Third-party administrator (TPA) in health care
A third-party administrator (TPA) in health care is an external vendor that offers administrative services, and often consultation, for health insurance plans. From an employment perspective, TPAs use their industry expertise to assist employers in making the best operational and financial decisions regarding their health insurance offerings.
More about TPAs and their purpose
The Society of Professional Benefit Administrators says, “Most plans administered by TPAs involve some degree of self-funding (a.k.a. self-insurance).” That said, “Some TPAs administer fully-insured plans on behalf of insurance companies.”
When employers opt to finance their health insurance plans independently, these plans are called “self-funded” or “self-insured.” Under this option, the employer bears all responsibilities and risks associated with delivering health insurance to their workforce. Not only does the employer fund the plan, but they also pay employee medical claims out of their own revenue.
This contrasts with a fully-insured plan, which involves buying health insurance from an insurance company, instead of self-funding the plan. Here, the employer remits a fixed premium to the insurer. In return, the insurance company assumes the financial liability of the coverage, which includes settling medical claims.
Due to the complex nature of overseeing the claims process, companies with self-funded plans often turn to a third-party administrator. Nonetheless, TPAs offer various services that can benefit both self-insured and fully-insured employers.
“Most employers with a group health plan work with a TPA because managing the plan is a complex process. Part of the TPA’s job is to act as a go-between you and your employees.”
— Paul Foery, OnPay's Vice President of Insurance
Some services that a TPA typically provides
TPAs may offer different services, but some of the more common ones include:
- Plan design: Full-service TPAs have the necessary tools to help employers identify plans that align with their budget and requirements. For instance, they can gather crucial data on employees’ healthcare needs and project estimate amounts.
- Plan setup and documentation: TPAs can help employers implement the plan in the most cost-effective and efficient manner. They’re also responsible for drafting plan documents, such as the summary plan description, which must be distributed to all enrolled employees.
- Employee and dependent enrollment: This includes managing enrollment forms, verifying eligibility, and issuing enrollment resources, such as ID cards and data on provider networks.
- Employee education and communication: TPAs play a pivotal role in educating employees about their health insurance options, updating them on any changes to their healthcare benefits, and answering any questions they may have.
- Regulatory compliance: TPAs make sure that the group health insurance plan complies with relevant federal, state, and local regulations.
- Processing and management of medical claims: Administering claims from hospitals, doctors, and pharmacies can be challenging for self-insured employers, often driving the need for a TPA.
- Reporting and analytics: TPAs can generate reports that offer deeper insights into the performance of the plan, especially in areas like claims, members, and service costs. Employers are able to use this data to make informed decisions regarding health benefits.
- Specialized insurance: TPAs collaborate with a range of vendors to cater to various employer insurance needs, such as dental, vision, life, disability, and stop-loss insurance.
- Consolidating vendor payments: Self-funded plans often involve multiple providers. TPAs may be able to handle these payments on behalf of employers, thereby simplifying the payment process.
- Collaboration with HR and payroll: TPAs work closely with the HR and payroll teams of employers to ensure their services are seamlessly integrated into these functions.
- Online tools and resources: For instance, the TPA might provide a self-help portal where members can access plan information online.
Benefits of using a TPA
- Cost savings: TPAs can negotiate with providers to secure affordable health insurance plans and healthcare service rates. Furthermore, it’s often more economical to have a TPA manage the plan than to maintain an in-house team.
- Industry expertise: The TPA’s knowledge of group health insurance allows them to provide customized insurance recommendations to client employers. This expertise also helps employers remain compliant, avoiding potential penalties.
- Record-keeping: TPAs not only manage the plan but also maintain essential documents, which is especially useful during internal or external audits.
- Improved employee experience: Employees can feel more at ease knowing there’s a specialized support team available to address their questions and concerns.
Considerations when hiring a TPA
Before hiring a TPA, it’s important to ensure they fulfill your specific needs. For example, you should verify if the TPA meets the state licensing requirements. (In most states, TPAs need to be licensed or registered.) It’s also vital to determine whether the TPA has the expertise and resources to offer top-notch benefits administration tailored to your company.
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