and does not necessarily cover all costs incurred while traveling outside your home province.
The couple profiled in the CBC article could have looked at the travel insurance advice page on the website of their extended health plan provider, Pacific Blue Cross, and read the following travel plan information: "If you have an Extended Health Plan with Pacific Blue Cross, your Travel Plan will be first payer. This protects the lifetime limit on your Extended Health Plan." They could have read the travel insurance policy certificate and looked for subrogation and first payer clauses. They also could have talked with the travel insurance company and asked about payment processes, but, like many of us, they didn't know enough about first payer and subrogation clauses to even begin to ask the right questions.