Third-party Administrators (TPAs)
Third-party administrators (TPAs) are support companies in the employee benefits market. Depending on the type of TPA, they specialize in different aspects of plan administration. This article specifically focuses on TPAs that manage medical and prescription drug (Rx) plans — particularly for self-funded employers. We’ll explore the role of TPAs, their benefits for employers, and how they’re changing the landscape of employee benefits administration.
What is a third-party administrator?
Third-party administrators (TPAs) are independent organizations that manage employee benefits plans on behalf of the employer. TPAs are often used in self-funded insurance plans, but they can also assist with fully insured plans.
They act as an intermediary between the employer, their employees, and their insurance providers, streamlining the benefits administration process. TPAs are a popular choice, with roughly 79% of employers using them in one way or another.
What do third-party administrators do for employers and HR teams?
Third-party administrators wear many hats, but here are some of their most common responsibilities:
- Claims processing: handling the paperwork and administration for your employees’ medical and pharmacy claims so you don’t have to
- Eligibility management: keeping track of who’s covered, what the coverage entails, and when coverage begins and ends
- Benefit compliance: making sure your plan follows all local and federal regulations, including ERISA regulations
- Reporting: providing insights on plan performance and usage so you can be strategic with your benefits plan design
- Customer service: answering employees' questions about their benefits — and freeing up valuable time for HR
Why should employers use a third-party administrator?
Using a TPA isn’t just an easy way of outsourcing the paperwork. Here’s why employers are jumping on the TPA bandwagon:
Expertise
TPAs eat, sleep, and breathe benefits administration. They know the ins and outs of the regulations and best practices.
Cost savings
By streamlining processes and leveraging their expertise, TPAs can reduce HR’s administrative costs. They can also help you identify cost-saving opportunities in your employee benefits plan.
Time savings
HR teams spend an average of 1.6 hours per week on benefits administration, with even more time spent during open enrollment. If you’re on a self-funded health plan, that time can multiply in a big way. Imagine reclaiming all those hours you’ve spent on benefits administration. With the help of a TPA, you can put your time and energy toward more strategic workforce initiatives.
Meet compliance requirements
Sleep easy knowing that experts are keeping you on the right side of the regulations. Between federal and state regulations, there’s a lot to monitor. Third-party administrators have their fingers on the pulse of updates, ensuring you stay compliant and freeing up your time to focus on other tasks.
Improved employee experience
With dedicated customer service, employees get faster, more accurate responses to their questions. This can lead to higher employee satisfaction, which in turn leads to retention. It’s truly a win-win.
Data-driven analytics
TPAs provide detailed reporting on things like benefits utilization, helping you make informed decisions about your benefits strategy.
Improved benefits
With cost savings and data insights, you can offer better benefits to your employees, like lower-cost plans, expanded offerings, or resources on how to best use each benefit available to them.
Flexibility
Not only will you gain back some flexibility when moving to a self-funded insurance plan, TPAs can adapt to your needs, whether you’re a small business or a large corporation.
What is self-funded insurance, and how is it related to third-party administrators?
Self-funded insurance is like being your own insurance company. Instead of paying premiums to an insurance carrier, you set money aside to pay claims directly. Companies that self-insure often see up to 4 to 12% in savings on healthcare costs. But, with big cost savings comes a mountain of admin work, which is where TPAs come in.
TPAs are the secret sauce that makes self-funding work for many companies. They provide the expertise and infrastructure to manage a self-funded plan.
When should you consider using a third-party administrator?
If you are considering self-funding, you should engage a TPA. While self-funding has massive benefits, one major drawback is the significant administrative, compliance, and operational challenges involved. If your company has a large HR team with extensive knowledge and the appropriate resources, you may be able to self-administer in order to cut costs, but most companies will need to outsource that support to experts at a TPA. Beyond taking on the liability of administering claims, additional advantages of working with TPAs include:
- Modernizing and reshaping employee benefits: Beyond administering plans, TPAs drive cost savings, enhance plan flexibility, and integrate advanced technology.
- Cost-containment: Their expertise allows them to implement cost-saving strategies like reference-based pricing or direct provider contracting.
- Digital innovation: TPAs are one of the big driving forces behind technologies like AI-powered claims processing and real-time analytics. Tools like these will continue to improve efficiency and transparency, enabling you to make better benefits decisions.
How to find the right TPA
Choosing a TPA is like dating — you want to find the right fit, and you never want to settle. Here are some questions you should be asking as you explore whether it would be a worthwhile relationship or not:
- Experience: How long have they been in business? Do they have experience with companies like yours?
- Services: Do they offer all the services that you need? What reporting capabilities do they have?
- Technology: Are their systems up to date and user-friendly?
- References: Can they provide client testimonials?
- Customer service: How responsive are they to your and your employees’ questions and concerns?
- Cost: How do their fees compare to those of other TPAs?
- Integration with other vendors: Do they work with top-rated stop loss vendors, provider networks, and pharmacy benefit managers (PBMs)?
How to get started with a TPA
Once you’re ready to take the plunge, here’s how you can set yourself up for success:
- Assess your needs: What specific services do you require? Conduct a thorough analysis of your current benefits administration processes. Identify pain points, inefficiencies, and areas where a TPA could add value.
- Research potential TPAs: Look for ones that specialize in your industry or size of business. Use industry resources, attend benefits conferences, and seek recommendations from your peers.
- Request proposals: Get detailed information about the services and costs. Provide a comprehensive brief of your needs to ensure you get relevant proposals. Ask for case studies or examples of how they've helped similar companies.
- Check references: Talk to other companies using the TPA. Prepare specific questions about their experience, focusing on areas that are relevant to your needs.
- Make your decision: Choose the TPA that best fits your needs and budget. Consider factors beyond the cost, such as cultural fit, technological capabilities, and scalability.
- Plan the transition: Work with the TPA to create a timeline and communication plan. Identify key stakeholders and their roles in the transition process.
- Launch: Roll out the new system and be prepared to support your employees during the transition.
What are the best TPA providers?
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