How Outpatient Insurance Works (Patient-Friendly Guide)
Navigating outpatient therapy insurance can feel confusing — especially when your benefits include both private insurance and Medicaid (called Health First Colorado in Colorado). This article explains how it works, why certain rules exist, and what you should expect in plain language.
What Is Outpatient Insurance?
Outpatient services are medical or therapy services you receive without being admitted to a hospital — for example:
Occupational therapy
Physical therapy
Speech therapy
These are generally billed to your insurance on a visit-by-visit basis.
Primary vs. Secondary Insurance — What That Means
When you have both private insurance and Medicaid, private insurance is always your primary insurance. Medicaid is always secondary.
Here’s why:
Primary insurance gets billed first and reviews the claim.
Secondary insurance (Medicaid) is billed after primary has processed the claim.
This is because Medicaid is legally defined as the payer of last resort — it only pays after all other available insurance resources are used. (HCPF)
That means:
Your therapist or clinic must submit your claim to your private insurance first.
Once your private insurance pays or denies the claim, then Medicaid can be billed as secondary. (HCPF)
This is not just clinic “preference” — it’s a Medicaid rule providers must follow. (HCPF)
Colorado Medicaid Rules: What “Reasonable Effort” Means
Colorado Medicaid requires that providers make a “reasonable effort” to bill the primary insurance before billing Medicaid.
What does that mean for you?
The provider must submit your claim to the primary insurance first.
They must allow time for the insurance company to process the claim.
They must include all required documentation (like authorizations or eligibility information).
They must keep documentation showing the insurance was billed first and what the outcome was (paid/denied). (HCPF)
Only after these steps — and once the primary insurer has made a decision — can the claim be submitted to Medicaid as secondary.
⚠️ Colorado’s Medicaid rules do not set a specific “number of days” that must pass before Medicaid will accept a secondary claim — what matters is that the clinic shows they made a reasonable effort to bill primary first and that the claim was processed or denied by that insurer. (HCPF)
This process protects the integrity of Medicaid benefits and ensures other insurance resources are used before Medicaid pays.
Why You Can’t Just Use Medicaid First or Pay Out-of-Pocket
You might think, “Why not just use Medicaid first?” or “Can’t I pay cash so therapy isn’t delayed?”
Here’s the key:
Medicaid must be billed secondary to private insurance when active and when you have other coverage. (HCPF)
Providers cannot accept private pay for services that Medicaid would cover if you are enrolled in Medicaid.
This is because Medicaid is designed to cover medically necessary services for eligible members, and private pay would inappropriately bypass those benefits. Clinics are prohibited from billing patients directly when Medicaid benefits apply. (HCPF)
So:
You cannot choose to pay cash instead of using insurance if Medicaid covers the service.
Providers must follow the billing rules or risk violating Medicaid policies.
What This Means for You as a Patient
Here’s what to expect when using your outpatient therapy benefits:
Your private insurance must be billed first.
Medicaid can only be billed after the primary insurer has processed the claim (paid or denied).
The clinic must document that it did a “reasonable effort” to use the primary insurance first.
You cannot pay cash to avoid using Medicaid if Medicaid is active and the service is covered.
Sometimes this process takes a bit longer — but it’s required by law and policy. (HCPF)
A Quick Example
Let’s say:
You have private insurance with a deductible.
You also have Colorado Medicaid.
Your clinic:
Sends the bill to your private insurance.
Waits for that insurance to process — this may take some time.
Once the insurance pays or formally denies, the clinic then sends the claim to Medicaid as secondary.
Medicaid may then:
“Pick up” some or all of what the primary insurance did not pay, depending on your benefits.
Your clinic must keep documentation of each step to meet Colorado Medicaid requirements. (HCPF)
We Know It Can Be Frustrating
Insurance billing is complicated — and waiting for multiple insurers to process claims can feel slow. But these rules exist to protect your benefits and make sure every resource is used correctly.
If you ever have questions about your coverage, claims status, or why something is billed a certain way, your clinic’s billing team should be able to explain what’s been submitted and what’s pending.
Thank you!
Sources
Colorado Billing Manual: https://hcpf.colorado.gov/ptot-manual
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Holly Ross, Owner, OTR/L, WSI/T, LTP, ATRIC
