What is a Third-Party Administrator in Healthcare?

Just the Essentials...

• Third-Party Administrators (TPAs) manage bookkeeping and claims processing for self-insured entities, like corporations
• A TPA is not an insurance company: the self-insured entity bears all financial risk. However, a TPA can process claims, maintain medical records, and provide access to a network of health care providers. Some insurance companies also use TPAs to handle these services.
• A TPA can offer corporations and other self-insured entities more control over their health care program, reducing the risk of fraud and lowering overall costs.

What’s a Third-Party Administrator?

By definition, a third-party administrator (TPA) is a firm or a person that provides administrative services such as record keeping, adjudication, and 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 most prominent players in the 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 and health insurance companies will outsource these standardized, repetitive, and resource-consuming activities. Some of the functions carried out by TPAs include:

• Managing claims for employers.
• Maintaining records and databases.
• Providing a network and services.
• Mental health administration.
• Medical management.
• Handling membership functions.
• Enrolment.
• Utilization review.
• Return to work programs.
• Actuarial services.
• Maintenance of a customer service network.
• Various 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 third-party administrators can offer is extensive.

Benefits of Working With TPAs

Third-party administrators help companies provide quality health care plans to their employees. Companies, whether they have a handful of employees or 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 health insurance provision, leading 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 maintain 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 into symptom management, pain, and overall wellness.
• Faster and more focused claim handling –TPAs are efficient and manage claims faster compared to the same process when dealing with an insurance company.
• Employee satisfaction – TPAs eliminate unnecessary delays of employee claims by streamlining protocols and enhancing 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 a carrier.

Third-Party Administrator Costs

Most third-party administrators have a hard time predicting costs and setting their service prices. The 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 the 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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Key Resources:

• http://www.tdi.texas.gov/forms/form5tpa.html
• https://www.irmi.com/online/insurance-glossary/terms/t/third-party-administrator-tpa.aspx
• http://www.ct.gov/cid/cwp/view.asp?Q=493424
• https://www.michigan.gov/difs/industry/licensing-ins/tpa
• https://spbatpa.org/node/1600