The last time you sought medical care, you likely made an appointment with your provider, got the treatment you needed, paid a co-pay or deductible, and that was it. There are no papers, no waiting to be paid; Your doctor received a payment from your insurance company and you both moved on with your lives.
This is how most people receive health care in the United States. This system, known as Benefit Allocation or AOB, is now used with other types of insurance, including auto and insurance. Homeowners Coverage.
What is a waiver of interest?
AOB is a legal agreement that allows your insurance company to pay directly to a third party for services performed on your behalf. In the case of health care, it could be your doctor or another medical professional providing the care. With a homeowner, renter, or auto insurance claim, the third party could be a contractor, auto repair shop, or other facility.
The waiver of benefits is legal, thanks to a concept known as freedom of contract, which states that parties may enter into a private agreement, including forfeiture of certain rights, and the government may not interfere. There are exceptions that make freedom of contract less than an absolute right. For example, a contract may not violate the law or contain unfair terms.
Not all doctors or contractors use AOBs. Therefore, it is a good idea to make sure your doctor or provider is on the same page when it comes to AOBs before starting treatment or labor.
How does AOB . work?
The function of an AOB agreement varies depending on the type of insurance policy involved, the health care provider, contractor, or service provider, and increasingly, state law. Although AOB is normal in health insurance, other applications for allocating benefits have included the auto and home insurance industry.
Since AOBs are common in healthcare, you probably shouldn’t think twice about signing a piece of paper that states benefits are allocated across the top. But once you sign it, you are likely to give up your right to transact with your insurance company in connection with the service from that provider. Why would you do this?
According to Dr. David Berg of Redirect Health, the reason is simple: “Without an AOB in place, the patient himself would be responsible for paying for his service, after which he would file a claim with his insurance company for compensation.”
The same rules apply with homeowners or auto insurance. Once you sign the AOB, you are virtually out of the picture. The contractor who re-roofs your home or the mechanic who rebuilds your engine works with your insurance company by filing a claim on your behalf and receiving their money without your help or participation.
Greg Barrett, founder and CEO of Water StreetIt is a cloud-based P&C insurance management platform. “Some states require a strict written breakdown of the work to be done, while others allow only portions of claims to be assigned.”
Within the guidelines of specific insurance rules for AOBs in your state, general steps include:
- You and the contractor make an AOB clause as part of the contract.
- The contract stipulates the exact work that will be completed and all the necessary details.
- The contractor sends the completed AOB to the insurance company where the adjuster reviews, asks questions, and resolves any discrepancies.
- The name of the contractor (or the name of an agreed party) is included to be recorded on the settlement check.
After the work is completed and signed, the insurance company will issue the check and the claim will be considered paid.
Example of a waiver of interest
If you’re dealing with insurance, how will the AOB factor in that? Let’s take an example. “Let’s say you have a water leak in the house,” says Angel Conlin, head of insurance at Keen Insurance. “You contact the home restoration company to stop the water flow, clean up the mess, and restore your home to its former glory. The restoration company may request that the benefits be customized so that you can deal directly with the insurance company without your input.”
In this case, by eliminating the homeowner, whose interests are already represented by an experienced insurance professional, the AOB reduces redundancy, saves time and money, and allows the restoration process to proceed more efficiently.
When do you need to use the benefit allocation?
AOB can simplify complex and costly insurance transactions and allow you to turn these transactions over to trusted experts, thus avoiding time-consuming negotiations.
The AOB also frees you from paying the bill in full up front and seeking reimbursement from your insurance company after work is completed or services have been rendered. Since you are not required to sign a waiver of benefits, failure to sign will result in the medical bill being paid in full and a reimbursement request. The three most common uses for AOBs are health insurance, auto insurance, and home insurance.
Waiver of health insurance benefits
As discussed, AOBs in health insurance are common. If you have health insurance, you’ve likely signed up for AOBs for years. Each provider (physician) or practice requires a separate AOB. In your view, the big advantages of an AOB are that you receive medical care, your doctor and insurance company work out the details, and in the event of a disagreement, these two entities deal with each other.
Assignment of benefits to car owners
If your vehicle is damaged in an accident and needs an overhaul, AOB benefits can add up quickly. Not only will your car be repaired at the lowest upfront cost to you, there will be almost no inconvenience. You drop your car down (or towed), wait to be called, tell you the repair is over, and pick it up. Similar to AOB for healthcare, disagreements are resolved between the provider and the insurance company. You usually do not participate.
Waiver of benefits for homeowners
When your home or property is damaged or destroyed, your primary concern is to “get back to normal.” You want to do this with the least amount of hassle. The AOB allows you to transfer your rights to a third party, usually a contractor, allowing you to deal with the current crisis.
Upon signing the AOB, your contractor can immediately begin work on repairing the damage, supporting it against further deterioration and coordinating with various subcontractors without waiting for clearance or calling you.
No legal agreement, including the AOB, is free from the possibility of abuse or fraud. The implied warranties are necessary to ensure that the benefits you assign to a third party are protected as much as possible.
In terms of what can go wrong, the answer is: a lot. According to the National Association of Mutual Insurance Companies (NAMICs), examples of AOB fraud include inflated bills or fees for work that wasn’t done. Another common tactic is to sue the insurance company, without the policyholder’s knowledge or consent, something that can eventually result in the policyholder being stuck with the bill and higher premiums due to losses incurred by the insurance company.
State legislatures have attempted to protect consumers from AOB fraud and some progress has been made. Florida, for example, passed legislation in 2019 that gives consumers the right to cancel a fraudulent contract and requires that AOB contracts include a detailed description of the work to be done. Other states, including North Dakota, Kansas and Iowa, have signed NAMIC-backed legislation into AOB Consumer Fraud Protection Act.
The National Association of Insurance Commissioners (NAIC) advises consumers to help avoid fraud and abuse in the AOB:
- File a claim with your insurance company before you hire a contractor. This ensures that you know what fixes to make.
- Do not pay up front in full. Legitimate contractors do not require this.
- Get three estimates before choosing a contractor.
- Get a fully written contract and read it carefully before signing.
- Don’t be pressured to sign an AOB. You are not required to sign the AOB.
Pros and cons of waiving benefits
The advantages and disadvantages of an AOB largely depend on the amount and type of protection your state’s insurance laws provide.
Pros of waiving benefits
With the right safeguards in place to reduce the chances of fraud, AOBs have the ability to streamline and streamline the insurance claims process.
- The AOB frees you from paying for services and waiting for reimbursement from your insurance company.
- Some people appreciate not having to negotiate with their insurance company.
- You are not required to sign the AOB.
Disadvantages of waiving benefits
As with most contracts, AOBs are a double-edged sword. Be aware of potential traps and ask questions if you’re not sure.
- Signing an AOB could make you a victim of fraud without knowing it until your insurance company refuses to pay.
- The AOB does not release you from ultimate liability to pay for services rendered, which could drag you into an expensive lawsuit if things go south.
- Any AOB you sign is legally binding.
The AOB, as the example of health insurance shows, can simplify complex and costly insurance transactions and help consumers avoid time-consuming negotiations. It can save upfront costs while allowing experts to work on the details.
It can also present a nightmare, fraud-filled scenario that requires years of costly litigation. worldwide State-level legislation is required with safeguards to avoid the latter. Until that happens, your best bet is to work closely with your insurance company when signing the AOB. Look for suspicious or exaggerated fees when negotiating with contractors, service providers, and other workers.