Third Party Liability in Medicaid


The Medicaid program by law is intended to be the payer of last resort for health services to individuals with dual insurance coverage. A 2006 G.A.O. report cites that this population represents approximately 13% of Medicaid recipients at any given time during the year. Medicaid requirements for billing services to this population can block otherwise eligible reimbursements for school health services.

Issue Analysis

When children who have both Medicaid coverage and private insurance, a situation known as dual coverage, receive school health services, LEAs are often unable to obtain reimbursement for their cost. Lack of recognition by private insurers combined with Medicaid third-party liability requirements all but prohibit LEAs from receiving payment for eligible services to which they are entitled.

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. This federal regulation, often referred to as the third-party liability requirement,is designed to place primary liability for health services with private insurers. In practice, however, the third-party liability requirement represents a major obstacle to LEAs’ ability 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.

A CMS State Medicaid Director letter issued in December 2014 touched on the subject of TPL and school districts that participate in Medicaid billing programs. The letter clarified that, for the purposes of Medicaid reimbursement, CMS “does not view public agencies… such as schools… as legally liable third parties.” It goes on to state that this guidance, “does not create any exception to requirements to pursue TPL from legally liable third parties, such as private insurance plans… but it allows states to determine that public agencies with general responsibilities to ensure health and welfare are not considered legally liable third parties.” Pending further clarification from CMS, the scope of this language remains unclear as it does not appear to address the barriers faced by schools in attempting to bill other legally liable third parties, such as private insurance.


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