Issues
Third Party Liability in Medicaid
Back to issuesIssue Summary: Medicaid's Third Party Liability Requirements
Title XIX of the Social Security Act requires states to attempt to collect payment for services from private entities, or third parties, before billing the government.1 This federal regulation, often referred to as the third-party liability requirement, is designed to place primary liability for health services with private insurers.2 In practice, however, the third-party liability requirement represents a major obstacle to LEAs’ attempts to obtain payment for Medicaid-eligible health services provided to students with dual health coverage.
In general, private insurers do not recognize LEAs as health care providers and therefore will not provide payment for their claims. If a private insurance company denies an LEA claim submitted to it, it is expected to issue a denial of coverage statement. This denial should then trigger payment from Medicaid for the service. However, in most cases LEAs are unable to obtain from the third party a denial of coverage statement. In short, private insurers do not recognize schools as health providers and will neither pay for the services schools have administered nor issue the appropriate denial form required for Medicaid payment according to the third-party liability restriction. Thus schools are left to absorb the cost of the Medicaid-eligible health services they have provided to those students with dual health coverage.
This predicament has often inhibited LEAs from even attempting to bill Medicaid. The administrative costs of meeting Medicaid's third-party liability requirement often exceed the amount of any payment that could be received, and payments received may then be recalled by the state or CMS. Additionally, a state that pays an LEA for services to children with dual coverage may attempt to recoup the cost from the private insurance, a situation that can trigger communication from the private insurer to the child's family. Such communication can be alarming for parents. LEAs typically find the billing effort too fraught with difficulty to attempt it.
Current Medicaid third-party liability regulations were designed to protect the government from paying for care that could otherwise be funded by private entities. As presently implemented, however, these regulations prevent LEAs from receiving Medicaid payments to which they are entitled.
Notes
1. Section 1902(a)(11)(B)(ii)) of the federal Social Security Act requires states to attempt to collect payment for services from private entities before billing the government.
2. 42 CFR § 433.138 and § 433.139 place primary liability for dual-covered health services with private insurers.
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