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- The term third-party administrators or TPAs was popularized in the US by the implementation of the affordable health care act (ACA) in 2008
- Around the same period, the economy was going through a recession. In the wake of rising health insurance premiums and health reforms, employers sought the services of TPAs to cut health insurance costs
- 46 out of 50 US states require third-party administrators to obtain licenses with the state government to be able to operate
- A third-party administrator carries out health insurance related administrative services for companies that self-insure their employees
Third-party administrators became popular in the United States when the Obama administration passed the Affordable Health Care Act. Companies were required to provide health insurance to their employees. Companies that opted to self-insure sought the services of TPAs to minimize the costs of providing health insurance for their employees.
Third-party administrators offer various services on behalf of an employer, all revolving around the provision of health insurance.
The TPA itself is not an insurance company; it’s the link between the employees and the insurance company, who in this case, is the employer. When a company chooses to self-insure its employees, it underwrites the risk by itself meaning that the employer acts as the insurance company.
Third-party administrators don’t stand to lose anything, the financial burden of having to pay the claims rests with the employer. The only costs that a third-party administrator faces are the ones associated with the provision of the service.
What’s a Third-Party Administrator?
By definition, a third-party administrator is a firm or a person that provides administrative services such as record keeping, adjudication as well as the processing of claims on behalf of an employer that self-insures.
Third-party administrators are separate legal entities contacted by a self-insuring company to offer services, think of it as outsourcing. TPAs’ popularity has grown since 2008 to join the leagues of some of the biggest players in health insurance industry. 46 out of 50 US states require TPAs to obtain operating licenses to be able to provide services.
Functions of a TPA
Using a third-party administrator to handle administrative services is cost effective. Many self-insuring employers, as well as health insurance companies, will outsource these standardized, repetitive activities resource consuming; hence they outsource them to reduce costs. Some of the functions carried out by TPAs include:
- Third-party administrators manage claims for employers.
- TPAs maintain records and databases.
- They provide network and services.
- Mental health administration.
- Medical management.
- Handling membership functions.
- Utilization review.
- Return to work programs.
- Actuarial services.
- Maintenance of a customer service network.
- TPAs may also provide value added services.
They disburse claims, approve cashless claims and accept intimations. Some of these services are supplemental and are charged separately. The list of possible combinations that can be offered by third-party administrators is extensive.
Benefits of Working with TPAs
Third-party administrators help companies provide quality health care plans to their employees. Companies, whether small with just a handful of employees or big with thousands of them, enjoy certain benefits when they choose to work with TPAs. Some of these benefits include:
- Lower health insurance premiums – TPAs provide greater efficiency thus lowering the cost of provision of health insurance which in turn leads to lower health insurance premiums.
- Provision of interactive tools – TPAs have the means to provide companies and their employees with exceptional online tools to provide education on proactive measures, treatment solutions, and symptom identification vis-à-vis certain health problems.
- Keeps the employer and the employees up to date – Most TPAs have progressive websites and other communication channels such as electronic newsletters that keep the employer and the employees up to date with insurance news and what’s going on in the health care industry.
- Easy access to health care services – TPAs maintains all the databases regarding employee health including contacts for physicians across the United States. They make sure that employees have access to this crucial information.
- More than just health care plans –TPAs provide insight towards symptom management, pain, and overall wellness.
- Faster and more focussed claim handling –TPAs are efficient and manage claims faster compared to the same process when dealing with and insurance company.
- Employee satisfaction – TPAs eliminate unnecessary delays of employee’s claims by streamlining protocols and enhanced standardization.
- Cost effective – TPAs provide a cheaper health insurance provision option. Companies can provide health insurance for their employees at reduced overhead costs. The expense associated with claim handling is also significantly reduced.
- Company reputation– Through TPAs, a company can provide personalized health care plans for its employees as compared to when companies provide health insurance via other carriers; they have no control.
- Reduced cases of employee fraud – It is hard for an employee to try to defraud a company by filing a falsified claim if the company is self-insured. On the other hand, an employee can easily fake a claim if the company provides health insurance via carrier.
Third-Party Administrator Costs
Most third-party administrators have a hard time predicting costs and setting their service price. Payment basis varies from one TPA to another. The most common service fee options include:
- Percent of paid
- Percent of incurred.
- Dedicated Office.
- Per Claim.
In many cases, all the arrangements are custom since the TPA only performs tasks assigned by the employer in the service contract.
Finding the Right TPA
Third-party administrators manage majority of United States workers under self-funded health insurance programs. If, as an employer, you opt to work with a third-party administrator, you will be giving them access to your assets. Therefore, finding the right TPA is imperative to your operations.
Do your research before you commit to a TPA. Some employers contact consultants to help them find a good TPA while others approach the TPAs themselves.
Find a creative, innovative TPA capable of customizing health plans to meet the exact needs of your employees. Before you start a third-party administrator firm, find out the licensing requirements in your state.
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