A third party administrator (TPA) is the organization responsible for accepting and processing medical insurance claims from doctors, hospitals, and pharmacies in addition to helping your health plan stay in compliance with federal regulations.
When companies move from a traditional fully insured model of healthcare – where their administrative needs were cared for as part of the plan package – to a self-funded healthcare plan, a third party administrator is generally brought in to handle the ongoing administration.
Because self-funding an employee healthcare plan can help employers regain control over rising increases in healthcare costs, it’s unsurprising that a growing number of employers have opted to take the self-funding route. Given that up to 50% of traditional healthcare costs are wasted or pay for inefficient care, employers who care about trimming the fat in their healthcare plan have taken steps toward eliminating that waste by self-funding.
Once your health plan is self-funded, you will have the ability to manage and control your ongoing health expenses.
In fact, according to the Kaiser Family Foundation, 17% of employees who receive healthcare coverage at small firms and 83% of employees at larger firms are enrolled in a company plan that is based on some type of self-funded plan design. That means that switching to self-funding isn’t at all akin to blazing some wild, new trail, but it does require initial footwork and knowledge of the pieces that comprise it.
Where a Third Party Administrator Fits Into a Self-Funded Plan
When it comes to costs of healthcare insurance and getting your head wrapped around the moving parts that comprise self-funding a healthcare plan, there are three basic areas to address:
- the actual insurance costs (what you pay for stop-loss insurance)
- the total healthcare claims of employees (the money owed for claims made by employees), and
- administration of the healthcare plan (processing claims)
It is this final piece – administration of the plan – that utilizes a third party administrator or TPA.
What Does a Third Party Administrator Do?
The services offered by a TPA often mimic what you would have access to with your traditional fully insured healthcare plan. This can include anything from managing employee eligibility files for the plan to pre-certifying procedures to overseeing the employer’s stop-loss insurance component of the self-funded plan – and beyond. The areas of TPA oversight can be negotiated between the employer and the particular TPA the employer chooses to hire. Other potential services that a TPA offers or can facilitate include:
- Pharmacy Benefits Management
- ERISA Compliance
- Healthcare Navigation Services
- Nurse Help Line
Can You Do Without a Third Party Administrator When Self Funding?
Employers enrolled in a traditional fully-insured healthcare plan are used to writing a check to a big healthcare insurance company and being “done with it.” When self-funding a healthcare plan, administering all aspects of the plan and paying the covered healthcare claims of employees becomes the responsibility of the employer.
Because of the complexity of and regulations surrounding overseeing all aspects of an employee healthcare plan, choosing to work with an experienced outside vendor – a third party administrator – is typically the preferred route. That said, there are actually three ways to manage the administration involved in self-funding. An employer who chooses to self-fund can:
- Contract with a third party administrator
- Administer the plan in-house (Usually only done by very large corporations)
- Subcontract the claims using an administrative services only (ASO) agreement with a traditional insurance carrier. (This limits your ability to manage the plan design and, therefore, limits your ability to manage the plan for the benefit of your company and your employees).
The level of services offered by a TPA can run the gamut from simply processing claims without sending payment to the provider all the way to a near turn-key health plan solution that includes direct primary care and transparent pharmacy benefits. If you have any trouble finding a TPA to fit your needs, Euphora Health can help you find what you need.
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