Third party administrators (TPAs) may well be the Rodney Dangerfield of the employee benefits world. They don’t always get the respect they deserve given the responsibilities and tasks they assume. Also compromising their recognition is the confusion as to how they differ from other organizations in the benefits arena such as Professional Employer Organizations (PEOs), Business Process Outsourcing (BPO) firms or Administrative Services Only (ASO) firms.
TPAs do, in fact, have a distinct role as a holistic provider of essential administrative services relating to employee benefits, which are provided on a fee-for-service basis. They began as a service provider to multi-employer, collectively-bargained plans, but have since evolved to also serve single-employer and self-funded plans. TPA services include: health and dental claims processing, pension and annuity administration and recordkeeping, health and welfare fund administration, payroll auditing, and full fiduciary and regulatory compliance with key legislation (i.e., ERISA, COBRA, HIPAA and HITECH). Additionally, some TPAs provide related services and products such as utilization management and medical stop loss. While helping clients with benefits administration and compliance is a primary role, TPAs also deliver great value in helping clients optimize their employee benefit programs.
Growing Demand for TPAs
Their high value proposition has created a growing demand for TPA services. A primary driver of this growth has been escalating health care costs which, in turn, have prompted more self-funded plans. Intensified regulatory requirements such as those imposed by the “Patient Protection and Affordable Care Act,” and heightened fiduciary responsibility for retirement plan sponsors have also fueled the TPA industry’s growth. The Society of Professional Benefit Administrators estimates that TPAs are now administering employer health plans for an estimated 50-60% of U.S. workers in non-federal government coverage plans. There is not a clear number regarding how many TPAs exist in the United States, but the IBIS World “Third Party Administrators and Insurance Claims Adjusters in the U.S.– Market Research Report, July 2019” projected 2019 industry revenues of $256 billion and an annual growth rate of 4.7% from 2014-2019. This report cites 137,944 businesses in the sector, although clearly not all are comprehensive TPA service providers.
TPA’s Comprehensive Suite of Services
TPAs assist plan sponsors both in their regulatory compliance, including their fiduciary responsibilities, and overall benefits administration. They distinguish themselves from other benefit-related service providers through their ability to provide flexible, customized services that best meet the needs of individual plan sponsors. Their goal is to administer and manage a client’s benefits using disciplined, proven processes and advanced technologies (e.g., automated claims processing system, imaging equipment to store claims processing images, automated workflow system, etc.), to assure that both plan sponsors’ and their members’ interests are served.
TPAs employ a highly qualified professional staff includes licensed claims analysts, finance and eligibility processors, and payroll auditors. Also part of the TPA team are trained customer service representatives who answer incoming calls from plan members and sponsors, and when necessary, escalate the call to the right department for prompt management.
Highly Valued TPA Claims Analysis and Adjudication
Many plan sponsors especially value their TPA’s comprehensive claims analysis and robust claims adjudication. Best in class TPAs catch countless billing errors that drive up costs substantially if left unchecked. Their due diligence performance when it comes to claims paying is very thorough. This level of service, coupled with the TPA’s ability to tailor all of its services leads to better managed benefits, member satisfaction and compliance, coupled with measurable cost savings. In this way, TPAs serve more like strategic business partners helping plan sponsors contain costs, manage risks, render more informed decisions relating to their employee benefits and, ultimately optimize their benefit programs.