A prospective client asked me recently ‘why use a Third Party Administrator?’ I thought this was a blog-worthy item of interest and write about it this week as this is not the first time I’ve been asked this question.
First of all, it’s important to understand what a TPA is all about and what role do they fulfil within the benefits world. A Third Party Administrator (or TPA) is an organization that manages employee group benefit plans on behalf of an employer. Traditionally this was something that group insurance carriers had handled.
Anyone that has had to change benefit providers will understand that it can be an arduous, time consuming and disruptive process to employees and administrators alike. The detailed analysis of benefit providers, ensuring every carrier is viewed under a similar light, plan implementation, cost analysis, plan design and re-educating staff on change in plan details and process can be daunting, exhausting and expensive. Often the cost savings that may have been enjoyed in changing carriers has been eroded when the first renewal comes in. Again, the plan administrator is facing the dilemma of revisiting the marketplace or absorb the increase. A TPA can significantly ease in this process.
Be aware that not all TPA’s should be created equally. They come in various shapes and sizes. Some TPA’s are nothing more than a broker in disguise. They charge a TPA fee to enhance his or her bottom line; however, offer very little in the way value. Other TPA’s offer a huge host of different services ranging from client support to disability management, consolidated billing to offering robust technology platforms supporting employee members and plan administrators alike. Some offer tremendous value-added programs like Employee Assistance Programs to speciality and hybrid insurance product solutions as part of the total benefits solution.
If you’re confused about how to set up a sustainable benefits plan, introduce a TPA into the mix. TPA have multiple carriers, and since TPA’s manage the administration of the plan on behalf of the employer, the information is transferred seamlessly to any new carriers in the fold.
Here are the top reasons why to retain the services of a TPA:
Because larger TPA’s are buying in such large volumes, they can negotiate large discounts with carriers. A TPA has significant clout in negotiating new contracts and renewals.
- All Employee Information Resides with the TPA.
A TPA can introduce new carriers to an employer’s plan generally with little or no disruption to a company and its plan members. This will make lengthy and time-consuming implementations a thing of the past for plan administrators.
- Plan Sustainability and Cost Containment
Because you are dealing with a TPA that may represent a significant block of business, TPA’s can spread your risk over their entire block of business. This gives you greater cost certainty and not as much vulnerability as opposed to if you were dealing directly with an insurance company.
- Access To Multiple Specialty Insurance Carriers
Having access to multiple insurance carriers helps to minimize increases to a company plan. It’s easier for a TPA to negotiate a renewal with a carrier that it has thousands of employees under contract versus a broker/advisor that has a far less significant number with a certain carrier.
- Simplified and Consolidated Billing means one bill to manage and pay regardless of how many carriers are used on your plan.
- Privacy protection is guaranteed that helps to insulate information flowing into the wrong hands.
- Fraud prevention
- Customized and enhanced programs-arrangements with Employee Family Assistance Programs, disability management assistance, hybrid insurance products, life insurance payout products, enhanced travel insurance are a few examples of TPA programs that exist as a value-added or greatly reduced cost.
- A single drug card and benefit booklet regardless of how many carriers you use
- Online systems that will support plan members and administrators
- Consolidated reporting that includes a multitude of various carrier information
- Claims management, adjudication and processing
There are many reasons why the TPA business is the largest growing aspect of the Group Benefits business. The benefits business is becoming more and more complex, and the potential financial repercussions can be dire to an organization. TPAs help to minimize risk and financial exposure for companies. They leverage buying clout and negotiating power by way of an extensive block of business. They simplify, manage and administer information on behalf of its clients and streamline this into a consolidated bill.
In short, TPAs give clients leverage in dealing with the big insurance carriers. The bigger the TPA, the larger the clout with the insurance companies.
Still, wondering why you should use a Third Party Administrator? These are the questions that I would ask a prospective TPA when assessing their capabilities?
- How many company plans do they manage and how many plan members are they responsible for?
- How do they support clients across Canada?
- How do they handle claims processing and management?
- What are the value-added services that you offer to your clients?
- Could I get a demo of your technology platform? Billing system?
- Could I talk to some references that are a similar size and format as our plan?
- How do you work with brokers/benefit advisors?
- What are your fees? What value-added services am I receiving for this?
- What insurance carriers do you work with?
- Do you have programs that promote and support different funding models? (Insured, ASO, Budgeted ASO, HSSA, hybrid solutions)
- List your strategy on how you ensure plan sustainability and cost containment for your TPA clients.
The more relevant question is not “why should you use a TPA (Third Party Administrator) but rather how you should evaluate which TPA is best for your company? In the end, do your due diligence and ask questions…lots of questions.
Please don’t hesitate to contact me directly if you have any specific questions or require to advise about your company plan.
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.
Why Use a TPA