Third Party Administrator (TPA)

A third party administrator, otherwise known as a TPA, is a business organization that performs administrative services for a health plan such as billing, plan design, claims processing, record keeping, and regulatory compliance activities.

TPAs are sometimes referred to as Administrative Services Only (ASO) entity. An ASO is not materially different than a TPA.

ASOs, however, are more likely to be owned by an insurance company. Being controlled a single insurer could potentially mean more restricted insurance options and less benefit customization. In other words, given an ASO’s exclusive relationship with a single insurer, it’s less likely the ASO would push back on the insurer in order to get greater benefit customization on behalf of its clients. Likewise, if an ASO is owned by a single insurer it is not likely that the ASO would compare its preferred insurer’s rates to those of other competitors. See our article “TPAs vs ASOs.”

Third party administrators can be extremely helpful in the context of association health plans (AHPs). AHPs allow multiple companies to collaborate on the sponsorship of a health plan. However, there can be aspects of health plan operations outside of the association’s expertise, particularly when an AHP is self-funded. In these situations, a third party administrator (TPA) may be used to fill in needed skills.

In most states, TPAs must be licensed with the state in which they operate. Normally, these licenses must be renewed periodically (such as on an annual basis).

Businesses should not treat TPAs as interchangeable vendors. Not all TPAs offer the same services. Depending on their size and personnel, some TPAs may offer more service options than others. An AHP considering the use of a TPA should compare multiple TPAs and identify how their services match up against one another. Additionally, an AHP should also ask for confirmation regarding state TPA licensure requirements.

For more information, see our article on “What is a third party administrator?”