Third-Party Liability


Under Medicaid law and regulations, Medicaid is generally the health payer of last resort. This means that Medicaid pays for healthcare only after a beneficiary’s other healthcare resources have been exhausted.

In general, private insurers do not recognize school districts as healthcare providers and therefore will not provide payment for their claims. If a private insurance company denies a school district’s claim, it is expected to issue a statement denying coverage. This denial should then allow payment from Medicaid for the service.

However, since most private insurers do not recognize schools as health providers, not only will they not pay for the services administered, they also might not issue the appropriate denial form. As a result, school districts are left to absorb the cost of the Medicaid-covered health services provided to students with dual health coverage.

It is important to note that the requirement to bill third-party payers only applies to Medicaid-enrolled students who also have a third-party insurer. Approximately 8.4 percent of children enrolled in Medicaid also have private health insurance; as a result, the issue of third-party liability does not apply to the majority of children enrolled in Medicaid.

The December 2014  letter to state Medicaid directors on Medicaid payment for services provided without charge, clarifying the “free care” rule, also clarified that schools are not considered legally liable third parties. Yet it specifically stated that schools are not exempt from the requirement to bill legally liable third parties prior to billing Medicaid for students with dual coverage.

Additional guidance is needed from the Centers for Medicare & Medicaid Services (CMS) regarding third-party liability requirements. However, these requirements should not serve as a barrier to billing for school health services delivered to students whose sole coverage is Medicaid.

State Medicaid agencies have taken a variety of approaches to comply with the third-party liability requirement as it relates to school-based services. It is important to understand the methodology and required documentation to satisfy the third-party liability requirement in your state.

More information is available in the 2020 CMS guide on the Coordination of Benefits and Third-Party Liability in Medicaid.