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entitled 'Medicaid Third-Party Liability: Federal Guidance Needed to 
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Report to the Chairman, Committee on Finance, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

September 2006: 

Medicaid Third-Party Liability: 

Federal Guidance Needed to Help States Address Continuing Problems: 

Medicaid Third-Party Liability: 

GAO-06-862: 

GAO Highlights: 

Highlights of GAO-06-862, a report to the Chairman, Committee on 
Finance, U.S. Senate 

Why GAO Did This Study: 

Medicaid, jointly funded by the federal government and the states, 
finances health care for about 56 million low-income people at an 
estimated total cost of about $298 billion in fiscal year 2004. 

Congress intended Medicaid to be the payer of last resort: if Medicaid 
beneficiaries have another source of health care coverage—such as 
private health insurance or a health plan purchased individually or 
provided through an employer—that source, to the extent of its 
liability, should pay before Medicaid does. This concept is referred to 
as “third-party liability.” When such coverage is used, savings accrue 
to the federal government and the states. 

Using data from the U.S. Census Bureau and the states, GAO examined (1) 
the extent to which Medicaid beneficiaries have private health coverage 
and (2) problems states face in ensuring that Medicaid is the payer of 
last resort, including the extent to which the Deficit Reduction Act of 
2005 may help address these problems. 

What GAO Found: 

On the basis of self-reported health coverage information from the 
Census Bureau’s annual Current Population Surveys covering the 2002 
through 2004 time period, an average of 13 percent of respondents who 
reported having Medicaid coverage for the entire year also reported 
having private health coverage at some time during the same year. This 
coverage most often was obtained through employment rather than 
purchased by individuals directly from an insurer: employment-based 
coverage averaged 11 percent nationwide, while individual coverage 
averaged 2 percent. 

Problems states have faced in ensuring that Medicaid is the payer of 
last resort fall into two general categories: verifying Medicaid 
beneficiaries’ private health coverage and collecting payments from 
third parties. Officials from 27 of 39 states responding to GAO’s 
request for information about the top three problems they faced 
reported problems in verifying beneficiaries’ private health coverage—a 
key step states must take to avoid paying claims for which a third 
party is liable. In cases where states have paid claims before 
identifying that other coverage was available, states must seek payment 
for the claims they have already paid. Officials from 35 responding 
states had problems collecting such payments. 

Table: Number of States Reporting Problems in Verifying Coverage and 
Collecting Payment from Third parties and Their Contractors, with 
Available Estimates of Associated Annual Losses: 

Category of Problems: Verifying coverage; 
Number of States reporting problems(n=39): 27; 
Number of states able to estimate annual losses: 10; 
Total estimated annual losses[A] (dollars in millions): $54-60. 

Category of Problems: Collecting payments; 
Number of States reporting problems(n=39): 35; 
Number of states able to estimate annual losses: 14; 
Total estimated annual losses[A] (dollars in millions): 184-196. 

Source: GAO analysis of information provided by state officials. 

[End of table] 

Provisions in the Deficit Reduction Act of 2005 require states to have 
laws in effect that could help address some of the reported problems, 
but it is too soon to assess the extent to which the problems will be 
addressed. Further, GAO identified two issues that require resolution 
in order to aid states in complying with the Deficit Reduction Act’s 
requirements, specifically, (1) the time frame by which states must 
have their laws in effect, and (2) which entities are subject to 
certain of the act’s requirements. Regarding both issues, officials 
from the Centers for Medicare & Medicaid Services (CMS), which oversees 
Medicaid, said in June 2006 that they were considering how to interpret 
the law and how to best provide guidance to states to help them 
implement the requirements. 

What GAO Recommends: 

GAO recommends that the Administrator of CMS determine and provide 
guidance to states on (1) when states must have laws in place to 
implement the Deficit Reduction Act’s requirements and (2) which 
entities are required to provide states with coverage and other data. 
CMS concurred with GAO’s recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-862]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathryn G. Allen at (202) 
512-7118 or allenk@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

An Estimated 13 Percent of Medicaid Beneficiaries Have Private Health 
Coverage: 

States Face Problems in Verifying Coverage and in Collecting from Third 
Parties: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: GAO's Analysis of the Current Population Survey Conducted 
by the U.S. Census Bureau: 

Appendix II: Comments from the Centers for Medicare & Medicaid 
Services: 

Appendix III: Contact and Staff Acknowledgments: 

Tables: 

Table 1: Percentage, by State, of Individuals Who Reported Having 
Medicaid Coverage for the Entire Year Who Also Reported Having Private 
Health Coverage at Some Time during the Same Year (2002-2004): 

Table 2: Number of States Reporting Problems Verifying Whether Medicaid 
Beneficiaries Have Private Health Coverage, with Estimates of 
Associated Annual Losses: 

Table 3: Number of States Reporting Problems Collecting from Third 
Parties and Their Contractors, with Estimates of Associated Annual 
Losses: 

Table 4: Percentage and Confidence Intervals, by State, of Individuals 
Who Reported Having Medicaid Coverage for the Entire Year Who Also 
Reported Having Private Health Coverage at Some Time during the Same 
Year (2002-2004): 

Abbreviations: 

CMS: Centers for Medicare & Medicaid Services: 
CPS: Current Population Survey: 

United States Government Accountability Office: 
Washington, DC 20548: 

September 15, 2006: 

The Honorable Charles E. Grassley: 
Chairman: 
Committee on Finance: 
United States Senate: 

Dear Mr. Chairman: 

Medicaid finances health care for about 56 million low-income 
individuals, including children and aged or disabled adults. Jointly 
funded by the federal government and the states at an estimated total 
cost of about $298 billion in fiscal year 2004, Medicaid has been on 
our list of high-risk programs since 2003 because of concerns about the 
program's size, growth, and fiscal oversight, including concerns over 
whether federal and state efforts ensure that payments are 
appropriate.[Footnote 1] Congress intended that Medicaid be the payer 
of last resort; in other words, if a Medicaid beneficiary also has 
another source of payment for health services, that source is to pay 
instead of Medicaid. Federal law and regulation refer to these other 
sources of payment as "third parties," which may include private health 
insurers and employer health plans.[Footnote 2] In addition, insurers 
and employer health plans often hire contractors--such as plan 
administrators[Footnote 3] or benefit managers--to administer part or 
all of their health care plans. Some adults may have access to private 
health coverage because they may be working and covered by an 
employer's health plan even though they also qualify for Medicaid. In 
addition, children may qualify for Medicaid and also be included on a 
parent's health plan provided by the parent's employer or purchased 
directly by the parent from a private insurer. To the extent that 
private health coverage pays for health care services instead of 
Medicaid, savings can accrue to the federal government and to the 
states. Such savings can be substantial. States reported savings of 
nearly $5.5 billion in fiscal year 2004 from ensuring that private 
third parties paid before Medicaid. 

In administering their Medicaid programs, states are required to take 
reasonable measures to identify other sources of health coverage that 
Medicaid beneficiaries may have and to ensure that such parties pay to 
the extent of their liability. States have considerable flexibility in 
designing and operating their Medicaid programs, although they must 
comply with federal requirements. States can typically avoid paying 
claims for Medicaid beneficiaries when they have verified that other 
coverage is available--for this purpose, knowing which services are 
covered and the eligibility period for the other coverage is 
critical[Footnote 4]--or they can seek reimbursement from third parties 
for previously paid claims for which the third party is legally 
liable.[Footnote 5] In the early 1990s, we reported certain problems 
that hindered states' ability to ensure that beneficiaries' other 
health care resources paid before Medicaid.[Footnote 6] Some third 
parties, for example, avoided paying costs for Medicaid beneficiaries 
by taking actions that significantly limited states' ability to recover 
the costs.[Footnote 7] In response to our earlier recommendations, 
Congress passed legislation in 1993 to help strengthen states' ability 
to collect from responsible third parties.[Footnote 8] Recently, 
however, Members of Congress have become aware that states are 
experiencing difficulties with their third-party efforts. In February 
2006, Congress passed the Deficit Reduction Act of 2005, which 
contained some provisions related to Medicaid third-party 
liability.[Footnote 9] Because of your interest that Medicaid not pay 
for costs that are the responsibility of third parties, you asked us to 
review states' efforts to ensure that Medicaid is the payer of last 
resort. Specifically, we examined (1) the extent to which Medicaid 
beneficiaries have private health coverage and (2) problems affecting 
states' ability to ensure that Medicaid is the payer of last resort, 
including the extent to which the Deficit Reduction Act of 2005 might 
address these problems. 

To determine the extent to which Medicaid beneficiaries nationwide and 
in individual states have private health coverage, we analyzed data 
from the only national data source containing this information, the 
Current Population Survey (CPS) conducted by the U.S. Census Bureau. 
CPS is designed to represent a cross section of the nation's civilian 
noninstitutionalized population. The survey provides estimates for a 
variety of demographic characteristics for the nation as a whole and, 
for some estimates, furnishes data for individual states and other 
geographic areas.[Footnote 10] Each March, CPS gathers information 
about health coverage that survey respondents had at any time in the 
previous calendar year, including government health coverage, such as 
Medicaid, and private health coverage, such as coverage provided 
through an employer or union (employment-based health coverage) and 
coverage directly purchased by the beneficiary (individual health 
coverage).[Footnote 11] CPS also asks for the number of months that 
survey respondents had Medicaid coverage. To identify individuals who 
had Medicaid and private health coverage concurrently in the same year, 
we focused our analysis on individuals who reported that they had 
Medicaid coverage for the entire year along with private health 
coverage at some point during the same year. In 2005, about 84,700 
households nationwide were included in the survey. Because the CPS 
sample size is relatively small in some states in any particular year, 
we calculated a 3-year average for each state to help mitigate single- 
year anomalies. We used data collected in CPS from 2003 through 2005, 
which asked respondents health coverage questions about the 2002 
through 2004 time period. To assess the reliability of our use of CPS 
data, we discussed our methodology with officials from the U.S. Census 
Bureau and reviewed the agency's data quality-control procedures and 
related documentation. We determined that the data were sufficiently 
reliable for the purposes of this report. We also interviewed officials 
from the Centers for Medicare & Medicaid Services (CMS), the agency 
within the Department of Health and Human Services that oversees the 
Medicaid program, about available data on Medicaid beneficiaries' 
private health coverage. For additional information on CPS and our 
methods for and outcomes from analyzing the data, see appendix I. 

To determine what problems affect states' ability to ensure that 
Medicaid is the payer of last resort, in December 2005 we requested 
information from states' Medicaid third-party liability coordinators 
regarding the three most significant problems they encountered in 
ensuring that Medicaid was the payer of last resort; we received 
responses from 39 states.[Footnote 12] These 39 states covered 
approximately 82 percent of Medicaid beneficiaries and 72 percent of 
Medicaid payments in fiscal year 2003. We also asked states to 
estimate, to the extent possible, any financial losses to the state 
resulting from each identified factor or problem. We did not assess the 
underlying basis for states' reported estimates; however, we did 
compare the total losses reported by states with Congressional Budget 
Office estimates of potential Medicaid savings from the third-party 
liability provisions of the Deficit Reduction Act of 2005 and 
determined that the states' estimates were sufficiently reliable for 
the purposes of this report. We met with officials from a consulting 
firm that assists 27 states with third-party liability issues.[Footnote 
13] We reviewed the Deficit Reduction Act of 2005 (hereafter referred 
to as the "Deficit Reduction Act" or the "act"), which was enacted in 
February 2006 during our review; examined its potential effect; and 
discussed the act's requirements with CMS officials and state 
representatives. We conducted our work in accordance with generally 
accepted government auditing standards from October 2005 through 
September 2006. 

Results in Brief: 

On the basis of self-reported health coverage information from the 
Census Bureau's annual CPS covering the 2002 through 2004 time period, 
an average of 13 percent of respondents who reported having Medicaid 
coverage for the entire year also reported having private health 
coverage at some time during the same year. Medicaid beneficiaries in 
Alabama, Arizona, and California reported the lowest rates of private 
health coverage among Medicaid beneficiaries (about 9 percent), while 
Medicaid beneficiaries in Iowa, South Dakota, and Wyoming reported the 
highest rates of such coverage (about 22 percent to 23 percent). Most 
often, the source of the coverage for Medicaid beneficiaries was an 
employer or union: employment-based coverage averaged 11 percent 
nationwide, while individual health coverage averaged 2 percent. In 
addition, states identify and collect information on beneficiaries' 
private health coverage as part of administering their own Medicaid 
programs. According to CMS officials, however, inconsistencies in how 
state Medicaid agencies collect and report their data preclude using 
these state data to measure the extent to which beneficiaries 
nationwide have private health coverage or to make comparisons across 
states or with CPS data. 

In responding to our information request about the top three problems 
they faced in ensuring that Medicaid is the payer of last resort, state 
officials reported problems that fell into two general categories: 

* Problems verifying Medicaid beneficiaries' private health coverage. 
Officials in 27 of 39 states reported one or more types of problems 
related to their ability to verify coverage information from third 
parties or their contractors, such as pharmacy benefit managers. 
Specific problems included third parties' or their contractors' not 
verifying coverage information when requested to do so, and citing 
patient privacy provisions as justification for withholding such 
information, and not granting states electronic access to their member 
coverage files. 

* Problems collecting payments from third parties. Officials in 35 of 
the 39 responding states reported problems collecting payments from 
third parties or their contractors once the states had established that 
those parties were liable for a claim the state had paid. Some state 
officials reported that third parties denied claims because they were 
not filed within a certain time frame; others reported that these 
entities simply refused to acknowledge or respond to claims the states 
had submitted for payment. Several state officials also pointed to weak 
or problematic federal or state laws. 

The Deficit Reduction Act could help address some of the problems 
reported by state officials because it adds a Medicaid requirement that 
states have legislation in effect so that, as a condition of doing 
business in the state, health insurers and certain other entities, such 
as pharmacy benefit managers and others that are legally responsible 
for payment of a claim, (1) provide states with information on coverage 
and other specified information and (2) agree not to deny claims from 
the state solely because of the date the claim was submitted or the 
form that was used, as long as the state seeks payment within time 
periods specified by the Deficit Reduction Act. It is too soon, 
however, to assess the extent to which--or when--the act will address 
reported problems. Further, we identified two issues that require 
resolution in order to aid states in complying with the Deficit 
Reduction Act's requirements. First, the time by which states must have 
their laws in effect is uncertain because an applicable provision of 
the law contains an inconsistency. Specifically, a section of the law 
concerning the effective date of certain third-party provisions refers 
to another section of the law that does not exist. Second, according to 
CMS officials and a private consulting firm, some disagreement exists 
in the industry as to the entities that are covered by the law's 
provisions requiring that information be provided to states on coverage 
and other matters. Regarding both issues, CMS program officials said in 
June 2006 that they were considering how to interpret the law and how 
to best help states implement the new requirements. 

To resolve issues critical to the implementation of the Deficit 
Reduction Act's third-party provisions and to assist states in their 
efforts to ensure that Medicaid is the payer of last resort, we are 
recommending that the Administrator of CMS (1) determine and provide 
guidance to states concerning when states must have laws in effect 
implementing the Deficit Reduction Act's requirements regarding third 
parties and, if necessary, seek appropriate legislation to establish an 
effective date and (2) determine which entities are required to provide 
states with coverage and other information and provide guidance to 
states regarding this determination. 

In commenting on a draft of this report, CMS concurred with our 
recommendations, stating that the agency plans to shortly issue a 
decision on both the issue of the time frames by which states must have 
laws in effect implementing the Deficit Reduction Act's requirements 
and the issue of the entities covered by the Deficit Reduction Act's 
requirement to provide states with coverage and other information. 

Background: 

Established under title XIX of the Social Security Act[Footnote 14] as 
a joint federal-state health financing program, Medicaid is one of the 
largest programs in the federal and state budgets. States, in 
administering their Medicaid programs, must comply with federal 
requirements. States pay qualified health providers for a broad range 
of covered services provided to eligible beneficiaries. The federal 
government then reimburses states for a share of their expenditures. 
The federal share of each state's program expenditures is calculated 
according to a formula specified in the Medicaid statute, which allows 
the federal share to range from 50 to 83 percent.[Footnote 15] 

With Medicaid as payer of last resort, states are responsible for 
having plans in place to identify Medicaid beneficiaries' other sources 
of health coverage, determine the extent of the liability of such third 
parties, avoid payment of third-party claims, and recover reimbursement 
from third parties after Medicaid payment if the state can reasonably 
expect to recover more than it spends in seeking 
reimbursement.[Footnote 16] Individuals eligible for Medicaid assign 
their right to third-party payments to the state's Medicaid agency, 
which allows the state to claim payments for medical care directly from 
third parties. In general, state Medicaid agencies are required 
whenever possible to avoid paying for services for which the state 
agency has reason to believe another party is legally liable.[Footnote 
17] Whenever states are reimbursed by third parties, they must ensure 
that the federal government is given its share of the 
reimbursement.[Footnote 18] 

Third parties that may be liable for payment of services furnished to 
Medicaid beneficiaries can include private insurers and health plans of 
employers who self-insure.[Footnote 19] Private health coverage can be 
delivered through managed care plans--plans in which enrollees, or 
their employers, pay a monthly payment in exchange for health care 
services through affiliated physicians, hospitals, and other providers. 
In addition, private insurers and health plans often contract with 
other entities, such as plan administrators or pharmacy benefit 
managers, to administer part or all of their health care plans. Plan 
administrators process claims and manage the day-to-day operations of 
the associated health plan. Pharmacy benefit managers negotiate drug 
prices with pharmacies and drug manufacturers on behalf of health plans 
and, in addition to other administrative, clinical, and cost- 
containment services, process prescription drug claims for the health 
plans. When a Medicaid beneficiary has pharmacy coverage administered 
through a pharmacy benefit manager, the state generally bills the 
pharmacy benefit manager directly for reimbursement instead of billing 
the insurer or the employer. 

For states to avoid paying costs for which a third party may be liable, 
or to recover from a liable third party payments the state may already 
have made, states need to verify when Medicaid beneficiaries have other 
health coverage, as well as the services that are covered and the 
period of eligibility. States obtain information on other health 
coverage in two common ways: 

* When initially applying for enrollment in a state's Medicaid program, 
applicants are asked to report to the state any other sources of health 
coverage they may have.[Footnote 20] States then verify the applicant's 
coverage with the source of the health coverage, including coverage 
dates, type, benefits, and limits. State Medicaid programs often have 
staff who, on receiving information suggesting that a Medicaid 
applicant has other health coverage, contact the sources of such 
coverage by phone, mail, or other means to obtain specific coverage 
information. 

* States also often independently identify and verify health coverage 
of Medicaid beneficiaries by electronically matching the states' 
coverage files with those of the other coverage sources. This type of 
verification is important because information provided by Medicaid 
applicants may be incomplete. Applicants may not report other sources 
of health coverage, or they may not know if they have such coverage; 
for example, a custodial parent may not realize that his or her child 
has health coverage through the noncustodial parent's employment-based 
health plan. Additionally, Medicaid beneficiaries who do not have other 
coverage when they first enroll in Medicaid may obtain it later. States 
may have agreements, called data-matching agreements, through which 
insurers, health plans, and other potential third parties periodically 
provide states with an electronic copy of their coverage files or with 
access to company databases. Third parties that are willing to work 
with states to electronically share their coverage files facilitate 
appropriate billings and reduce the administrative burden, on states 
and on third parties, associated with verifying coverage on a case-by- 
case basis. 

Once verification of any available private health coverage occurs, the 
state can redirect health care providers' claims to a responsible third 
party (a process known as cost avoidance), and it can seek 
reimbursement from the third party for payments it has already made (a 
process known as "pay and chase").[Footnote 21] Identifying and 
verifying coverage early is important, because it is administratively 
more costly and time-consuming for states to seek reimbursement for 
payments that have already been made. If third parties do not readily 
pay claims for which the state Medicaid agency is seeking payment, it 
is often not cost-effective for states to spend resources pursuing 
payment on a claim-by-claim basis, even though substantial total 
dollars could be involved. For example, the states might not have the 
resources to further pursue payment through legal action. Conversely, 
success in verifying coverage, avoiding Medicaid payments for those 
beneficiaries with private health coverage, and collecting on 
previously paid claims from third parties can result in substantial 
Medicaid savings. Of the $5.5 billion that states reported in third- 
party-related savings in fiscal year 2004, states reported more than 
$4.9 billion in Medicaid payments avoided and more than $524 million in 
third-party recoveries.[Footnote 22] 

An Estimated 13 Percent of Medicaid Beneficiaries Have Private Health 
Coverage: 

On the basis of self-reported health coverage information from the 
Census Bureau's annual CPS covering the 2002 through 2004 time period, 
an average of 13 percent of respondents who reported having Medicaid 
coverage for the entire year also reported having private health 
coverage at some time during the same year. Individual state estimates 
ranged from 9 percent in Alabama, Arizona, and California to 22 percent 
in Iowa and South Dakota and 23 percent in Wyoming (see table 1). Most 
often, the source of private health coverage was an employer or union. 
Nationwide, an estimated 11 percent of Medicaid beneficiaries reported 
having employment-based health coverage (ranging from about 7 percent 
in Arizona and Alabama to about 17 percent in Colorado, Michigan, New 
Hampshire, and Wyoming), whereas about 2 percent reported having 
individual health coverage (ranging from about 1 percent in 11 states 
to about 8 percent in Iowa). 

Table 1: Percentage, by State, of Individuals Who Reported Having 
Medicaid Coverage for the Entire Year Who Also Reported Having Private 
Health Coverage at Some Time during the Same Year (2002-2004): 

State: Alabama; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 7; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Alaska; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Arizona; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 7; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Arkansas; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: California; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 8; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Colorado; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 20; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 4. 

State: Connecticut; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 4. 

State: Delaware; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: District of Columbia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Florida; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Georgia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Hawaii; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Idaho; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Illinois; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Indiana; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Iowa; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 22; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 8. 

State: Kansas; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 5. 

State: Kentucky; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Louisiana; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 8; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Maine; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Maryland; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Massachusetts; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Michigan; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 19; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Minnesota; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Mississippi; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Missouri; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Montana; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 8; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Nebraska; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Nevada; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: New Hampshire; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 21; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 4. 

State: New Jersey; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: New Mexico; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: New York; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: North Carolina; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: North Dakota; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 6. 

State: Ohio; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Oklahoma; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Oregon; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 4. 

State: Pennsylvania; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Rhode Island; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: South Carolina; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: South Dakota; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 22; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 5. 

State: Tennessee; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Texas; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Utah; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 1. 

State: Vermont; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Virginia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Washington; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 5. 

State: West Virginia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

State: Wisconsin; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 3. 

State: Wyoming; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 23; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 7. 

State: Nationwide; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Total[A]: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Employment-based: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Individual: 2. 

Source: GAO analysis of CPS data. 

Note: Numbers represent average percentages of Medicaid beneficiaries 
reporting coverage for calendar years 2002 through 2004, as collected 
by the Current Population Surveys of 2003 through 2005. 

[A] The sum of employment-based and individual health coverage does not 
always equal the total because some respondents indicated that they had 
both employment-based and individual health coverage, and other 
respondents indicated that they had private health coverage but did not 
specify whether it was employment-based or individual health coverage. 

[End of table] 

States also identify and collect information on private health coverage 
as part of administering their own Medicaid programs, but this 
information cannot be used to assess Medicaid beneficiaries' private 
health coverage on a nationwide basis. State Medicaid agencies capture 
from their automated systems information on private health coverage 
they have identified for their Medicaid beneficiaries. According to 
CMS, however, this information is not reliable for measuring the extent 
of beneficiaries' private health coverage nationwide, for comparing 
among states, or for comparing states' identified coverage with that 
identified by CPS.[Footnote 23] Certain states may, for example, 
capture information only for those beneficiaries whose coverage has 
been verified, while other states may capture coverage even though the 
state has not yet verified the services that are covered or the period 
of eligibility. 

States Face Problems in Verifying Coverage and in Collecting from Third 
Parties: 

Problems states face in ensuring that Medicaid is the payer of last 
resort fall into two broad categories: problems verifying whether 
beneficiaries have private health coverage and problems collecting 
payments (or "paying and chasing") when such coverage exists. Third- 
party liability provisions in the Deficit Reduction Act could help 
address some of these problems, although two issues require resolution 
in order to aid states as they implement the act. In particular, 
federal guidance is needed to clarify the time by which states must 
comply with the relevant provisions and also to clarify the entities 
covered by requirements to provide states with information regarding 
third-party coverage. 

Problems Verifying Whether Medicaid Beneficiaries Have Private Health 
Coverage: 

Verification of available private health coverage for Medicaid 
beneficiaries is key to ensuring that states are able to appropriately 
avoid paying claims or to collect from those that are liable. 
Nevertheless, state officials often told us, one of the top three 
problems they faced in ensuring that Medicaid was the payer of last 
resort was related to verifying beneficiaries' other coverage. Some 
state officials reported their problem broadly, stating, for example, 
that third parties would not cooperate in providing eligibility or 
coverage information. Others cited specific problems related to the 
verification process, stating, for example, that third parties would 
not assist with the state's verification process by sharing coverage 
files electronically. Officials from 27 of the 39 responding states 
reported one or more different types of problems with verifying the 
services that were covered and the period of eligibility, which we 
summarized in two categories (see table 2): (1) verifying coverage 
information and (2) accessing electronic coverage files. Although most 
states' officials were not able to estimate the losses to the Medicaid 
program due to these verification problems, officials in 10 states did 
provide an estimate.[Footnote 24] The estimated loss for these 10 
states totaled $54 million-$60 million (the loss is stated as a range 
because some states estimated their losses as a range rather than as a 
single dollar estimate). 

Table 2: Number of States Reporting Problems Verifying Whether Medicaid 
Beneficiaries Have Private Health Coverage, with Estimates of 
Associated Annual Losses: 

Category: Problems with verification; 
Number of states reporting problems (n = 39): 27[B]; 
Number of states able to estimate annual losses: 10; 
Total estimated annual losses[A] (dollars in millions): $54-60. 

Category: Problems with verification: Verifying coverage information 
(not specific to accessing electronic coverage files); 
Number of states reporting problems (n = 39): 23; 
Number of states able to estimate annual losses: 8; 
Total estimated annual losses[A] (dollars in millions): 47-52. 

Category: Problems with verification: Accessing electronic coverage 
files; 
Number of states reporting problems (n = 39): 5; 
Number of states able to estimate annual losses: 2; 
Total estimated annual losses[A] (dollars in millions): 7-8. 

Source: GAO analysis of information provided by state officials. 

[A] Amounts reported as a range because officials in some states could 
estimate their losses only as a range. 

[B] Numbers do not add to 27 because officials in some states reported 
both types of problems. 

[End of table] 

Problems verifying coverage information. Officials in 23 states 
reported problems verifying coverage information; of these, officials 
in 8 states were able to estimate their annual losses due to third 
parties' failure to provide coverage information, for a total of $47 
million-$52 million.[Footnote 25] State officials reported a range of 
problems they experienced in verifying coverage information. For 
example, officials in 12 states indicated that certain third parties or 
their contractors, such as self-insured plans, pharmacy benefit 
managers, or plan administrators, ignored the state's requests for 
verification information about Medicaid beneficiaries or declined to 
verify coverage. Four states reported that third parties cited privacy 
provisions in the Health Insurance Portability and Accountability Act 
of 1996 as one reason they could not share coverage information with 
state Medicaid offices.[Footnote 26] Additionally, an official in 1 
state reported that some third parties would not verify coverage for 
seasonal workers and that some insurance companies limited the number 
of verifications they were willing to provide during a single phone 
call. 

Problems accessing electronic coverage files. Officials in five states 
reported verification problems specifically related to accessing the 
electronic coverage files of third parties and their contractors; 
officials in two of these states were able to estimate their annual 
losses due to lack of access to electronic coverage files, for a total 
of $7 million-$8 million. The systematic cross-checking of state and 
third-party health coverage data, which access to electronic files 
makes possible, improves states' ability to identify beneficiaries with 
third-party health coverage. Officials in two states commented, for 
example, that data-matching agreements would enhance their discovery of 
private health coverage or would greatly improve their billing 
capabilities. Officials in five states reported that third parties 
would not participate in data-matching agreements or that electronic 
coverage files were not made available to the states. 

The potential losses to Medicaid because of lack of verification 
information, both electronic and other, may be sizable. Officials from 
the private consulting firm we contacted estimated that its recoveries 
from a major pharmacy benefit manager increased by more than 200 
percent after the pharmacy benefit manager shared coverage information 
with the consulting firm. Given such an increase from this one-time 
sharing of information, the consulting firm estimated that recoveries 
from the four largest pharmacy benefit managers could potentially rise 
by more than $300 million a year if such information sharing occurred 
regularly. 

Problems Collecting Payments from Third Parties and Their Contractors: 

If a state has not established the existence of third-party coverage at 
the time a claim is submitted, it must pay the claim and collect its 
payment from the liable party later, after that coverage has been 
verified. Officials in 35 of the 39 reporting states listed problems 
with such "pay-and-chase" scenarios among their top three problems 
faced in ensuring that Medicaid is the last payer. We summarize these 
problems in five categories: (1) time limits for filing claims, (2) 
restrictions imposed by managed care and health plans, (3) inconsistent 
claiming requirements imposed by third parties, (4) lack of response or 
cooperation from third parties, and (5) weak or problematic state or 
federal legislation. Although officials in most states were unable to 
estimate their losses due to problems associated with collecting 
payments from third parties, officials in 14 states estimated a total 
annual loss of $184 million-$196 million (see table 3). (The loss is 
stated as a range because some states estimated their losses as a range 
rather than as a single dollar figure.) 

Table 3: Number of States Reporting Problems Collecting from Third 
Parties and Their Contractors, with Estimates of Associated Annual 
Losses: 

Category: Problems collecting payments; 
Number of states reporting problems (n = 39): 35[B]; 
Number of states able to estimate annual losses: 14[B]; 
Total estimated annual losses[A] (dollars in millions): $184-196. 

Category: Problems collecting payments: Time limits for filing claims; 
Number of states reporting problems (n = 39): 15; 
Number of states able to estimate annual losses: 10; 
Total estimated annual losses[A] (dollars in millions): 76-77. 

Category: Problems collecting payments: Restrictions imposed by managed 
care and other health plans; 
Number of states reporting problems (n = 39): 17; 
Number of states able to estimate annual losses: 10; 
Total estimated annual losses[A] (dollars in millions): 74. 

Category: Problems collecting payments: Inconsistent claiming 
requirements among third parties and limited capacity of states to bill 
electronically; 
Number of states reporting problems (n = 39): 13; 
Number of states able to estimate annual losses: 3; 
Total estimated annual losses[A] (dollars in millions): 13. 

Category: Problems collecting payments: Lack of response or cooperation 
from third parties; 
Number of states reporting problems (n = 39): 12; 
Number of states able to estimate annual losses: 3; 
Total estimated annual losses[A] (dollars in millions): 4-6. 

Category: Problems collecting payments: Weak or problematic state or 
federal legislation; 
Number of states reporting problems (n = 39): 7; 
Number of states able to estimate annual losses: 2; 
Total estimated annual losses[A] (dollars in millions): 17-26. 

Source: GAO analysis of information provided by state officials. 

[A] Amounts reported as a range because some states estimated their 
losses only as a range. 

[B] Numbers do not add because some states experienced several 
problems. 

[End of table] 

Problems with time limits for filing claims. Officials in 15 states 
reported problems related to timely filing of claims; officials in 10 
states were able to estimate their annual losses in this category, for 
a total of $76 million-$77 million. State officials reported that some 
third parties and their contractors have established specific time 
limits for filing claims. That is, a third party or its contractor 
might process a claim only if it is filed within a certain time period 
after services are provided--such as within 60 or 90 days from the date 
of service. If a state does not submit its claim for services provided 
to a Medicaid beneficiary within the specified time, some third parties 
deny payment of the claim. According to state officials, time limits-- 
such as 60 or 90 days from the date of service--pose a particular 
problem because of how long it can take to verify Medicaid 
beneficiaries' private health coverage. An official in 1 state, for 
example, estimated that in 1 year (November 2004 through October 2005), 
third-parties rejected more than $32 million in claims from the state 
because the state did not submit the claims within the third-parties' 
established time frames. 

Problems with restrictions imposed by managed care and health plans. 
Officials in 17 states reported problems imposed by managed care and 
health plan restrictions; officials in 10 of these states were able to 
estimate their annual losses in this category, for a total of $74 
million. State officials reported a range of issues relating to 
restrictions the plans imposed as to when services are covered or to 
whom reimbursements for claims can be made. For example, officials in 9 
states reported that some third parties or their contractors would not 
reimburse the state for services provided to covered Medicaid 
beneficiaries if the Medicaid beneficiaries did not follow requirements 
established in the third parties' managed care plans, such as obtaining 
prior authorization for services.[Footnote 27] One state official 
estimated an annual loss to the state's Medicaid program of more than 
$11 million per year because of managed care plans' requirements that 
the Medicaid beneficiaries also covered under the managed care plan 
obtain preauthorization for services; if such authorization was not 
obtained by the beneficiary, the managed care plans would not reimburse 
the state Medicaid program. Another type of restriction that states 
reported related to requirements for whom the health plan would 
reimburse. For example, officials in 2 states reported problems with 
health plans whose coverage provisions did not allow them to pay state 
Medicaid programs directly but instead required that payments be made 
to the Medicaid beneficiaries themselves. An official in 1 state 
remarked that it was labor intensive and often impossible to recoup 
such payments from beneficiaries. 

Problems with inconsistent claims requirements among third parties and 
limited state capacity to bill electronically. Officials in 13 states 
reported problems related to third parties' or their contractors' 
inconsistent requirements for claims or problems related to limits in 
the states' capacity to bill electronically; officials in 3 states were 
able to estimate their annual losses in this category, for a total of 
$13 million. Some third parties or their contractors, for example, 
required claims to be submitted electronically, while others could not 
accept electronic claims. Third parties or their contractors also 
rejected claims because they were not in a format acceptable to the 
third party or did not contain specific pieces of information. For 
example, an official in 1 state told us that third parties may require 
information on their claim forms that Medicaid does not require or 
collect, such as a unique provider number, and a state can have 
difficulty obtaining such information after the fact. The official in 
this state estimated a loss of $600,000 in a single year because of 
such problems. Administrative problems like these are compounded 
because states submit claims to many different third parties, each with 
their own formats and requirements. 

Problems with lack of response or cooperation from third parties or 
their contractors. Officials in 12 states reported problems related to 
third parties' lack of response to or cooperation with claims filed for 
payment; of these, 3 states were able to estimate their annual losses 
in this category, for a total of $4 million-$6 million. Some problems 
arose, for example, when third parties' contractors, such as pharmacy 
benefit managers, were not specifically authorized by the third parties 
to process or pay the claims on the third parties' behalf when the 
claims originated from state Medicaid programs. According to CMS, one 
problem involves Medicaid beneficiaries who have pharmacy coverage 
administered through a pharmacy benefit manager that has not been 
specifically authorized by its contracting health plan or insurer to 
process Medicaid claims from the state. If the beneficiary provides a 
pharmacist with information on his or her Medicaid coverage, rather 
than information on the pharmacy benefit manager, the pharmacist may 
receive payment from the state Medicaid program, which must then seek 
reimbursement for its payment from the pharmacy benefit manager ("pay 
and chase"). Often, the pharmacy benefit manager returns these claims 
unpaid to the state and suggests that the state bill the third party 
directly. This situation creates an administrative problem for the 
state, since beneficiaries' health plan cards generally identify only 
the pharmacy benefit manager and not the contracting insurer or health 
plan. An official in 1 state also commented that third parties created 
inappropriate denial reasons, such as the state's failure to submit a 
copy of a Medicaid beneficiary's health insurance card with the state's 
claim. Officials in 3 states reported that third parties would not 
respond to their claims. An official in another state observed that 
third parties can ignore claims submitted to them because no penalty or 
requirement exists for third parties to reimburse Medicaid. 

Weak or problematic state or federal legislation. Officials in seven 
states--responding to our information request before the 2006 enactment 
of the Deficit Reduction Act--reported that weak or problematic state 
or federal legislation hindered their efforts to ensure that Medicaid 
was the payer of last resort; officials in two of these states were 
able to estimate their annual losses in this category, for a total of 
$17 million-$26 million. Officials suggested the need for stronger 
state or federal legislation, which would require third parties to pay 
Medicaid claims, participate in electronic data matching of coverage 
information, or extend the time frames for states to file claims. One 
state official, for example, indicated that stronger legislation, with 
more comprehensive requirements that third parties doing business in 
the state reimburse the state, would be helpful. Two other state 
officials indicated that an existing provision in Medicaid legislation, 
which requires the states to pay claims under certain circumstances 
even when the state is aware of other coverage, was problematic. 
Specifically, this requirement--intended to prevent delays in care for 
pregnant women and for children--requires states to pay and chase when 
claims are for prenatal care and preventive pediatric services and when 
services are provided to a minor for whom the state is enforcing a 
child-support order against a noncustodial parent. The President's 
fiscal year 2007 budget included a legislative proposal to change this 
requirement. Under the proposal, states would be allowed to avoid 
costs, rather than pay and chase, for claims for prenatal and 
preventive pediatric services when a third party is responsible through 
a noncustodial parent's obligation to provide coverage, if the states 
ensure protection for providers and beneficiaries.[Footnote 28] 

Although in most cases--21 of 35 states that reported problems 
collecting from third parties or their contractors--state officials we 
contacted were unable to estimate the losses to Medicaid due to 
problems collecting from third parties, the total losses could be 
sizable. The private consulting firm that works with states reported 
collecting $60 million for states in 2005 by rebilling third parties 
for previously unprocessed claims. According to state officials and 
CMS, many states do not have the resources to follow up repeatedly on 
claims that have been rejected or otherwise unpaid and so potentially 
suffer annual losses in the millions of dollars. 

Legislation Enacted in 2006 Includes Provisions Related to Third-Party 
Liability Problems Raised by States, but Certain Issues Require 
Resolution: 

The Deficit Reduction Act addresses some of the problems reported by 
state officials. For example, the new law adds to the existing list of 
entities that may be considered third parties certain entities that 
were previously not specifically listed, including "self-insured 
plans"; "managed care organizations"; "pharmacy benefit managers"; and 
"other parties that are, by statute, contract, or agreement, legally 
responsible for payment of a claim for a health care item or service." 
In addition, the law requires states to have in effect laws requiring 
certain specified entities, as a condition of doing business in their 
state, to: 

* provide the state, upon request, with coverage and other data, 
including information on the nature of coverage and the periods of time 
during which individuals or their spouses or dependents were 
covered;[Footnote 29] 

* accept the states' right of recovery for services and assignment of a 
Medicaid enrollee's right to payment by those entities or 
organizations; 

* respond to inquiries by the state regarding a claim for payment 
submitted within 3 years after the date a service was provided; and: 

* agree not to deny a claim submitted by the state solely on the basis 
of the date of submission of the claim, the type or format of the claim 
form, or failure to provide proper documentation at the time of 
service, as long as the claim is submitted by the state within 3 years 
of the service date and the state enforces its rights with respect to 
the claim within 6 years of submitting it. 

Officials from some states and the private consulting firm that works 
with states told us that the act's requirements may help alleviate 
states' reported problems with verifying coverage information, time 
limits for filing claims, and certain third parties' lack of response 
or cooperation with claims submitted for payment--three of the problems 
most often reported by states responding to our questions. Losses due 
to these problems can be substantial: in response to our information 
request, 30 states estimated such losses at collectively more than $120 
million annually. The private consulting firm reported that, after 
discussing with pharmacy benefit managers the new Deficit Reduction Act 
provision related to time limits for filing claims, the firm agreed to 
loosen its own time frames for filing, resulting in an estimated $2 
million dollars in savings for outstanding claims. 

Because the Deficit Reduction Act requires states to have legislation 
in effect to implement the new provisions, it is too soon to assess the 
extent to which the act will address the problems that states reported 
to us. Further, we identified two issues that require resolution in 
order to aid states in complying with the act's requirements: 

* First, the time frame by which states must have their laws in effect 
is uncertain because of an apparent inconsistency within the Deficit 
Reduction Act concerning the effective date of that provision. 
Specifically, the section of the law that determines the date by which 
states must have these laws in effect references a section of the law 
that does not exist.[Footnote 30] In June 2006, CMS officials said they 
had not determined how to interpret the apparently inconsistent 
language and whether legislation would be necessary to resolve it. 
Until this determination is made, states may be uncertain as to the 
date by which they must comply with this requirement of the Deficit 
Reduction Act. Some state legislatures, for example, may act upon new 
Medicaid requirements such as this one only upon notification of a 
specific implementation date. 

* Second, there is also some disagreement in the industry as to whether 
the statutory provisions regarding the requirement to provide states 
with coverage and other information apply to certain entities. 
According to CMS and officials from the private consulting firm, some 
entities, such as certain pharmacy benefit managers and plan 
administrators, have indicated that the requirement that states have 
laws in effect to require reporting of coverage and related information 
does not apply to them. For example, private insurers and health plans 
may hire pharmacy benefit managers and plan administrators to process 
the claims--that is, to pay the claims on their behalf--and the 
pharmacy benefit managers and plan administrators may not view 
themselves as "legally responsible for payment of a claim for a health 
care item or service." Without cooperation from these contracted 
entities in sharing coverage information and in paying claims, states 
may continue to have many of the problems they reported. CMS officials 
said that they had met with trade associations representing pharmacy 
benefit managers and plan administrators to discuss and obtain input 
about these entities' responsibilities under the Deficit Reduction Act. 

With regard to both provisions, in June 2006, CMS officials said that 
they were determining how best to help states implement the new 
requirements. The agency was reviewing how to interpret the law to 
address both the effective date for the requirement to have state 
legislation in effect and which entities are covered by requirements to 
provide states with information on coverage and other matters. The 
effectiveness of the Deficit Reduction Act's third-party liability 
provisions in addressing the problems that states identified may depend 
on the guidance CMS issues and in what manner states carry out the new 
law's provisions. 

Conclusions: 

In an era of fiscal pressure on both federal and state budgets, it is 
important to ensure that Medicaid is administered as efficiently and 
effectively as possible. States have a key role in Medicaid's 
successful administration, including efforts to ensure, as Congress 
intended, that Medicaid does not pay for services when other sources of 
health care coverage are available. With an estimated 13 percent of 
Medicaid beneficiaries having private health coverage available to 
them, significant savings can accrue to both the federal government and 
the states when states are able to avoid costs and recover payments 
from liable third parties. We found, however, that states often 
encounter problems in identifying beneficiaries' private health 
coverage and in collecting payments from liable third parties. The 
Deficit Reduction Act includes provisions related to some of the 
states' concerns, and CMS could facilitate states' efforts to implement 
the act's requirements by providing guidance to states as to the time 
frame under which states must have their laws in effect and the types 
of entities to which the law applies. 

Recommendations for Executive Action: 

To resolve issues that are critical to the implementation of the 
Deficit Reduction Act's third-party provisions and to assist states in 
their efforts to ensure that Medicaid is the payer of last resort, we 
recommend that the Administrator of CMS take the following two actions: 

* Determine and provide guidance to states with regard to the time 
frames by which states must have in effect laws that implement relevant 
third-party requirements of the Deficit Reduction Act. 

* Determine and provide guidance to states with regard to the entities 
covered by the Deficit Reduction Act's requirements to provide states 
with coverage and other information. 

Agency Comments: 

We provided a draft of this report to CMS for comment and received a 
written response from the agency (reproduced in app. II). The agency 
acknowledged that our report identified many of the challenges state 
Medicaid agencies face in attempting to ensure that Medicaid is the 
payer of last resort. CMS concurred with both recommendations and said 
that the agency planned to issue a decision with respect to the 
effective implementation date of, and the entities covered under, the 
Deficit Reduction Act. CMS also provided technical comments, including 
a comment that the report should clarify discussions regarding the 
provision of both coverage and eligibility data. We clarified our text 
to indicate that in this report we refer collectively to the process of 
determining the eligibility period and the services that are covered as 
"verifying health coverage." We made a corresponding clarification to 
our recommendation. Other technical comments were incorporated as 
appropriate. 

As arranged with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretary of Health and Human Services, the Administrator of the 
Centers for Medicare & Medicaid Services, and other interested parties. 
We will also make copies available to others upon request. In addition, 
the report will be available at no charge on the GAO Web site at 
[Hyperlink, http://www.gao.gov]. 

If you or your staff members have any questions, please contact me at 
(202) 512-7118 or allenk@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Major contributors to this report are acknowledged 
in appendix III. 

Sincerely, 

Signed by: 

Kathryn G. Allen: 
Director, Health Care Issues: 

[End of section] 

Appendix I: GAO's Analysis of the Current Population Survey Conducted 
by the U.S. Census Bureau: 

To assess the extent to which Medicaid beneficiaries have private 
health coverage, we analyzed the Annual Social and Economic Supplement 
of the Current Population Survey (CPS), conducted by the U.S. Census 
Bureau for the Bureau of Labor Statistics. This appendix describes CPS, 
our analysis of CPS, and our results. 

Description of the Current Population Survey: 

CPS is designed to represent a cross section of the nation's civilian 
noninstitutionalized population. The sample provides estimates for the 
nation as a whole and serves as part of model-based estimates for 
individual states and other geographic areas. The supplement is 
designed to estimate family characteristics, including health coverage, 
during the previous year. In 2005, about 84,700 households were 
included in the sample for the Annual Social and Economic Supplement, 
with a total response rate of about 83 percent. In 2004 about 84,500 
households were included with a total response rate of 84 percent. The 
totals for 2003 were approximately 81,000 and 85 percent, respectively. 

Each March, CPS gathers information about health coverage that 
respondents had at any time during the previous calendar year, 
including government health coverage such as Medicaid and private 
health coverage such as coverage provided through an employer or union 
(employment-based health coverage) and coverage directly purchased by 
the beneficiary (individual health coverage).[Footnote 31] CPS also 
asks for the number of months that beneficiaries had Medicaid coverage 
during that same year. Research has shown that health coverage is 
underreported in CPS for a variety of reasons; for example, many people 
may be unaware that a health insurance program covers them or their 
children if they have not recently used covered services. In addition, 
CPS underreports Medicaid coverage compared with enrollment and 
participation data from the Centers for Medicare & Medicaid Services. 

Description and Results of GAO's Analysis: 

We analyzed data from the Annual Social and Economic Supplement to CPS 
from 2003 through 2005, which asked about health coverage during the 
prior year (2002 through 2004). To prepare official statistics from CPS 
on type of health insurance coverage, CPS identifies Medicaid 
beneficiaries by analyzing responses from multiple questions about 
whether the respondent had Medicaid at any time during the prior year. 
One of these questions has a related field allowing respondents to 
report the number of months that Medicaid coverage was provided. To 
identify individuals who had Medicaid and private health coverage 
concurrently in the same year, we focused our analysis on individuals 
who responded positively to the one Medicaid question and also reported 
having Medicaid coverage in all 12 months of the year. Specifically, we 
selected individuals who reported that they were covered by Medicaid 
for the entire prior year and determined the percentage of these 
Medicaid beneficiaries who reported that they also had employment-based 
health coverage or individual health coverage at some point in the 
prior year.[Footnote 32] 

To assess the reliability of the CPS data, we discussed with officials 
from the Census Bureau's Poverty and Health Statistics Branch the use 
of this definition of Medicaid beneficiaries, and we reviewed the 
Census Bureau's data quality-control procedures and related 
documentation. We determined that the data were sufficiently reliable 
for the purposes of this report. For additional information on Census 
efforts to ensure the reliability of CPS data--including adjustment for 
nonresponse, controls on nonsampling error, computing composite 
weights, estimation of variance, and derivation of independent 
population controls--see U.S. Department of Labor, Bureau of Labor 
Statistics; and U.S. Department of Commerce, U.S. Census Bureau, 
Current Population Survey: Design and Methodology, Technical Paper 63RV 
(Washington, D.C.: March 2002), [Hyperlink, 
http://www.bls.census.gov/cps/tp/tp63.htm] (downloaded April 13, 2006). 
Updated survey information is available on the Web at [Hyperlink, 
http://www.bls.census.gov/cps]. 

Because CPS is a probability-based sample, estimates derived from it 
are subject to sampling error: slightly different estimates can result 
from different samples. We expressed our confidence in the precision of 
the particular samples' results as 95 percent confidence intervals 
(i.e., plus or minus 4 percentage points). This confidence interval is 
the interval that would contain the actual population value for 95 
percent of the samples that could have been drawn. We used CPS's 
general variance methodology in the technical documentation to estimate 
this sampling error for our 3-year average, reported as confidence 
intervals. All CPS percentage estimates contained in this report have 
95 percent confidence intervals within plus or minus 7 percentage 
points of the estimate itself. 

Table 4: Percentage and Confidence Intervals, by State, of Individuals 
Who Reported Having Medicaid Coverage for the Entire Year Who Also 
Reported Having Private Health Coverage at Some Time during the Same 
Year (2002-2004): 

State: Alabama; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 6-12. 

State: Alaska; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-24. 

State: Arizona; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 6-13. 

State: Arkansas; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 8-14. 

State: California; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 9; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 8-11. 

State: Colorado; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 20; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 15-26. 

State: Connecticut; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 10-20. 

State: Delaware; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 12-22. 

State: District of Columbia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 7-12. 

State: Florida; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-14. 

State: Georgia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 8-16. 

State: Hawaii; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 12-21. 

State: Idaho; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-18. 

State: Illinois; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-15. 

State: Indiana; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-16. 

State: Iowa; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 22; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 17-28. 

State: Kansas; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 11-23. 

State: Kentucky; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 8-16. 

State: Louisiana; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 7-14. 

State: Maine; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-19. 

State: Maryland; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-19. 

State: Massachusetts; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 11-17. 

State: Michigan; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 19; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 16-22. 

State: Minnesota; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 11-21. 

State: Mississippi; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 12-19. 

State: Missouri; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-20. 

State: Montana; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 10; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 6-14. 

State: Nebraska; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-17. 

State: Nevada; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 6-17. 

State: New Hampshire; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 21; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 15-28. 

State: New Jersey; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 12-19. 

State: New Mexico; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 11-18. 

State: New York; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 10-14. 

State: North Carolina; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-15. 

State: North Dakota; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 12-24. 

State: Ohio; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 17; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-20. 

State: Oklahoma; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-16. 

State: Oregon; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 15; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 10-19. 

State: Pennsylvania; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-20. 

State: Rhode Island; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 15-22. 

State: South Carolina; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-20. 

State: South Dakota; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 22; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 17-27. 

State: Tennessee; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 12; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-15. 

State: Texas; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 11; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-14. 

State: Utah; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 14; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-19. 

State: Vermont; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 15-22. 

State: Virginia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 16; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 11-21. 

State: Washington; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 18; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 13-22. 

State: West Virginia; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 10-17. 

State: Wisconsin; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 9-17. 

State: Wyoming; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 23; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 17-29. 

State: Nationwide; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: Percentage: 13; 
Estimated proportion of Medicaid beneficiaries with private health 
coverage: 95 percent confidence interval: 12-13. 

Source: GAO analysis of CPS data. 

Note: Numbers represent average percentages of Medicaid beneficiaries 
reporting coverage for calendar years 2002 through 2004, as collected 
by the Current Population Surveys of 2003 through 2005. 

[End of table] 

[End of section] 

Appendix II: Comments from the Centers for Medicare & Medicaid 
Services: 

Department Of Health & Human Services: 
Centers for Medicare & Medicaid Services: 
Administrator: 
Washington, DC 20201: 

AUG 4 2006: 

To: Kathryn G. Allen: 
Director, Health Care: 
Government Accountability Office: 

From: Mark B. McClellan, M.D., Ph.D. 
Administrator: 
Centers for Medicare & Medicaid Services: 

Subject: Government Accountability Office (GAO) Draft Report: "Medicaid 
Third-Party Liability: Federal Guidance Needed to Help States Address 
Continuing Problems" (GAO-06-862): 

Thank you for the opportunity to review and comment on the above- 
referenced GAO report. We are pleased that the report identifies many 
of the challenges State Medicaid agencies face in attempting to assure 
that Medicaid is the payer of last resort. We particularly appreciate 
the efforts made by GAO to determine the number of Medicaid 
beneficiaries with private health insurance coverage. The Centers for 
Medicare & Medicaid Services (CMS) continues to be committed to an 
aggressive strategy in resolving the remaining issues and removing the 
barriers that stand in the way of coordinating benefits among various 
payers. 

As pointed out by GAO, the Deficit Reduction Act of 2005 (DRA), P.L. 
109-171, includes a number of provisions that are designed to help 
guide state efforts in this area and address some of the problems 
reported by State officials. We are confident that the DRA will provide 
important additional tools to assist States in identifying third 
parties and to facilitate the processing of Medicaid claims. 

GAO Recommendation: 

Determine and provide guidance to States with regard to the time frames 
by which States must have in effect laws that implement relevant third 
party requirements of the DRA. 

CMS Response: 

We concur. We agree that the technical error included in the DRA needs 
to be clarified. CMS will shortly issue a decision with respect to the 
effective date issue. 

GAO Recommendation: 

Determine and provide guidance to States with regard to the entities 
covered by the DRA requirement to provide States with coverage 
eligibility and other information. 

CMS Response: 

We concur. CMS is in agreement with the recommendation and will shortly 
issue a decision with respect to the entities that are covered by the 
DRA requirements. 

We have provided a number of technical comments for your consideration. 
Thank you again for the opportunity to respond to this report. 

Attachment: 

[End of section] 

Appendix III: Contact and Staff Acknowledgments: 

GAO Contact: 

Kathryn G. Allen, (202) 512-7118 or allenk@gao.gov: 

Acknowledgments: 

In addition to the contact mentioned above, Katherine M. Iritani, 
Assistant Director; Ellen W. Chu; Kevin Dietz; Kevin Milne; Jill M. 
Peterson; and Terry Saiki made key contributions to this report.

FOOTNOTES 

[1] See, for example, GAO, High-Risk Series: An Update, GAO-05-207 
(Washington D.C.: January 2005). 

[2] This report focuses on private health coverage, excluding federal 
health programs, such as Medicare or veterans health programs. It 
excludes automobile insurance, court judgments and settlements with a 
liability insurer, state workers' compensation, and estate recoveries. 
In addition to private health insurance purchased by individuals, 
employers, or unions, "private health coverage" may include health 
coverage provided by employers who self-insure, which we refer to in 
this report as employer "health plans." According to the Centers for 
Medicare & Medicaid Services' (CMS) regulations, a third party is an 
individual, entity, or program that is or may be liable to pay for all 
or some of the expenditures for services provided under a state 
Medicaid plan. See 42 C.F.R. § 433.136 (2005). 

[3] A plan administrator--also referred to as a third-party 
administrator--is generally a person or group that, according to a 
service contract, processes claims and may also provide one or more 
administrative services. 

[4] Throughout this report, we refer to the process of determining both 
the eligibility period and the services that are covered as "verifying 
health coverage." 

[5] In certain circumstances (described in footnote 17), states may not 
avoid paying claims. 

[6] GAO, Medicaid: Legislation Needed to Improve Collections from 
Private Insurers, GAO/HRD-91-25 (Washington, D.C.: Nov. 30, 1990); 
Medicaid: Ensuring That Noncustodial Parents Provide Health Insurance 
Can Save Costs, GAO/HRD-92-80 (Washington, D.C.: June 17, 1992). 

[7] For example, some third parties included provisions in their 
benefit plans that excluded payments to Medicaid programs under certain 
conditions. See GAO/HRD-91-25. 

[8] Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, § 
13622, 107 Stat. 312, 632-633. 

[9] Pub. L. No. 109-171, § 6035, 120 Stat. 4, 78-80 (2006). 

[10] We report information collected in CPS for the District of 
Columbia but not for U.S. territories. 

[11] CPS refers to private health coverage purchased by an individual 
(termed "individual health coverage" in this report) as "direct- 
purchase" coverage. CPS's information on employment-based health 
coverage captures both private health insurance coverage purchased by 
employers or unions and private health plan coverage provided by 
employers or unions that self-insure. 

[12] Specifically, we asked state third-party liability coordinators by 
e-mail to specify what, in their view, represented the three most 
significant factors or problems that hindered their ability to collect 
from private third parties and to include an estimate of losses to the 
state from each of these factors or problems. We followed up with 
states through phone calls and e-mails to clarify their responses and 
to improve our response rate. We did not independently assess, in the 
instances identified by state officials, whether the private health 
coverage was legally liable for payment for services provided to 
Medicaid beneficiaries. The 39 responses included the District of 
Columbia, which we include in our discussion of states. 

[13] Many state Medicaid agencies hire consulting firms to assist them 
with their activities in identifying and collecting from liable third 
parties. States contract with private consulting firms to carry out 
activities such as matching states' and health insurers' or health 
plans' electronic coverage files (data matching) to identify private 
health coverage, verifying covered services and eligibility periods, 
and billing and collecting from third parties on claims paid by state 
Medicaid agencies for which third parties were liable. In performing 
these activities, these firms face the same challenges that state 
Medicaid programs face in working with third parties. For this reason, 
we have used some information from a firm in discussing some of the 
problems faced by states. Where we used such information, we discuss it 
apart from the responses provided to us by states and identify the 
information as coming from that firm. 

[14] Codified at 42 U.S.C. §§ 1396 et seq. (2000). 

[15] States with lower per capita incomes receive higher federal 
matching percentages. 

[16] See 42 C.F.R. part 433, subpart D (2005). 

[17] Exceptions to this requirement are for prenatal care services, 
preventive pediatric services, and services provided to a minor for 
whom the state is enforcing a child-support order against a 
noncustodial parent. See 42 C.F.R. § 433.139(b)(3) (2005). 

[18] See Social Security Act §1903(d)(2)(B). 

[19] Insurance companies sell health coverage to businesses and to 
individuals and pay a certain proportion of covered individuals' health 
care costs. Rather than purchase health coverage through insurance 
companies, however, large employers may elect to pay directly for 
health benefits for their employees and dependents (referred to as 
"self-insured" or "self-funded" health plans). The Employee Retirement 
Income Security Act of 1974 (ERISA), Pub. L. No. 93-406, 88 Stat. 829, 
established the framework within which employer group health plans must 
operate. 

[20] States are required to take all reasonable measures to determine 
the legal liability of third parties, including collecting health 
insurance information at the time of any determination or 
redetermination of eligibility for Medicaid. See Social Security Act 
§1902(a)(25)(A). 

[21] States are required to ensure that their automated claims systems 
compare any verified private health coverage with claims paid by the 
state over at least the previous year to identify any funds recoverable 
from that third party. See State Medicaid Manual, part 03, 3902.3. 

[22] This information is based on data states report to CMS. According 
to CMS's report, 39 states provided information on third-party payments 
avoided, and 47 states provided information on third-party recoveries. 

[23] The automated system that states use to capture health coverage 
data is known as the Medicaid Management Information System. Health 
coverage information gathered by states is maintained in this system. 
By determining the number of beneficiaries for whom it has identified 
other health coverage in its Medicaid Management Information System, a 
state can estimate the proportion of all of its Medicaid beneficiaries 
for whom such coverage has been identified. See Centers for Medicare & 
Medicaid Services, "Overview: Medicaid Management Information System," 
http://www.cms.hhs.gov/mmis/ (downloaded May 25, 2006). 

[24] In addition to these 10 states, 1 state estimated the percentage 
of increased annual savings it could accrue if its problems were 
resolved but was not able to provide a dollar amount. Another state 
estimated losses from all three of its reported top problems in 
aggregate and could not estimate its losses due to each problem. We did 
not include these 2 states in our total of states estimating annual 
losses due to third-party problems. 

[25] We report these values as a range because some states could 
estimate their losses only as a range. 

[26] See Pub. L. No. 104-191, ßß 262ñ264, 110 Stat. 1936, 2033. Rules 
implementing the Health Insurance Portability and Accountability Act of 
1996 place limits on the use and disclosure of individually 
identifiable health information. See 67 Fed. Reg. 53182 (2002). 
Exceptions to these rules permit the disclosure of appropriate 
information to ensure payment for health care services. See 45 C.F.R. ß 
164.506(a) (2005). 

[27] Certain managed care features, such as prior authorization for 
services, may constitute substantive benefit limitations, and claims 
that do not conform with the managed care requirements may not be 
reimbursable. We did not independently assess, in the instances 
identified by state officials, whether the private health coverage was 
legally liable for payment for services provided to Medicaid 
beneficiaries. 

[28] Specifically, the administration proposed that legislation be 
passed to "allow states to avoid costs for prenatal and preventive 
pediatric care claims where a third party is responsible through a non- 
custodial parent's obligation to provide coverage for a limited time 
while assuring protection for providers and beneficiaries." In 
providing technical comments on a draft of this report, CMS officials 
told us they believed that the purpose of the legislative proposal is 
to allow states to avoid costs for all categories of claims for which 
states must currently pay and chase. 

[29] In particular, the law requires a state to provide assurances to 
the Secretary of Health and Human Services that the state has laws in 
effect requiring health insurers--including self-insured plans; group 
health plans; service benefit plans; managed care organizations; 
pharmacy benefit managers; or other parties that are, by statute, 
contract, or agreement, legally responsible for payment of a claim for 
a health care item or service--as a condition of doing business in the 
state, to provide, with respect to persons who are eligible for or who 
are provided Medicaid services, information to determine during what 
period the individual or their spouses or dependents may be (or have 
been) covered and the nature of the coverage that is or was provided by 
the health insurer. See Pub. L. No. 109-171, § 6035(b), 120 Stat. 4, 79-
80 (to be codified at 42 U.S.C. § 1396a(a)(25)(I)). 

[30] Section 6035(c) of the Deficit Reduction Act of 2005 establishes 
the effective dates of the third-party provisions (found in section 
6035(b)) but appears to contain an error. Section 6035(c) provides that 
"[e]xcept as provided in section 6035(e), the amendments made by this 
section take effect on January 1, 2006." The statute, however, does not 
contain a section 6035(e). The conference report on the legislation 
suggests that the reference to section 6035(e) in section 6035(c) 
should be, instead, section 6034(e). See H.R. Conf. Rep. No. 109-362 at 
78-79, 308-310. Section 6034(e), in turn, provides in effect a delayed 
effective date in those instances in which the Department of Health and 
Human Services determines a state is required to enact legislation in 
order to comply with the requirements of section 6035(b). Courts have 
held that a statute should be construed literally, except in those 
instances in which literal application of a statute will produce a 
result demonstrably at odds with the intentions of its drafters. See, 
for example, Appalachian Power Co. v. EPA, 249 F.3d 1032 (D.C. Cir. 
2001); 
Consolidated Rail Corp. v. U.S., 896 F.2d 574 (D.C. Cir. 1990). In such 
instances, the legislative history should be given significant 
consideration in construing the statute. 

[31] CPS refers to health coverage purchased by an individual (called 
"individual health coverage" in this report) as "direct-purchase" 
coverage. See http://www.census.gov/hhes/www/hlthins/hlthinsvar.html 
(downloaded June 8, 2006) for information on the definitions of private 
health coverage. 

[32] Our analysis--focusing on individuals who reported having Medicaid 
coverage the entire prior year--comprised 71 percent of individuals in 
the CPS who reported that they had Medicaid coverage at any time during 
the prior year. 

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