A third party administrator, commonly referred to as a TPA, is a firm that offers administrative services such as overseeing employee benefits, on behalf of another entity. Third party administrators execute these roles in a fee-for-service mode.
The use of third party administrators is popular among corporations across all industries. This is due to the wide scope of duties that TPAs can handle. However, the services rendered through third-party administration are unique to each company based on its industry.
Although almost all industries utilize third-party administration, the insurance industry utilizes them more frequently. Insurance companies, particularly health insurance companies, outsource administrative roles to TPAs.
What is a Third-Party Administrator (TPA) in Health Insurance?
In the context of health insurance, third-party administrators are an intermediary between the insurer and a policyholder. As a third party in the insurance agreement between the insurer and the insured, the TPA’s primary role is to govern the settlement of insurance claims.
Health providers who establish exclusive health plans often delegate administrative duties to a third party. In addition to this, organizations running a self-funded healthcare plan for their employees also frequently outsource TPA services.
What is the Role of TPA Firms in Health Insurance?
TPA firms are tasked with:
1. Linking the health insurance company to the policyholder
When there is a medical claim, policyholders contact TPA who in turn provides an identification card that bears a distinct number, which aids in settling the claim. Consequently, the policyholders, who are the patients in this scenario, do not need to go through their employers or health insurance companies to get medical coverage or to file their claims.
2. Enrolling members
TPAs enroll members in their employers’ self-funded plans. Before this, the employees’ eligibility is verified by the TPAs, to ensure that they qualify as members of the health plan.
3. Keeping records
The TPA conserves essential records of policyholders who have been admitted as patients. These records are used for reference when claims are being settled. In addition to this, filing these records is a compliance measure that TPAs are expected to abide by.
4. Settling claims
This is one of the most integral roles of TPAs. Third party administrators liaise with hospitals and insurance companies to ensure that charges are settled directly between them. TPAs enforce a cashless claims process for medical bills.
5. Reporting
A third-party administrator is obligated to prepare an annual report which incorporates financial statements for the year. The annual report is used to assess the performance of the self-funded healthcare plan, to determine whether the health plan is still viable and how sustainable it is.
6. Constant support for policyholders
TPAs create a platform where policyholders can channel their queries regarding their insurance coverage. The service is offered round the clock, ensuring that the insurance needs of self-funded health plan members are always attended to.
Companies with self-funded healthcare plans for their employees often delegate the above tasks to TPAs. These roles would otherwise be handled by the company’s human resources, administration, or finance departments.
How is a TPA Different from an Insurance Company?
In self-funded health plans, employers shoulder the financial liability associated with providing their employees with healthcare benefits. In such a health plan, TPA only plays administrative roles. On the other hand, in a self-funded plan, an insurance company assumes claims risks and offers coverage to the insured.
Employers with a self-funded healthcare plan choose TPAs to handle their employees’ health plans. TPAs take charge of claims originating from a medical facility. They settle them by paying the bills using the funds in the bank account created by the employer specifically to serve this purpose.
Are Third Party Administrators Regulated?
TPAs in the United States are regulated. In most jurisdictions, a third-party administrator can only be authorized to operate upon attaining a TPA license, whose renewal is periodic. The rules that third-party administrators must adhere to are stipulated in the TPA Act.
On top of this, some bodies such as the Society of Professional Benefit Administrators (SPBA) have been established, whose aim is to offer information on matters regarding the management of employee benefits plans.
SPBA members are therefore aware of what to expect from firms managing their employment benefits. In turn, these members use this knowledge to enforce compliance, as they hold TPA firms accountable for their operations.
Teaming up with a credible third-party administrator is valuable not only to your company but also to your employees. This partnership will save you the trouble of selecting the ideal benefits plan for your employees, and the workload of governing this plan alone.
Sam Collier is the founder of Fifium, a web and mobile application development blog dedicated to sharing expert knowledge and insights in the tech industry. With over 15 years of combined experience among its developers, Fifium started as a small group of like-minded professionals passionate about mobile development and has grown into a respected source of information and guides.
