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Medicaid Third Party Liability

Third Party Liability (TPL) refers to the legal obligation of third parties, i.e., certain individuals, entities, or programs, to pay all or part of the expenditures for medical assistance furnished under a State plan. The Medicaid program by law is intended to be the payer of last resort; that is, all other available third party resources must meet their legal obligation to pay claims before the Medicaid program pays for the care of an individual eligible for Medicaid. Examples of third parties which may be liable to pay for services include private health insurance, Medicare, employment-related health insurance, court-ordered health insurance derived by noncustodial parents, court judgements or settlements from a liability insurer, workers' compensation, first party probate-estate recoveries, long-term care insurance, and other State and Federal programs (unless specifically excluded by Federal statute).

Individuals eligible for Medicaid assign their rights to third party payments to the State Medicaid agency. States are required to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the State plan. Once States have determined that a potentially liable third party exists, the State is required to either "cost avoid" or "pay and chase" claims. Cost avoidance is where the provider of services bills and collects from liable third parties before sending the claim to Medicaid. Pay and chase is utilized when the State Medicaid agency pays the medical bills and then attempts to recover from liable third parties. States are generally required to cost avoid claims unless they have a waiver approved by CMS which allows them to use the pay and chase method.

Important Information for Plan Sponsors

There are provisions of Federal law that affect the way plan sponsors deal with pharmacy claims submitted by State Medicaid agencies. Plan sponsors often are not aware that employees and/or their dependents for whom the employer is providing health coverage are also enrolled in Medicaid. Such situations can occur when a child is covered through a non-custodial parent�s employer-based plan and is also covered by Medicaid through the custodial parent. As the primary payer, in such situations, plan sponsors are responsible for ensuring appropriate consideration of the state�s claim for reimbursement. For more information, download the Fact Sheet - Important Information for Plan Sponsors, which may be found at the bottom of this page.

Cost Avoidance and Collection Data

On an annual basis (usually at the beginning of January following the close of the fiscal year, October through September), the Division of Financial Management in the Center for Medicaid and State Operation extracts TPL cost avoidance and collections data reported by the States on a quarterly basis to the Centers for Medicare and Medicaid Services on the CMS-64 Report. These data are used by CMS central office and regional office personnel to monitor and evaluate the effectiveness of States' TPL activity based on the varying methods used for recoveries.

In addition to TPL data, state-reported total computable medical assistance payment (MAP) data (exclusive of adjustments) are extracted and presented to show the total TPL to total expenditures for Medicaid services. In all, these data represent additional detail to the TPL table-1 data included in the Medicaid Financial Statistics Tables (Medicaid Budget & Expenditures System (MBES), CMS-64 Report) (see related link inside CMS at the bottom of the page). The collections total included in the TPL table-1 of the aforementioned package will differ from the downloads in this section because table-1 does not include probate data.

The TPL information included in this section contains data for the most recently completed fiscal year (FY 2004) and may be downloaded at the bottom of this page (FY 2003 data will be added to this web page at a subsequent time). The data are aggregated by State. Data for years prior to 2003 may be downloaded from the bottom of this page. The format for these data is in three parts. (Warning: It should be noted that there is no uniform methodology for the collection or estimation of cost avoidance data. Therefore, caution should be exercised in the use and interpretation of these data.)

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