Frequently Asked Questions

Section 1902(a)(25)(I) of the Social Security Act requires states to have laws in effect that require health insurers to make payment as long as the claim is submitted by the state within three years from the date on which the item or service was furnished.

Some health insurers currently deny claims submitted by Medicaid if they are not filed within a prescribed time limit, which is applied to plan beneficiaries and providers (e.g., a plan might require beneficiaries and providers to submit claims within 30 days from date of service). If the state Medicaid agency is unable to ascertain the existence of the third party coverage and submit a claim within the time limit, the insurer may attempt to avoid liability.

Any action by the state to enforce its rights with respect to such claim must be commenced within six years of the state's submission of such claim. Health insurers also must respond to any inquiry by a state regarding claims submitted within three years from the date on which the item or service was furnished.

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Section 1902(a) (25) (I) of the Act defines ""health insurers"" to include self-insured plans, group health plans (as defined in section Medicaid Management Information Systems (MMIS)(l) of the Employee Retirement Income Security Act of 1974 (ERISA)), service benefit plans, managed care organizations (MCOs), pharmacy benefit managers (PBMs), and ""other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service."" Workers' compensation, automobile insurance, and liability insurance plans all are included within the definition of ""health insurer"" for purposes of this section and the requisite state laws which must be enacted pursuant to it.

The CMS interprets ""other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim"" to include:

1. Prepaid Inpatient Health Plans (PIHPs) and Prepaid Ambulatory Health Plans (PAHPs). For purposes of Medicaid managed care, PIHPs and PAHPs are entities that contract with the state to deliver Medicaid-covered services; in that context, they would also be considered ""other parties that are, by contract, legally responsible for payment of a claim for a health care item or service;"" and,
2. Such entities as third party administrators (TPAs), fiscal intermediaries, and managed care contractors, which administer benefits on behalf of the riskbearing plan sponsor (e.g., an employer with a self-insured health plan). CMS recognizes that entities such as PBMs and TPAs do not necessarily have ultimate financial liability, but, to the extent that they are required, by contract or otherwise, to review claims and authorize payment by the plan sponsor, they are included within the definition of ""third party"" and ""health insurer"" for purposes of section 1902(a) (25) of the Act.

Nothing in revisions to the Social Security Act made by the Deficit Reduction Act of 2005 (DRA) imposes new liability to pay claims on entities that do not otherwise bear such liability. Nor does section 1902(a) (25) of the Act negate any right of indemnification against a plan sponsor or other entity with ultimate liability for health care claims by a contracting party that pays the claims.

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Indemnity policies may be considered third party resources if the policies meet certain criteria. Federal Medicaid regulations at 42 CFR 433.136 define a third party as ""any individual, entity, or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a state plan."" This includes private insurance. Section 433.136 also defines private insurer to include ""any commercial insurance company offering health or casualty insurance to individuals or groups (including both experience-related insurance contracts and indemnity contracts)."" Private insurers are required to comply with the Deficit Reduction Act of 2005 (DRA) and related state enactments.

Indemnity plans may include a variety of insurance policies such as accident, cancer/specified disease, dental, hospital confinement indemnity, hospital confinement sickness indemnity, hospital intensive care, long-term care, short-term disability, specified health event, and vision. An individualized review of the various policy terms would be necessary to determine if they should be considered a third party resource for purposes of Medicaid. If this review determines that the policy provides for payment of health care items and services, the policy is a third party resource and payments would be assigned to the Medicaid agency.

An indemnity policy may be designed to pay a cash benefit to policyholders, unless the policyholder chooses otherwise. The policy may state that these payments may be used to cover medical expenses or living expenses such as rent, child care, or groceries. However, the insurance company may condition payment upon the occurrence of a medical event. Whenever payments are linked to specific medical events, these payments should be considered third party payments. Thus, the state could seek to recover Medicaid payments from the policy benefits.

Where indemnity policies do not qualify as a third party resource, any payments made to a Medicaid beneficiary may be countable as income for Medicaid eligibility purposes.

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• This FAQ was released as part of a larger set. View the full set. 

The Social Security Act (the Act) generally requires health insurers and other third parties that are legally liable to pay for health care services received by Medicaid beneficiaries to pay for the services that are primary to Medicaid. However, state Medicaid agencies might mistakenly pay claims for which a third party may be liable, because they are not aware of the existence of other coverage.

The Deficit Reduction Act of 2005 (DRA) made a number of changes to title XIX of the Social Security Act intended to strengthen state Medicaid programs' ability to identify and collect from third party payers that are legally responsible to pay claims primary to Medicaid.

Specifically, section Eligibility and Enrollment Systems5 of the DRA amended section 1902(a) (25) of the Act:

1. To clarify which specific entities are considered "third parties"" and "health insurers" that may be liable for payment and that cannot discriminate against individuals on the basis of Medicaid eligibility; and,
2. To require that states pass laws requiring health insurers:
   1. To provide the state with the coverage, eligibility, and claims data needed by the state to identify potentially liable third parties, including, at a minimum, name, address, and ID number;
   2. To honor the assignment to the state of a Medicaid beneficiary's right to payment by insurers for health care items or services; and,
   3. Not to deny such assignment or refuse to pay claims submitted by Medicaid based on procedural reasons (e.g., the failure of the beneficiary to present his/her insurance card at the point of sale, or the state's failure to submit an electronic, as opposed to a paper, claim).

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Section 1902(a)(25)(A) of the Act requires states to take all reasonable measures to ascertain the legal liability of "third parties" for health care items and services provided to Medicaid beneficiaries. The DRA did not change the definition of "third parties," but rather clarified the entities subject to the provisions of section 1902(a) (25) (A) and (G) of the Act. Section Eligibility and Enrollment Systems5(a) of the DRA amended section 1902(a)(25)(A) of the Act to clarify that the "third parties" subject to the provisions of 1902(a)(25) include: (1) selfinsured plans, (2) pharmacy benefits managers (PBM), and (3) other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service, including workers compensation, automobile insurance, and liability insurance plans. The DRA also replaced reference to "a health maintenance organization" with "a managed care organization" (MCO) in identifying the types of third parties to which the provisions of section 1902(a) (25) apply.

Section 1902(a) (25) (G) of the Act prohibits health insurers from taking an individual's Medicaid status into account in enrollment or payment decisions.

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Yes. PBMs and TPAs are considered to be ""third parties,"" as clarified in section Eligibility and Enrollment Systems5(a) of the Deficit Reduction Act of 2005 (DRA)'s amendment of section 1902(a)(25)(A) of the Social Security Act.

PBMs, TPAs, and similar entities may not have financial liability for actual payment of claims, depending on the nature and extent of services to be performed for the health insurer, as specified in the contract. However, if the PBM or TPA performs claims review and payment authorization for another third party, the PBM or TPA is expected to provide information to the Medicaid program, so the program can determine which party is the primary payer, for the purpose of coordinating benefits for the Medicaid beneficiary.

State law enacted to implement section Eligibility and Enrollment Systems5(a) of the DRA must require the health insurer that contracts with a PBM, TPA, or other such entity to administer the plan to provide the contracted entity with such information as may be necessary to enable that entity to furnish the state with information about when Medicaid beneficiaries may be (or may have been) covered by the health insurer, the nature of the coverage, and other necessary information.

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Section Eligibility and Enrollment Systems5(b) of the Deficit Reduction Act of 2005 (DRA) created a new subparagraph (I) in section 1902(a)(25) of the Social Security Act (the Act), that requires states to establish laws that require the production of the information necessary for each state Medicaid agency to determine third party liability for services rendered to Medicaid beneficiaries. Specifically, section 1902(a) (25) (I) (i) of the Act directs states, as a condition of receiving federal financial participation (FFP) for Medicaid, to have laws in effect that require health insurers doing business in their state to provide the state with the requisite information with respect to individuals who are eligible for, or are provided medical assistance, i.e., Medicaid beneficiaries.

States pass their own laws regarding the submission of health insurance information to implement the provisions of the DRA. As with most federal laws that require some action on the part of the state to implement, states have some latitude in determining how best to comply. Since the information would be provided to the state Medicaid agency as required by that state's laws, it follows that the submission should conform to what is required under that state law. Such requirements would ensure the state Medicaid agency's access to the information is necessary and sufficient to determine third party liability for care provided to Medicaid beneficiaries.

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State laws determine what information is required of the health plans. A health plan's disclosure and use of information that is required to be submitted under state law - such as, information from insurer eligibility files sufficient to determine during what period any individual may be, or have been, covered by a health insurer and the nature of the coverage that is or was provided by the health insurer — is consistent with the HIPAA privacy provisions.

Under HIPAA, both the state Medicaid agency and most health insurers are covered entities and must comply with the HIPAA Privacy Rule in 45 CFR Part 160 and Part 164, Subparts A and E. In their capacities as covered entities under HIPAA, the state Medicaid agency and health insurers are restricted from using and disclosing protected health information (PHI), as that term is defined in 45 CFR section 160.103, other than as permitted or required by the HIPAA Privacy Rule. However, as relevant here:

1. A covered entity may use or disclose PHI to the extent that such use or disclosure is required by law and the use or disclosure complies with and is limited to the relevant requirements of the law. (45 CFR 164.512(a)(1)) Under this provision, each covered entity must be limited to disclosing or using only the PHI necessary to meet the requirements of the law that compels the use or disclosure. Anything required to be disclosed by a law can be disclosed without violating HIPAA under the ""required by law"" provisions. Therefore, health insurers may disclose data elements in addition to the four minimum data elements, up to and including submission of an entire insurer eligibility file, to the extent such information is required to be submitted by state law. (45 CFR 164.512(a))
2. Separately, a covered entity may use or disclose PHI, without the consent of an individual, for payment activities, including to facilitate payment. (45 CFR 164.502(a)(1) and 164.506) Under HIPAA, the term payment includes activities undertaken by a health plan to determine or fulfill its responsibility for coverage and provision of benefits under the health plan. These activities include determinations of eligibility or coverage, adjudication or subrogation of health benefits claims, and collection activities. (45 CFR 164.501) To the extent plans are releasing this information to the Medicaid program for payment purposes; this is a separate basis for disclosure under HIPAA.
3. The HIPAA Privacy Rule generally requires covered entities to take reasonable steps to limit the use and disclosure of PHI to the minimum necessary to accomplish the intended purpose. (45 CFR 164.502(b)(1)) However, among other limited exceptions, the minimum necessary requirements do not apply to uses or disclosures that are required by law under 45 CFR 164.512(a).

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• This FAQ was released as part of a larger set. View the full set. 

Yes. There is a significant amount of third party coverage derived from health plans licensed in a different state than where the Medicaid beneficiary resides. This can commonly happen when the policyholder works in one state and lives in another state. For example, there may be policyholders who are enrolled in Medicaid coverage in Maryland, or have dependents that are enrolled, who work in Delaware, the District of Columbia, Pennsylvania, Virginia, or West Virginia and also have coverage through their employer in that state. This highlights the need for Medicaid agencies to obtain plan eligibility information from contiguous states in addition to collecting information in their respective state.

Another example is when Medicaid-eligible children are covered by the insurance plan of non-custodial parents who live in a different state than their child(ren). This example is not limited to contiguous states because non-custodial parents could reside in any state in the country. Depending on the size, it may be beneficial for the state to obtain the plan's entire eligibility file. The specific geographical areas to be included in the data exchange should be negotiated with the plans. We recommend use of a Trading Partner Agreement in the exchange of electronic data.

Finally, section 1902(a)(25)(I)(i) of the Social Security Act directs states, as a condition of receiving federal financial participation (FFP) for Medicaid, to have laws in effect that require health insurers doing business in their state to provide the state with the requisite information with respect to individuals who are eligible for, or are provided medical assistance, i.e., Medicaid beneficiaries. State law cannot reach beyond the entities that are "doing business"in their states.

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• This FAQ was released as part of a larger set. View the full set. 

Yes. State Medicaid programs may enter into data matching agreements directly with third parties or may obtain the services of a contractor to complete the required matches. Such arrangements should comply with Health Insurance Portability and Accountability Act of 1996 (HIPAA)'s ""Business Associate"" requirements, where applicable. When the state Medicaid program chooses to use a contractor to complete data matches, including matches as required by the Deficit Reduction Act of 2005 (DRA), the program delegates its authority to obtain the desired information from third parties to the contractor.

Third parties should generally treat a request from the contractor as a request from the state Medicaid agency. Third parties may request verification from the state Medicaid agency that the contractor is working on behalf of the agency and the scope of the delegated work.

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