Medicaid: Additional Federal Action Needed to Further Improve Third-Party Liability Efforts
Released: 2015-02-10T00:00:00

Letter

Background

Medicaid enrollees across various eligibility categories may have access to private health insurance for a number of reasons. For example, some adults may be covered by employer-sponsored private health insurance even though they also qualify for Medicaid. Children similarly may be eligible for Medicaid while also being covered as a dependent on a parent’s private health plan. Individuals age 65 and older may receive private coverage from a former employer or purchase such coverage to supplement their Medicare coverage. Medicaid benefits and costs may vary depending on an enrollee’s eligibility category. CMS requires states to provide for the identification of Medicaid enrollees’ other sources of health coverage, verification of the extent of the other sources’ liability for services, avoidance of payment for services in most circumstances where the state believes a third party is liable, and recovery of reimbursement from liable third parties after Medicaid payment, if the state can reasonably expect to recover more than it spends in seeking Specifically, states must provide that the following steps 1. Coverage identification. To identify enrollees with third-party health coverage, states are required to request coverage information from potential Medicaid enrollees at the time of any determination or redetermination of eligibility for Medicaid. States are also required to obtain and use information pertaining to third-party liability, for example by conducting data matches with state wage information agencies, Social Security Administration wage and earning files, state motor vehicle accident report files, or state workers compensation files. 2. Coverage verification. When other health coverage is identified, states need to verify the information, including the services covered through the other insurance and the dates of eligibility. 3. Cost avoidance. Cost avoidance occurs when states do not pay providers for services until any other coverage has paid to the extent of its liability, rather than paying up front and recovering costs later. After a state has verified other coverage, it must generally seek to ensure that health care providers’ claims are directed to the responsible party.of the cost savings associated with third-party liability.

The cost-avoidance process accounts for the bulk 4. Payment recovery. When states have already paid providers for submitted claims for which a third party is liable, they must seek reimbursement from the third party, if it is cost effective to do so.

States have flexibility in determining specific approaches to achieve these ends. For example, states are increasingly contracting with managed care plans to deliver services to Medicaid enrollees (such plans are hereafter referred to as Medicaid managed care plans), and may delegate TPL responsibilities to such plans. Both states and Medicaid managed care plans may obtain the services of a contractor to identify third-party coverage by conducting electronic data matches and to conduct other TPL responsibilities, such as payment recovery.

Ensuring compliance with Medicaid TPL requirements has long been challenging for states. The McCarran-Ferguson Act affirms the authority of states to regulate the business of insurance in the state, without interference from federal regulation, unless federal law specifically provides otherwise. Thus, states generally regulate private health insurers operating in the state. However, states may not have authority over private insurers that are not licensed to do business in the state but still provide coverage to state residents. For example, some individuals work and receive health insurance through employment in one state but live in a neighboring state. In addition, states are preempted by the Employee Retirement Income Security Act of 1974 (ERISA) from regulating employer-sponsored health benefit plans that self-insure coverage rather than purchase coverage from an insurer.

Due to the bifurcated nature of private health insurance regulation, both federal and state legislation has been required to allow states to enforce TPL requirements. For example, the Omnibus Budget Reconciliation Act of 1993 required all states to enact laws prohibiting insurers from taking Medicaid status into account in enrollment or payment for benefits and to enact laws giving the state rights to payments by liable third parties. In addition, the Deficit Reduction Act of 2005 (DRA) contained provisions affecting state authority to verify coverage and recoup payments from liable health insurers. Under the DRA, states must attest that they have laws in place to require health insurers to, among other requirements, provide information necessary to identify Medicaid enrollees with third- party coverage and, within specified time limits, respond to inquiries from the state regarding claims, as well as to agree not to deny claims solely because of the date the claim was submitted, the form that was used, or the failure to properly document coverage at the point of service.

The 2013 HHS OIG report on TPL cost savings and challenges concluded that the DRA provisions likely had a positive effect on states’ ability to avoid costs and recover payments from private health insurers, in part through improvements in states’ identification of enrollees with insurance. States also credited process improvements, such as online verification of coverage and electronic data matching agreements with private insurers, as well as contractor assistance. However, the study reported that states continue to face key challenges working with private insurers, including the following:

96 percent of states reported challenges with insurers denying claims for procedural reasons.

90 percent of states reported challenges with insurer willingness to release coverage information to states.

86 percent of states reported challenges with insurers providing incomplete or confusing information in response to attempts to verify coverage.

84 percent of states reported problems with pharmacy benefit managers—entities which administer pharmacy benefits on behalf of insurers or employers—such as pharmacy benefit managers not providing coverage information or claiming a lack of authority to pay claims to Medicaid agencies.

An Estimated 7.6 Million Medicaid Enrollees Had Private Insurance in 2012 and This Number Is Expected to Increase with the Medicaid Expansion

Based on responses to the U.S. Census Bureau’s ACS, we estimate that 7.6 million Medicaid enrollees—13.4 percent—also had a private source of health insurance in 2012. However, the prevalence of private health insurance varied among four Medicaid eligibility categories that we analyzed—children, adults, disabled, and aged. For example, according to our estimates, 34.6 percent of aged Medicaid enrollees also had private health insurance, compared to 12.4 percent of adult Medicaid enrollees and 8.4 percent of children. (See fig. 1 and see app. II, table 1, for more detailed estimates).

The number of Medicaid enrollees who also have private health insurance is expected to increase beyond the estimated 7.6 million with the expansion of Medicaid; however, the extent of the increase is uncertain. The Congressional Budget Office projected that approximately 7 million nonelderly individuals would enroll in Medicaid in 2014 as a result of the While some newly Medicaid expansion and other PPACA provisions.Medicaid eligible individuals can be expected to have access to private sources of health insurance, the extent to which they will participate in Medicaid, or maintain private insurance once enrolled in Medicaid, is unknown. If these individuals’ rates of private insurance are similar to the 12.4 percent of adult Medicaid enrollees whom we estimated had private insurance in 2012, about 868,000 of the projected 7 million new enrollees in 2014 would be expected to have private insurance.

Selected States Reported Some Success Addressing Challenges to Their TPL Efforts and Additional CMS Action Could Improve Such Efforts Nationwide

States face multiple challenges in ensuring that Medicaid is the payer of last resort for enrollees that have private health insurance. Selected states and CMS have taken various steps to address some of these challenges; however, selected states and stakeholders suggested that further CMS guidance and efforts to facilitate information sharing among states could improve TPL efforts nationwide.

Selected States Have Taken Various Actions to Address Challenges with Coverage Identification, Managed Care Plan TPL Activities, and Coverage Denials

State Actions to Address Challenges with and Improve Coverage Identification

As the identification of Medicaid enrollees with private health insurance is a critical first step for achieving TPL cost savings, many states nationwide conduct electronic data matches of Medicaid enrollment files with insurer files themselves or through a contract with a vendor that conducts matches on the state’s behalf. While not required, such state efforts to independently identify enrollees with private insurance can lead to significant cost savings. For example, Minnesota officials reported that by contracting with a vendor for electronic data matching, the state nearly doubled identified cases of TPL in a 5-year period, saving the state an Despite such efforts, states we estimated $50 million over this period.included in our review reported experiencing the following challenges to their coverage identification efforts:

Challenges obtaining out-of-state coverage data. Medicaid enrollees in one state may have coverage from a health insurer that is licensed in a different state—for example, some enrollees work and participate in employer-sponsored insurance in one state while living and enrolling in Medicaid in a neighboring state. State laws requiring insurers to provide coverage data may not apply if insurers are not licensed in the state, and officials from two of the states we reviewed noted that insurers sometimes refuse to provide coverage data to Medicaid agencies outside the state in which they are licensed. HMS representatives reported that, while HMS advocates that insurers provide coverage data to Medicaid agencies outside the state in which the insurers are licensed, many insurers refuse to do so. According to CMS, there is a significant amount of third-party coverage derived from insurers licensed in a different state from where the Medicaid enrollee resides.

Challenges with insurers conducting data matches. State and HMS representatives reported that, rather than providing coverage data to the state (or its contractor, as applicable), some insurers request the Medicaid data and perform the data match themselves. HMS representatives reported that, in such cases, states only have access to matches identified by the insurer, which may understate the number of individuals with overlapping coverage. One state reported estimating that insurers missed the identification of about 7 percent of the individuals with private insurance when insurers conducted the match instead of the state’s contractor.

Challenges with obtaining key data elements. Insurers may not maintain or provide states or their contractors access to key data elements, such as Social Security numbers, and not having access to these data can reduce the efficiency or usefulness of data matches, according to officials in several states we reviewed. For example, officials from two selected states noted that data matches are more difficult and error-prone when Social Security numbers are not available. Similarly, officials from two other states we reviewed reported that their ability to verify identified coverage would be assisted if employer identification numbers were included in insurer coverage data.

Challenges with timeliness of data matches. Most selected states reported that there is a time lag, typically up to 15 to 30 days, between an individual’s enrollment in Medicaid and when the individual is included in a data match with private insurers. As a result, states may not be able to identify other coverage until after enrollees have already begun using services. States would generally then seek reimbursement for paid claims.

States in our review reported taking various steps to address these and other coverage identification challenges. Four of the eight selected states reported initiatives underway or completed to improve data-matching strategies to identify private coverage, some of which focused on nationally coordinated approaches. For example, Minnesota officials reported that Minnesota law allows the state Medicaid agency and Medicaid managed care plans to participate in a national coverage data registry, launched in late 2013 by CAQH, an association of health plans and trade associations. The data registry allows participating insurers and states to submit coverage data files for comparison with files of other participants in order to identify individuals with overlapping coverage. Minnesota officials commented that the registry was at an early stage but expected that participation of private insurers would increase over time because of benefits to private insurers of coordinating with one another. Table 1 describes a variety of initiatives underway or completed to improve coverage data in selected states.

In addition, at least two of the eight states had laws that addressed challenges with obtaining private insurer compliance with TPL requirements, including requirements to provide coverage data. For example, Michigan law authorizes the state to collect coverage data from insurers to determine TPL and to assess penalties on insurers for noncompliance.in obtaining national coverage data from insurers. In addition, Minnesota Michigan officials reported that the state was successful law requires that all insurers that cover state Medicaid enrollees must comply with TPL requirements irrespective of where they are licensed.

State Actions to Support and Oversee Medicaid Managed Care Plan TPL Activities

Selected states have taken various actions that support or increase oversight of Medicaid managed care plan TPL activities, as applicable. For example, in five of the eight states in our review, individuals with third- party coverage may be eligible to enroll in Medicaid managed care plans The laws and certain TPL responsibilities are delegated to these plans. of two selected states—Ohio and Minnesota—specifically authorize Medicaid managed care plans to recover TPL payments on the state’s behalf. Ohio officials in particular credited the legislation as effective in improving insurer cooperation with the state’s Medicaid managed care plans. While the DRA required states to have laws in effect compelling insurers to provide states with access to data and recognize the states right to recoup payments, it did not provide that those laws specifically require insurers to similarly cooperate with Medicaid managed care plans conducting such work on behalf of states. CMS provided guidance that, when states delegate TPL responsibilities to a Medicaid managed care plan, third-parties should treat the plan as if it were the state.representatives reported that this guidance has been effective in garnering cooperation from insurers that previously refused to provide coverage data or pay claims to Medicaid managed care plans in various states without legislation specifically requiring them to do so. However, a few insurers continue to refuse to cooperate with such plans despite this guidance, according to information provided by representatives of HMS HMS and Medicaid Health Plans of America (MHPA)—an association of Medicaid managed care plans.

In addition, Minnesota sought to improve its oversight of Medicaid managed care TPL activities by initiating a program to allow the state to review Medicaid managed care plan TPL payment recoveries and to arrange for conducting supplemental recoveries when the plans had not recouped payment within a set time. However, according to a representative of the National Association of Medicaid Directors, it can be difficult for states to work with Medicaid managed care plans and insurers as needed to strengthen state oversight. The other states included in our review that delegate TPL work to Medicaid managed care plans did not report conducting this type of oversight, which is consistent with information provided by MHPA in which plans indicated that some states that contract with Medicaid managed care plans to perform TPL activities do not specifically review these activities. We have previously found that some Medicaid managed care plans may have a conflict of interest in conducting payment recoveries. Specifically, Medicaid managed care plans may not have appropriate incentives to identify and recover improper payments—which include payments made for treatments or services that were not covered by program rules, that were not medically necessary, or that were billed for but never provided—because doing so could reduce future capitation rates.

State Actions to Reduce Denials by Insurers for Procedural Reasons

Most selected states reported challenges with denials from private insurers for procedural reasons, such as for not obtaining prior authorization before receiving services or not using in-network providers. HMS representatives estimated that in 2013, insurers had denied about $120 million in claims for failure to obtain prior authorization, and about $30 million for failure to use an in-network provider, for states and for Medicaid managed care plans with which HMS contracted. Selected states reported various methods to reduce such denials:

Ohio and Missouri laws explicitly prohibit denials due solely to a lack of prior authorization for services.

Massachusetts, Georgia, and New York officials reported that they contest denials due solely to a lack of prior authorization for services based on general state legislation passed in accordance with the DRA, which requires states to prohibit insurers from denying claims based solely on the date the claim was submitted, the form that was used, or the failure to properly document coverage at the point of service.

Michigan and Minnesota, through their Medicaid provider manuals, require providers to check for third-party coverage and specify that providers are not to be paid by Medicaid for services provided to enrollees if rules of the third-party coverage were not followed. For example, Michigan’s Medicaid provider manual states that Medicaid will not cover charges incurred when enrollees elect to go out of their third-party insurer’s preferred provider network. Michigan and Minnesota officials reported that these types of denials were generally not problems for the state.

See Michigan Medicaid Provider Manual, Coordination of Benefits, §§ 1.3, 2.1 (October 2014) and Minnesota Medicaid Provider Manual, Billing Policy (Overview), Section on Coordination of Services (September 2014) and Medicare and Other Insurance, Section on Third-Party Liability (TPL) (December 2013).

While CMS Has Taken Action to Support State TPL Efforts, Additional Federal Action Could Benefit TPL Efforts Nationwide

CMS has taken steps, including issuing additional guidance, to address certain challenges that states face in ensuring that Medicaid is the payer of last resort. For example, CMS published a set of frequently asked questions (FAQ) in September 2014 that clarified the parameters under which health insurers are permitted to release coverage information to states in light of Health Insurance Portability and Accountability Act of 1996 privacy restrictions, and emphasized the role of state legislation in specifying the scope of information required to be submitted by health insurers. The guidance also reiterated previously published information, such as clarifying that when states delegate TPL responsibilities to a Medicaid managed care plan, third parties are required to treat the plan as if it were the state. CMS officials also noted that the agency is available to provide technical assistance relating to TPL at the request of states or other entities.

In addition, CMS has also taken steps to foster collaboration among states. For example, CMS solicited effective TPL practices that had been implemented as of 2013 from states and published the responses. On a related note, CMS officials highlighted the role of the Coordination of Benefits (COB)-TPL Technical Advisory Group (TAG) in providing states with opportunities to coordinate and share information on TPL challenges and effective practices. Specifically, CMS officials said that COB-TPL TAG representatives are responsible for canvassing states about problems that may be occurring and reporting these back to CMS. However, officials from one state suggested that COB-TPL TAG representatives need to do more to proactively survey states and share information about problems that states not directly represented on the COB-TPL TAG are experiencing.

While acknowledging CMS’s efforts, stakeholders and officials from selected states suggested a need for additional federal action, commenting on how, for example, additional or clarified guidance could facilitate state efforts to conduct certain TPL activities.

The National Association of Medicaid Directors recommended, given the growth in states’ use of managed care, that CMS require states to share available insurance coverage information with Medicaid managed care plans and provide an approved approach for conducting oversight of such plans’ TPL activities. According to a representative of this association, several states indicated that explicit CMS guidance in this area would provide states leverage to strengthen their Medicaid managed care plan contracts and oversight related to TPL.

HMS representatives recommended that CMS strengthen its statements encouraging insurers to share coverage information with out-of-state Medicaid agencies, and further clarify through regulations existing CMS guidance regarding insurer cooperation with Medicaid managed care plans that conduct TPL activities on behalf of states.

State officials suggested that CMS could provide information to ensure all states are aware of promising available data-matching strategies.

CMS, however, may have incomplete information to inform such guidance as, according to CMS, the agency does not actively track all states’ coverage-identification strategies on an ongoing basis, and in some cases, may not be aware of promising state initiatives. While the effective state practices CMS solicited and shared with states included information on initiatives implemented as of 2013, other state initiatives underway were not included. For example, Minnesota officials said they had submitted information about the CAQH data registry; however, the state’s submission did not meet the criteria for inclusion in the effective practices document because the state had not yet implemented the registry. In addition, while CMS suggests that states should oversee Medicaid managed care plan TPL activities, as applicable, the agency does not track which states delegate TPL responsibilities to Medicaid managed care plans, nor the problems with or oversight of related Medicaid managed care plan TPL activities in states that do.

Officials from selected states also emphasized efficiencies and other benefits that could be gained from state collaboration and information sharing, which CMS could support. For example, Michigan officials noted that the state wanted to explore sharing the national coverage data it obtained from insurers, as well as the TPL tracking and billing system it developed, with other states, noting the cost-effectiveness of states using its system and data rather than each developing their own. In addition, officials in multiple states noted the value of CMS-facilitated national TPL conferences that provide states with opportunities to discuss emerging problems and share expertise regarding solutions. CMS officials indicated that the last conference occurred when there were significant changes under the DRA and that CMS has no specific plans to facilitate future TPL conferences, but officials noted that discussions were underway regarding additional conferences or other training opportunities.

Conclusions

National survey data suggest that a substantial number of Medicaid enrollees—7.6 million—had private health insurance in 2012 and that many of these enrollees were in eligibility groups that incur, traditionally, higher medical costs. Furthermore, this number is expected to increase because of the Medicaid expansion. States have front-line responsibility for ensuring that Medicaid is the payer of last resort and are required to take steps to identify individuals with other health insurance and ensure that other insurance pays to the extent of its liability. Substantial increases in TPL cost savings in recent years highlight that improvements to TPL efforts, such as heightened attention to coverage identification, can substantially improve TPL cost avoidance and recoveries. The scale of the cost savings to Medicaid at both federal and state levels through the identification of coverage through, and payment of services by, private health insurance—reportedly nearly $14 billion in 2011—underscores the potentially significant return on investment that may be gained from continued TPL improvement efforts and attention to resolving remaining gaps in state access to available coverage data.

Selected states have taken a variety of steps to further improve TPL efforts, and other states may also be implementing initiatives to address persistent challenges states report in ensuring Medicaid pays after other liable third parties. The various initiatives that selected states have undertaken—such as initiatives to improve identification of enrollees with private health insurance through data matches or to ensure that TPL efforts are maintained in an increasingly managed care environment— highlight options that other states could consider to improve their respective TPL savings. Other states may also have initiatives that could be adopted more broadly. CMS has taken steps to support states and publicize effective state practices. However, as new strategies emerge over time, a robust ongoing effort to collect and share information about state initiatives would ensure that states—particularly any states that may not conduct data matches with private insurers— are aware of available data matching strategies and solutions to challenges states or Medicaid managed care plans may face in conducting TPL activities. Given the significant federal Medicaid outlays, which are increasing as Medicaid expands under PPACA, the federal government has a vested financial interest in further increasing states’ TPL cost savings, and CMS should play a more active leadership role in monitoring, understanding, supporting and promoting state TPL efforts.

Recommendations

In light of the federal interest in ensuring that Medicaid should pay only after other liable third parties; state initiatives to improve TPL efforts, such as coverage identification strategies; and states’ increasing use of managed care, we recommend that the Secretary of Health and Human Services direct CMS to take the following two additional actions to oversee and support state TPL efforts:

Routinely monitor and share across all states information regarding key TPL efforts and challenges.

Provide guidance to states on their oversight of TPL efforts conducted by Medicaid managed care plans.

Agency Comments

We provided a draft of this report to HHS for comment. In its written comments—reproduced in appendix III—HHS concurred with our recommendations. HHS stated that it will continue to look at ways to provide guidance to states to allow for sharing of effective practices and to increase awareness of initiatives under development in states. HHS also stated that it will explore the need for additional guidance regarding state oversight of TPL efforts conducted by Medicaid managed care plans.

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If you or your staffs have any questions about this report, please contact me at (202) 512-7114 or iritanik@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV.

Appendix I: Scope and Methodology of the American Community Survey (ACS) Analysis

To assess the extent to which Medicaid enrollees have private health insurance, we utilized the ACS, an annual survey conducted by the U.S. Census Bureau. The ACS includes representative samples of households from each state and also includes individuals residing in institutions such as nursing homes. The ACS collects self-reported information, such as the type of health insurance coverage as of the date of the survey (if any), disability status, age, and state of residence. We analyzed data from the most recent ACS Public Use Microdata Sample (PUMS) that was available at the time we conducted our work, which covered calendar year 2012.

Medicare is a federal health insurance program for individuals aged 65 and older or with certain disabilities and individuals with end-stage renal disease. TRICARE is a federal health program generally for active-duty military personnel and their dependents, and retirees and their dependents and survivors.

Medicaid coverage was assigned to foster children, certain individuals receiving Supplementary Security Income or Public Assistance, and the spouses and children of certain Medicaid beneficiaries. Medicare coverage was assigned to individuals aged 65 and older who received Social Security or Medicaid benefits. TRICARE was assigned to active-duty military personnel and their spouses and children. that the ACS PUMS data were sufficiently reliable for the purposes of our engagement.

Key Analysis Variables

From the available ACS PUMS data, we constructed the following variables for our analysis:

Medicaid coverage and eligibility category. We defined individuals as having Medicaid if they reported health coverage through Medicaid, medical assistance, or any kind of government assistance plan for individuals with low incomes or a disability. These sources of coverage are combined in one question in the ACS PUMS. For purposes of the report, we refer to these individuals collectively as Medicaid enrollees.

We further categorized Medicaid enrollees into four broad Medicaid eligibility categories—children, adults, disabled, and aged:

We defined the child eligibility category as individuals aged 0 through 18 who did not report a disability.

We defined adult eligibility category as individuals aged 19 through 64 who did not report a disability.

We defined the disabled eligibility category as individuals aged 0 through 64 who reported one or more of the 6 disability indicators included in the ACS data.

We defined the aged eligibility category as individuals aged 65 and older.

Third-party private and public health coverage. We defined individuals as having private insurance coverage if they reported having health insurance through a current or former employer or union, insurance purchased directly from an insurance company, or both. We defined individuals as having public coverage other than Medicaid if they reported coverage through Medicare or TRICARE, or having ever used or enrolled in health care provided through the Department of Veterans Affairs (VA).

Methodology

Based on the variables defined above, we used calendar year 2012 ACS PUMS data to estimate the number and percentage of Medicaid enrollees with private and other sources of health coverage. We produced separate estimates by Medicaid eligibility group and state of residence. To generate our estimates, we applied the appropriate weights contained in the ACS PUMS data files in order to expand the sample to represent the total population and to account for the complex sample design. Specifically, we used the person weights to generate estimated numbers and percentages. We used the person replicate weights to generate standard errors.

To assess the precision of our estimates, we calculated a relative standard error for each estimate. A relative standard error is calculated by dividing the standard error of the estimate by the estimate itself. For example, if an estimate has a mean of 100 and a standard error of 20, the relative standard error would be 20/100, which would be 20 percent. Estimates with small relative standard errors are considered more reliable than estimates with large relative standard errors. A small relative standard error is a more precise measurement since there is less variance around the mean. Unless otherwise noted, estimates included in this report have relative standard errors of less than 15 percent.

Appendix II: Detailed Estimates of Medicaid Enrollees with Other Sources of Health Coverage

The following tables provide more detailed information about the estimates derived from of our analysis of the 2012 American Community Survey (ACS) Public Use Microdata Sample (PUMS). Specifically, tables 1 and 2 provide estimates of the number and percentage of Medicaid enrollees with other sources of health coverage by Medicaid eligibility category and by state.

Appendix III: Comments from the Department of Health and Human Services

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Susan Anthony, Assistant Director; Emily Beller; George Bogart; Britt Carlson; Laurie Pachter; and Ying Long made key contributions to this report.