Medicaid Concepts: Third Party Liability and Coordination of Benefits

This is part of our Medicaid Concepts series, in which we provide a high level overview of key concepts in the Medicaid industry today.

What do we mean by Third Party Liability (TPL) and Coordination of Benefits (COB)?

Some Medicaid members can have multiple sources of health insurance coverage besides their Medicaid coverage. (One GAO report estimates that 14% of Medicaid members had additional third party coverage in 2012). When this occurs, Medicaid is supposed to be the “payer of last resort.” In practical terms, this means that all other forms of insurance coverage should pay their share of the costs of a member’s care before Medicaid begins to pay.

There are various other types of payers that are required to pay before Medicaid does, including:

Employer sponsored health insurance
Pharmacy benefit managers
Medicare
Court-ordered health coverage
Settlements from a liability insurer
Workers’ compensation
Long-term care insurance

What role does Medicaid play?

In order to ensure compliance with the legal requirement for Medicaid to pay last, states are required to “take all reasonable measures to ascertain the legal liability of third parties to pay for care and services that are available under the Medicaid state plan.” This means states must operate business functions dedicated to ensuring the total coverage picture for each Medicaid member is known and incorporated into payment systems.

The state activities to ensure this are collectively referred to as “coordination of benefits” (COB). At a high level COB involves data-matching and identifying other responsible payers. In states that have Medicaid Managed Care, Medicaid plans often are paid to execute COB activities on behalf of the state.