What Is a Third-Party Administrator (TPA)?

A third-party administrator is a business that delivers various administrative services on behalf of an insurance plan, such as a health plan. Third-party administrators are normally called TPAs but, sometimes, they are called “administrative services only” entity (or an ASO) and these ASOs may or may not have a more limited service set than is the case for a typical TPA. Additionally, an ASO may be limited to a single health insurance company relationship while a TPA may work with multiple insurers in order to find the most advantageous insurance prices for their clients. TPAs may make a commission from the premiums paid to an insurer for health coverage. A TPA can also charge specific fees for its services, or it may make money through a combination of commission and fees depending on the scope of the services they provide.

TPAs are often used with self-insured health plans where the organization wants the savings associated with self-insuring but not all the operational work that goes with those savings. Self-funded health plans are governed by ERISA and TPAs supporting an ERISA health plan must comply with ERISA’s requirements including fiduciary responsibilities. The Society of Professional Benefit Administrators estimates that 60 percent of U.S. workers with non-federal benefits are in health plans using third-party administrator services.

TPAs help with the design, launch, and ongoing management of a health plan. This distinguishes TPAs from health plan consultants who may assist with the design of a health plan but do not participate in its ongoing administration. A TPA may also coordinate the services of other vendors needed for an AHP such as an actuary, legal counsel, or claims analysis firm.

TPA services are normally configured to the needs of the client. Examples of services that a third-party administrator could potentially provide a health plan are:

• Benefit design
  • Benefits tailored to needs of employees rather than using off-the-shelf benefit designs
  • Prescription drug formulary design potentially in collaboration with a pharmacy benefits management (PBM) firm
  • Benefit bundling (e.g. medical benefits with dental or disability benefits)
• Healthcare provider access
  • Doctor & hospital network
  • Pharmacy network
• Enrollment assistance
  • Plan eligibility verification for employees of association members
  • COBRA assistance for qualifying individuals who were terminated or had hours reduced
• Customer service to plan participants
• Consolidated billing across vendors for health plan services
• Processing of medical claims
  • Claims processing according to applicable regulation
  • Identification of billing mistakes from healthcare providers
• Stop loss coverage
  • Negotiating stop loss coverage for self-insured plans
  • Determination of the “attachment point” for stop loss coverage in consultation with a credentialed health plan actuary
• Plan record keeping
• State and federal plan filings
• Health plan compliance

TPAs that cover most of the services above are sometimes referred to as “comprehensive TPAs.” Some TPAs that are limited to a single line of insurance (for example, dental) may be referred to as a specialty TPA.

Before entering into a contract with a TPA, your organization should:

• Get a clear description of the services to be provided (though over time a health plan may choose to expand or reduce the services used)
• Get an overview of fees or charges for TPA services
• Receive contact information for client references
• Obtain a summary of TPA licensure status within the state or states of operation for the association health plan (the majority of states require special licensing for TPAs)

Alongside the above health plan operation functions, another value of a TPA is the ongoing monitoring of regulations, laws, and court decisions for the legally compliant management of a health plan. If you are considering a single-insurer ASO instead of a TPA, be aware that:

• The ASO may not be as strong an advocate for you on matters (e.g. gaining access to your claims data for optimization analysis and review for waste, fraud, and abuse) since the ASO has a large financial dependency on its one insurance company partner
• The ASO may only offer you pre-packaged benefit designs and not push back on the insurance company for greater customization

For more information, see our article “What Is the Difference Between a TPA and an ASO?”