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What Is a Third-Party Administrator (TPA)?

What Is a TPA? (Third-Party Administrator) Are you familiar with the term "Third-Party Administrator (TPA)"? If not, let's delve into this concept so you can gain a better understanding of what it entails. A TPA...

What Is a TPA? (Third-Party Administrator) What Is a TPA? (Third-Party Administrator)

Are you familiar with the term "Third-Party Administrator (TPA)"? If not, let's delve into this concept so you can gain a better understanding of what it entails. A TPA is essentially a business that provides administrative services for insurance plans, particularly health plans. However, TPAs can also be referred to as "administrative services only" entities (ASOs) which may offer more limited services than TPAs. They can work with multiple insurance companies to secure the most advantageous insurance prices for their clients. In some cases, TPAs receive commissions from the premiums paid to insurers for health coverage. Additionally, TPAs can charge specific fees for their services or adopt a combination of commission and fees, depending on the scope of services provided.

The Role of TPAs in Self-Insured Health Plans

TPAs are commonly utilized in self-insured health plans, where organizations seek the benefits of self-insuring while minimizing the associated operational work. It's important to note that self-funded health plans are governed by ERISA (Employee Retirement Income Security Act), and TPAs supporting these plans must adhere to ERISA's requirements, including fiduciary responsibilities. In fact, the Society of Professional Benefit Administrators estimates that 60 percent of U.S. workers with non-federal benefits are covered by health plans that utilize third-party administrator services.

TPAs play a crucial role in the design, launch, and ongoing management of health plans. This sets them apart from health plan consultants who primarily assist with the design but do not handle ongoing administration. TPAs may also coordinate the services of other vendors, such as actuaries, legal counsel, or claims analysis firms, to ensure a comprehensive health plan.

Services Provided by TPAs

TPAs tailor their services to meet the unique needs of their clients. Some of the services that a third-party administrator can potentially provide for a health plan include:

  • Benefit design: Developing benefits that are tailored to the specific needs of employees rather than relying on generic benefit designs.
  • Healthcare provider access: Facilitating access to a network of doctors, hospitals, and pharmacies.
  • Enrollment assistance: Verifying plan eligibility for employees and providing COBRA assistance for qualifying individuals who have been terminated or had their hours reduced.
  • Customer service: Offering comprehensive customer service to plan participants.
  • Consolidated billing: Streamlining billing across vendors for health plan services.
  • Claims processing: Ensuring accurate and efficient processing of medical claims while identifying billing errors from healthcare providers.
  • Stop loss coverage: Negotiating stop loss coverage for self-insured plans in consultation with a credentialed health plan actuary.
  • Plan record keeping: Maintaining comprehensive health plan records.
  • State and federal plan compliance: Ensuring compliance with all relevant state and federal regulations.

Some TPAs that specialize in a single line of insurance, such as dental, may be referred to as specialty TPAs. TPAs that cover most of the services mentioned above are often referred to as "comprehensive TPAs."

Choosing the Right TPA for Your Organization

Before entering into a contract with a TPA, it's crucial to consider several factors:

  1. Get a clear description of the services to be provided, as the scope of services may evolve over time.
  2. Obtain an overview of the fees or charges associated with TPA services.
  3. Request contact information for client references to gauge the TPA's track record.
  4. Ensure that the TPA holds the necessary licensure for the state or states of operation. Most states require special licensing for TPAs.

TPA vs. ASO: What's the Difference?

If you are considering a single-insurer ASO (Administrative Services Only) instead of a TPA, it's important to be aware of certain distinctions. ASOs may not advocate as strongly for you on matters such as gaining access to claims data for optimization analysis and review for waste, fraud, and abuse. This is because ASOs rely heavily on their relationship with one insurance company. Additionally, ASOs may offer only pre-packaged benefit designs without pushing for greater customization with the insurance company.

For more information on the differences between TPAs and ASOs, check out our article "What Is the Difference Between a TPA and an ASO?"

So there you have it—an overview of what a Third-Party Administrator (TPA) is and the valuable services they provide. Whether you're managing a self-insured health plan or looking for comprehensive administrative support for your organization's insurance needs, a TPA can be a vital partner in ensuring smooth operations and excellent employee benefits.