What is third-party liability, and why is Medicaid the payer of last resort?
Third-party liability (TPL) is any other party's legal duty to pay for care that Medicaid would otherwise cover, such as Medicare, an employer health plan, workers' compensation, or an auto insurer after a crash. Medicaid pays last. When other coverage exists for a ride, the provider bills that payer first and sends Medicaid the remainder with proof of what the other payer did.
On this page
What counts as a third party
The federal definition in 42 CFR 433.136 is broad: any person, entity, or program that is or may be liable to pay all or part of the cost of care Medicaid covers. The Medicaid statute, 42 U.S.C. 1396a(a)(25), requires each state to take all reasonable measures to identify those payers.
In practice, the list includes:
- Medicare, for riders who have both programs. See dual eligible.
- Private health coverage, including employer group plans, self-insured plans, and court-ordered coverage.
- Workers’ compensation, when the trip is for a work injury.
- Liability and auto insurance, when someone else caused the injury or a car crash led to the treatment.
- Long-term care insurance and other state or federal programs, unless a law makes them pay after Medicaid.
South Dakota’s claim manual also names disability insurance. It lists exceptions too: some programs, such as the Indian Health Service, pay after Medicaid rather than before it.
How states keep Medicaid last in line
States enforce the order in two ways, set out in 42 CFR 433.139.
| Method | When it applies | What happens to your claim |
|---|---|---|
| Cost avoidance | The state already knows the rider has other coverage when the claim arrives | The claim is rejected back to you. Once the other payer decides, the state pays only the part of its allowed amount that the other payment does not cover. |
| Pay and recover later (pay and chase) | The state does not know about other coverage, or the benefits are not yet available | The state pays its full allowed amount and then pursues the liable payer, starting within 60 days after the end of the month it finds out. |
Cost avoidance is the one providers feel. On the remittance it can show up as reason code 22, meaning another payer may cover the care under coordination of benefits.
What TPL means for a NEMT claim
Original Medicare covers ambulance transport, not routine van or sedan rides, and New York lists ambulette, taxi, and livery trips among the services a provider can report as not covered by Medicare. So when a rider’s only other coverage is Original Medicare, a van or sedan trip may have no payer ahead of Medicaid. A Medicare Advantage plan is different: CMS lets those plans offer non-emergency rides as a supplemental benefit, so check the rider’s plan (see Medicare Advantage transportation). A claim that ignores known coverage is rejected up front or recovered later. A working routine:
- Ask at intake. Record every coverage the rider has, not just the Medicaid ID.
- Decide if the other payer covers the ride. New York makes this the provider’s job. When the other insurer covers the service, or its coverage is unclear, that insurer gets the claim before Medicaid.
- Keep the proof. New York wants proof of any denial in the rider’s billing record. South Dakota and Arizona want the primary payer’s explanation of benefits attached to the Medicaid claim.
- Bill Medicaid for the balance only. Arizona is liable only for its allowed amount minus what the primary payer paid.
- Watch the clock. Indiana extends its filing limit to 180 days from the primary payer’s explanation of benefits when that payer was slow. See timely filing limits.
On broker and health plan trips, the provider agreement sets how other coverage is handled.
What you can charge the rider
Very little. 42 CFR 447.20 says that when the other payer’s liability equals or exceeds the Medicaid rate, you may not collect anything from the rider. When it is less, you may collect no more than the smaller of the rider’s Medicaid cost sharing or the gap between the Medicaid rate and what the other payer owes.
Our guide on whether Medicare covers NEMT goes deeper on Medicare’s rules, and clean claims covers the other details a payer checks before paying.
Frequently asked questions
- Should Medicare get the claim first for a wheelchair van trip?
- Usually not under Original Medicare. Part B covers ground ambulance transport when riding in any other vehicle could endanger the patient's health, and it does not cover routine van rides. New York lets ambulette, taxi, livery, and day program providers enter zero for Medicare without billing Medicare first. When a service might be covered, or you are unsure, New York says Medicare gets the claim first.
- Can I refuse a Medicaid rider who has other insurance?
- No. Federal rules bar a provider from refusing a covered service to a Medicaid-eligible person because a third party might be liable for it. You take the ride, then sort out who pays in the right order.
- What happens if Medicaid pays and other coverage turns up later?
- The state goes after the money. Once it learns of a liable third party after paying, it must seek repayment within 60 days after the end of that month, unless recovery would not be cost-effective. As the provider, you may be asked to void or adjust the claim. New York, for example, has providers void a paid claim when the other insurer later pays in full.
- Is a discount card or discount plan a third party?
- No. South Dakota's claim manual rules out discount medical plans as a source of third-party liability. The discount still matters, though: a provider outside pharmacy that honors one must pass the discounted price on to Medicaid.
