TLDR; A Third Party Administrator can save time, money, and potential legal fees. Look into finding the right one for your organization.
If your company has a self-funded health plan, chances are, you already know what a third party administrator (TPA) is. You may even be working with one already.
(In short, a self-funded health plan requires the employer to pay all the healthcare expenses of their employees instead of paying a monthly premium to a traditional health insurance company. This is usually done by designating a certain amount of money to be set aside each month in a separate fund.)
While this type of plan has its advantages, it also involves a lot of work that is typically handled by an insurance company. Between finding a provider network, handling claims, reimbursing employees, and staying compliant with numerous laws—most employers find that outsourcing those responsibilities is highly advantageous.
Here’s where a third party administrator comes in.
A third party administrator is a service provider that offers a range of administrative services to businesses with self-funded health plans. They also act as a go-between for companies and insurance providers and healthcare networks.
It’s important to note that they don’t provide insurance themselves, nor do they assume any of the financial risks.
To help you understand the role of a third party administrator, we will look at their services and the impact they can have on your business.
As we already mentioned, a major part of a TPA’s role is administrative services. Since this is a very broad term, let’s break it down a bit into individual areas.
Your TPA can assist with open enrollment, onboarding, and educational material, as well as answer employee questions.
If an employee makes a claim, your TPA will determine if it is eligible for reimbursement and process the claim.
A TPA handles the disbursement of designated funds for all eligible claims.
A TPA will keep detailed records without compromising employee privacy. Employers can decide how to best utilize their plan to benefit the company.
Your TPA can take care of annual reporting requirements, which will give an overall picture of your company’s healthcare expenses.
If you receive services from several providers, a TPA can streamline the payment process and lessen your workload.
When researching third party administrators, you may come across administrative services only providers. Although they do similar things, they are two different types of companies.
Let’s look at each one in more detail.
A TPA is independent from insurance companies. As such, they offer more healthcare network options and more plan flexibility. Employers can choose from more coverage, funding, and reimbursement options. Instead of having to conform business operations to an insurance plan, the plan can be conformed to their company.
They offer a broad range of services that can also be customized. Depending on their needs, employers can choose the ones that streamline their health plan and make their company most efficient.
An ASO is a subsidiary of an insurance company. This restricts the provider network choice to the one used by the parent company. They are more limited in their services and can’t offer the plan customization that a TPA can.
While both can outsource insurance claims and record keeping, a TPA offers more plan options to business owners and their employees.
Running a company involves a myriad of details and a self-funded health plan only adds to those. By using a TPA, you won’t overburden your HR department with enrollments, claims, record keeping, and employee questions. With an effective plan in place, your TPA can improve company operations by reducing administration and claim costs.
One of the biggest benefits of a TPA is their personalization. Because they aren’t owned by an insurance company, they can offer your business much more flexibility. When you choose a plan, they will customize the benefits and conditions to fit your company’s needs. They will discuss administrative functions with you, so each party clearly understands their responsibilities.
By not dealing directly with a health insurance company, you have a greater variety of network options. A TPA will connect you with one that suits you and your employees.
When using self-funded health plans, employers often need stop-loss insurance. This covers them in the event that healthcare expenses exceed the amount of money they set aside. A TPA can find an insurer to provide that for your company.
A TPA has qualified experts that stay abreast of requirement changes and minimize legal risk. They typically provide more compliance assistance than insurance companies because it is the biggest risk and cost that business owners face. (First-time violations of the ADA can cost up to $75,000.) And according to a Deloitte survey, 87% of executives consider the reputational risk of noncompliance to be as serious as the financial risk.