Federal Third Party Liability Requirements

13 Aug Federal Third Party Liability Requirements

The Social Security Act, signed into law by President Franklin Roosevelt in 1934, stipulates in the statute § 1902(a)(25) of the law “…that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties…to pay for care and services” delivered to Medicaid recipients. In a nutshell, it means that Medicaid becomes the payer of last resort (PLR), a term also known as third party liability (TPL), or the Coordination of Benefits (COB). In other words, Medicaid pays last, and if a Medicaid member holds other insurance coverage, such as insurance from his or her employer, that insurer pays first and then Medicaid pays any remaining costs.

As much as 10 percent of the Medicaid members across the nation hold additional insurance other than Medicaid, which is viewed as TPL. Types of TPL include employee insurance, Workers’ Compensation, Medicare, COBRA health insurance from former employment, casualty insurance, dental insurance, eye insurance and insurance to cover pharmaceutical costs.

The Deficit Reduction Act (DRA) passed by the U.S. Congress in 2005 stipulates in Section 6035 that all states are mandated to pass laws that force health insurance companies to give the state health insurance premium information involving people who are eligible for Medicaid assistance to the state. Specifics of the DRA include:

  • Health insurance providers must hand enrollment information over to Medicaid, or its agent, so customer benefits can be coordinated.
  • This information is to be used to identify additional health insurance coverage, so that unsuitable payments are not made and Medicaid payments made in error are recovered.
  • Payments are required to be made as long as the claim is submitted within three years after the medical service was provided.
  • Claims cannot be denied as long as the state started action on the claim within six years after the state submitted the claim.

Details must be spelled out that health insurance include other entities that are by statute, agreement or contract, legally responsible for paying a claim of a healthcare service; pharmacy benefits managers (PBMs); managed care organizations (MCOs); group health plans; and self-insured plans.


Identifying primary health insurance coverage of Medicaid recipients

Identifying primary health insurance coverage of Medicaid recipients can be accomplished by a state through one of three different methods and still allow the state to comply with TPL requirements, under federal law. The difficulty is that if only one methodology is implemented by the state, savings and recovery is not at its greatest possible amount. The highest level of savings involves processing at all three of the following points in the process by the state. Here are those processes:

  • Applicants enrolling in Medicaid are asked about other insurance coverage. The problem is that some applicants think they will be disqualified from Medicaid, so this information is withheld. And, since adding Medicaid coverage might also indicate an employment change in which employer insurance coverage is lost, this disclosure might be immaterial soon after the applicant’s enrollment.
  • The state checks for TPL coverage in order to avoid extra cost. Medicaid eligibility names are cross-referenced with names enrolled in state and national health insurance companies in order to detect primary insurers prior to the submission of Medicaid claims. But, this practice becomes impossible unless state laws require the timely delivery of insurance data when a state also requires the prompt payment of insurance claims. Plus, some medical services, such as those dealing with a pregnancy, must be paid at the time that they are claimed, according to federal law. That means that pregnancy claims have to be paid immediately, before recovery can be made from responsible insurers.
  • Improper Payments are recovered. The third aspect of a comprehensive TPL plan involves Medicaid’s payment, which occurs one of two ways. Medicaid can offset the provider during the next payment issued for the amount that was overpaid. This is called “provider disallowances.” Or, Medicaid receives the overpayment from the correct insurance carrier. This is called commercial insurance direct billings. Strong state laws are required for this third step in a TPL plan to work, since without it, the state can receive denials from insurance companies. The bottom line is that when payment errors are prevented, time is not wasted chasing down money.


What an Effective Third Party Liability Plan Needs to Include

So, in order to gain an effective TPL plan, immediate and effective discovery of additional coverage is needed at Medicaid enrollment. Also, cost avoidance discovery must take on immediacy when claims are made and past mistakes need to be solved quickly. What works best is when the federal directives and state laws mesh to form a truly comprehensive DRA policy that recognizes additional health insurance coverage with quick recovery of each claim.

ProTPL offers a solution that provides this critical information in real time, at the point of sale.