DEPARTMENT OF HEALTH & HUMAN SERVICES  
Centers for Medicare & Medicaid Services  
7500 Security Boulevard, Mail Stop S2-26-12  
Baltimore, Maryland 21244-1850  
  
Center for Medicaid and State Operations  
  
December 15, 2006                 SMD# 06-026 
 
Dear State Medicaid Director:  
  
This is one of a series of letters that provide guidance on the implementation of the Deficit   
Reduction Act of 2005 (DRA), P.L. 109-171.  This legislation makes a number of changes intended to 
strengthen States ability to identify and collect from liable third party payers.  These changes are 
described briefly below and are discussed in detail in the questions and answers enclosed with this 
letter.    
  
Federal law generally requires health insurers and other third parties legally liable to pay for health care 
services received by Medicaid recipients to pay for such services primary to Medicaid.  However, 
Medicaid agencies often pay claims for which a third party may be liable because they lack information 
about the existence of other coverage.  The DRA made several changes to the third party liability 
provisions of the Medicaid statute which are designed to enhance States ability to identify and to obtain 
payment from third party resources that are legally responsible to pay claims primary to Medicaid.  
Specifically, section 6035 of the DRA amended section 1902(a)(25) of the Social Security Act (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:   
(cid:131)  To provide the State with coverage, eligibility and claims data needed by the State to 
identify potentially liable third parties;   
(cid:131)  To honor the assignment to the State of a Medicaid recipients right to payment by such 
insurers for health care items or services; and  
(cid:131)  Not to deny such assignment or refuse to pay claims submitted by Medicaid based on 
procedural reasons (e.g., the failure of the recipient to present his/her insurance card at 
the point of sale, or the States failure to submit an electronic, as opposed to a paper, 
claim).  
States must submit a State plan amendment (SPA) providing assurances that the required laws are in 
effect in the State.  Some States may already have the requisite laws.  These States should submit an 
amendment to their State plan as soon as practicable.  States that do not currently have the laws 
mandated by the DRA should enact the required legislation during their next legislative session and 
submit a SPA as soon as the legislation has been enacted.     
 
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The enclosed questions and answers explain in more detail the specific changes made by the DRA to 
the provisions of the Medicaid statute governing third party liability and the steps States must take in 
order to comply with the new provisions.    
  
If you have any questions, please contact Gale Arden, Director, Disabled and Health Programs Group, 
at 410-786-6810, or by e-mail at Gale.Arden@cms.hhs.gov.  
  
We look forward to working with you as you implement this legislation.  
  
Sincerely,  
  
 /s/  
  
Dennis G. Smith  
Director  
  
Enclosures  
  
cc:  
  
CMS Regional Administrators  
  
CMS Associate Regional Administrators for Medicaid and State Operations  
  
Martha Roherty       
Director, Health Policy Unit  
American Public Human Services Association  
  
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures  
  
Matt Salo  
Director of Health Legislation  
National Governors Association  
  
Jacalyn Bryan Carden  
Director of Policy and Programs  
Association of State and Territorial Health Officials  
   Page 3  State Medicaid Director  
  
  
Christie Raniszewski Herrera  
Director, Health and Human Services Task Force  
American Legislative Exchange Council  
  
Lynne Flynn  
Director for Health Policy  
Council of State Governments