Medicaid, a federal and state funded program, pays for health insurance for needy individuals and families, particularly pregnant women, children, teenagers, the aged, the blind, and the disabled. Medicaid provides an important component of benefits to the elderly population of the United States: medical assistance. State governments are responsible for administering Medicaid programs, including determining whether another payor might be legally liable for care provided, called third party liability.

What Is Third Party Liability?

Medicaid enables those who cannot otherwise obtain adequate medical care to do so. Sometimes, however, individuals and families who are eligible for Medicaid payment of medical expenses are also eligible to have those expenses paid through other means. Third party liability refers to the legal obligation of these other sources to pay for these medical expenses. For instance, state worker's compensation, employer-provided health coverage, liability insurance coverage, Medicare, private health insurance, and long-term care insurance all might cover medical expenses that would otherwise be covered by Medicaid.

Who Pursues Third Party Obligations?

Those who are eligible for Medicaid are required to assign their rights to recover any payments of third parties to the agency responsible for Medicaid in their state. By law, states are required to take reasonable measures to determine whether third parties might be primarily liable for expenses otherwise covered by Medicaid. If a state decides that a third party is liable, the state must then pursue recovery either through cost avoidance or pay and chase. As the term implies, in cost avoidance, the state does not pay the claim but instead waits for the provider of the medical services to bill the third party before billing Medicaid. If the state decides to pay and chase, it pays the cost of the medical care, then tries to recover the money back from the third party.

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