The Ultimate Guide to Third Party Administrators
Third party administrators can give employers greater control of their healthcare spending while reducing their administrative burden.
In the complex world of health insurance, third party administrators (TPAs) are emerging as a better solution for many employers. Self-funded plans with a TPA offer a unique blend of flexibility, customization, and cost savings for employers who provide health insurance.
This article will explain what a third party administrator is, who it’s for, and how it works.
Table of Contents
What is a self-funded plan?
To understand third party administration, it helps to know a little about self-funded health insurance plans.
Self-funded plans offer an alternative to traditional health insurance. In a traditional insurance plan, the employer pays a premium based on the health profile of their employees, and the health insurance company takes on the risk. Typically, employers end up paying more money for traditional health insurance. For a smaller business, this might make sense because they're not taking on any risk—the insurance company is.
In a self-funded plan, by contrast, employers assume the financial risk of providing healthcare benefits to their employees. (This risk is limited by stop-loss coverage, which kicks in when the claims reach a certain dollar amount.) Instead of paying a fixed premium to an insurance company, employers who opt for self-funding pay for out-of-pocket claims as they are incurred.
Importantly, employers who choose a self-funded plan will still have access to a healthcare network to reduce the cost of their claims. With Blue Solutions Administrator, for example, employees get access to the BlueCard National Provider Network. This allows South Carolina-based companies to cover employees residing out of state with the largest national preferred provider network.
Why would employers choose a self-funded plan?
At a high level, with a self-funded plan, you’re only paying for the health care you use. Often, there are significant savings with this approach versus a traditional health plan.
There are several reasons why an employer might opt for a self-funded plan.
- Cost Savings
Traditional insurance plans have to pad their products in order to make a profit. In a self-funded plan, employers only pay for the healthcare their employees use. Additionally, employers in a self-funded plan have cash flow advantages since they don't have to pre-pay for coverage, paying claims only as they are filed.
Self-funded plans allow the employer complete freedom to choose what they want to cover based on the wants and needs of their workforce. All plans are customizable, in contrast to the one-size-fits-all traditional plans.
PAI provides assistance to help you stay in compliance with Affordable Care Act (ACA) and Consolidated Appropriations Act (CAA) regulations and keeps you posted on changes that may affect your group or plan. In addition to providing the reporting you need for PCORI, we also assist with your SBCs and plan document writing.
To sum up, self-funded and traditional insurance plans both provide health benefits, but they differ significantly in their risk distribution and operational setup. Self-funded plans offer more flexibility and potential cost savings but come with a slightly higher risk, while traditional plans provide more predictability in costs at a higher price point. Deciding between the two often involves consideration of an employer's size, financial stability, and risk appetite.
What is stop-loss insurance?
To mitigate the risk of high claims with a self-funded plan, most employers have stop-loss insurance, which sets a certain threshold for claims. Once this dollar amount is reached, the stop-loss insurance takes over, covering the additional costs.
How Stop-Loss Works
Most medical claims are routine and predictable, so employers can set aside a predetermined amount each month to cover them. Occasionally, catastrophic claims occur, so employers purchase a stop-loss insurance policy to protect against those unexpected claims.
Stop-loss insurance will reimburse employers for unexpected large claims. This means that employers only pay for the smaller, routine claims, and the stop-loss insurer reimburses for the larger, catastrophic claims.
There are two main types of stop-loss—specific and aggregate—that employers can purchase. Most employers buy both types of stop-loss coverage.
- Specific stop-loss insurance protects the employer from bearing the entire cost if an individual becomes very ill and has a catastrophic claim. The employer chooses a deductible and is responsible for all claims below the deductible. The stop-loss insurer will reimburse the employer for all eligible claims above the deductible.
If the stop-loss specific deductible was set at $25,000 and an individual incurs a claim in the amount of $75,000 the stop-loss insurer will reimburse the employer $50,000.
- Aggregate stop-loss insurance protects the employer from bearing the cost of ALL individuals' claims within a year. If claims surpass the aggregate deductible, the stop-loss insurer will reimburse the employer for all claims above the set benchmark.
The employer group incurs $1.5 million in annual claims. Their expected annual claims were set at $1 million, and their aggregate corridor was set to 125% of expected claims, so the attachment point was $1.25 million. The stop-loss insurer would reimburse the employer $250,000 under the aggregate coverage. An aggregate corridor is the difference between the expected claims amount and the attachment point. This is where aggregate stop-loss coverage begins to reimburse for claims exceeding the set amount. If needed, other routine, low-dollar employee benefits, such as dental, vision, or short-term disability can be covered by aggregate stop-loss insurance.
What is a third party administrator?
A third party administrator pays claims on behalf of a company using a self-funded plan and handles all the administrative details of the plan. The third party administrator also provides access to a certain healthcare network, which will determine the employee benefits.
Blue Solutions Administrator is the only third party administrator that offers South Carolina-domiciled companies access to the BlueCard National Provider Network for employees residing out of state.
TPAs are not an insurance company.
Third party administrators are not a primary insurer, but they do act as a bridge between the employer and the stop loss insurance company.
Third party administrators work with stop loss insurance companies to develop a plan for companies who are self-funding, but the TPA does not work for the stop loss insurance company. The TPA’s client is the employer.
Who should use a third party administrator?
A third party administrator should be used by any employer who wants to have a self-funded insurance plan. Self-funded insurance is often used by medium to large companies—usually between 50 and 500 employees. Having a larger employee pool distributes the risk more evenly and makes it more likely that a self-funded plan will be beneficial. Self-funding has proved especially popular for corporate clients, churches, and state or local government offices.
TPAs supporting self-funded healthcare plans take on the administrative burdens that can become a crushing responsibility when managed in-house. These include enrollment, insurance claims processing, reporting, compliance, and eligibility.
Benefits of Using a Third Party Administrator
TPAs manage various tasks such as claims processing, member services, billing, and network management. In essence, they handle the administrative burden so that employers can focus on their core operations.
- Ease of Use
Most HR reps have enough work on their plates without haggling with insurance companies over claims. That’s where a third party administrator provides a lot of value. We review claims as they come in, match them up with your benefits, contest the bill with the health insurer if necessary, and make the payment. Blue Solutions Administrator also provides full transparency through PAI analytics, so that you can track your healthcare spending directly.
- Customer Experience
Blue Solutions Administrator is a third party administrator based in SC. We’re experts in ensuring compliance and optimization for our clients, and we pride ourselves on our responsive customer service.
- More Control and Customization
Unlike traditional insurance which offers a one-size-fits-all approach, TPAs like Blue Solutions Administrator can provide bespoke health plans tailored to the specific needs of a company or individual. As a plan sponsor, you can design the plan to include the insurance coverage your employees need or prefer.
In a traditional plan, fertility treatments are rarely covered. In a self-funded plan with a TPA, employers can design a plan that covers that treatment. The employer can completely decide what medications, procedures, and conditions are covered at a very specific level. (If you’re not interested in this much customization, TPAs can also guide you in setting up a more traditional plan.)
You can see exactly how your healthcare dollars are spent, so you can adapt and adjust accordingly. Most carriers don’t provide this visibility.
- Improved Cash Flow
Rather than paying fixed premiums every month, you pay for healthcare costs as they occur.
- Cost Savings
By streamlining operations, third party administrators can lead to significant cost savings for companies. Blue Solutions Administrator has established networks and systems in place to ensure claims are processed efficiently, reducing overhead costs. Plus, you'll only pay for services your members actually use, and you will be exempt from some of the taxes and fees associated with traditional health insurance.
“The greatest ‘product’ advantage TPAs have is flexibility and personalized service. Every TPA-administered plan is custom-designed for the plan sponsor’s needs and specific workforce.”
– Fred Hunt, past President, Society of Professional Benefits Administrators (SPBA)
Key Considerations When Choosing a TPA
What is the TPA’s reputation? Do they have a national presence and licensing in multiple states?
Blue Solutions Administrator is the only South Carolina-based third party benefits administrator offering the performance and savings of the BlueCard National Provider Network. BSA caters to the self-funded market, especially employers who have employees outside of South Carolina, by covering and serving those employees wherever they are in the country.
With licensing to handle benefits nationwide, our wealth of knowledge and skill positions BSA at the forefront of the TPA industry. Our seamless expansion into new territories speaks volumes about our expertise, helping us spread our mission of "making benefits better" to clients from coast to coast.
Who are their point solution and vendor partners?
You can tell a lot about a person by the company they keep, and the same is true when you’re looking for the right TPA. Who they choose to partner with says a lot about their values—it will also directly impact the kind of service that you receive. At BSA, we carefully vet all vendors to ensure that they meet our high expectations.
Is their goal to find low-cost and high-quality care options? Or are they only looking for the lowest price?
Finding the lowest price is a great strategy for groceries, but not for benefits. A TPA who only points you in the direction of the lowest-cost option may not have your best interests in mind. We understand that employers have budgets—that’s important—but finding personalized plan solutions that combine the best in cost and care quality is a balancing act that we take very seriously.
Are they focused on innovative solutions?
The healthcare space is rapidly evolving, and you need a TPA partner who is constantly working to stay ahead of the curve. BSA is always willing to think outside of the box when it comes to finding the perfect solutions for any kind of client— a large employer with complex needs or a small group that wants to keep things simple. We make sure that your benefits are expertly matched to your employees while keeping your bottom line in mind.
- Transparency and Technological Infrastructure
Does the TPA employ modern systems for transparent reporting?
Through our proprietary PAI Analytics suite, employers can get instant access to reporting on how their healthcare dollars are being spent.
Does the TPA remain in compliance as regulations change?
Insurance is complicated. BSA stays on top of all compliance requirements in an ever-shifting regulatory environment.
- Network Strength
Does the TPA have robust connections with healthcare providers across South Carolina?
Blue Solutions allows businesses situated in South Carolina to realize the value of the BlueCard National Provider Network. The BlueCard National Network is a seamless network that affords members the ability to use any network doctor or network hospital in any location.
Will Transitioning to a TPA Be Disruptive?
Moving to a self-insured plan does involve changes for the employer, but it doesn’t necessarily need to be disruptive to employees.
Most employees will have the following questions about any new plan:
- Will my carrier or network change and will that impact which doctors I can see?
- Will the quality of my health benefit get worse?
- Will the amount of money that I pay for health insurance increase?
BSA can help provide employee education materials that will answer all these questions. Most employees are satisfied with the health care they receive from a self-insured plan, especially when they reap the benefits of lower costs in the form of healthcare premiums.
BSA brings a lot of value to both the group and the covered employee. We offer the most current, reputable networks available. However, the true test of value is what happens when a covered plan member calls in with a question, or a group has multiple needs but limited HR resources. Our focus on the customer experience and fast, accurate claims payment means that the majority of our clients stay with us, year after year.
FAQs About South Carolina TPAs
Are there state-specific regulations for TPAs in South Carolina?
Yes, South Carolina has specific licensing and operational requirements for TPAs, which are overseen by the South Carolina Department of Insurance.
Can TPAs assist with both medical and dental claims?
Yes, TPAs handle a variety of claim types, including medical, dental, vision, and pharmacy benefits.
How do TPAs handle data security?
Data security is paramount. Reputable TPAs employ state-of-the-art encryption methods and adhere to stringent data protection regulations.
The history and future of TPAs
The modern-day version of TPAs began with the multi-employer union/management plans set up around the 1945 federal Taft-Hartley Act.
This was frequently a group of employers all coming together under a single union. This setup worked especially well for professions where workers shift between jobs frequently, in fields like construction. This resulted in what we commonly refer to as "multi-employer" plans.
By the late 1950s, a few forward-thinking TPAs began to emerge. They catered to individual corporations looking to provide benefits to their own employees. While many were focused on pensions at the time, corporations saw the potential in health coverage. Today, health is the main product for TPAs everywhere, largely thanks to the complex web of government regulations.
TPAs have come a long way and evolved over the years, adapting and expanding to the ever-changing landscape of employee benefits.
The roles and responsibilities of third party administrators are becoming more complex. The most effective TPAs, like Blue Solutions Administrator, incorporate next-generation technology to process and manage claims. By keeping our processes aligned with healthcare needs through technology, our clients benefit from timely claims management and superior customer service.
Why are TPAs becoming more popular now?
TPAs are simply the right product for the moment. They meet a specific market need for employers who want to have more control over their health insurance options, reduce administrative hassle, and save money.
- TPAs offer highly personalized services, based on the employer’s unique needs.
- TPAs offer innovation and new options for coverage that aren’t available in the traditional marketplace.
- TPAs remove the burden of worrying about health insurance compliance from the employer.
As self-funded plans have flourished, so have TPAs. That’s because most plans administered by TPAs involve self-funded plans—where claims are paid by the employer instead of a traditional insurance company. The employer’s stability comes from stop-loss insurance, which provides catastrophic coverage if claims go over a certain amount, determined by the employer.
The greatest advantage of a TPA is flexibility and personalized service. Every TPA-administered plan is customized for the employer’s needs and workforce. This flexibility creates an ideal opportunity for cost-containment and oversight.
States have about 1,200 mandated benefits that are required in a fully insured plan. These can include items that an employer may not wish to cover, like toupees or hair implants. With self-funding, the employer can custom design the benefit package to meet the wants and needs of that particular group of workers.
Another reason TPAs are growing in popularity: they are known for their responsiveness and superior customer service. This ensures that claims are processed swiftly, questions are answered on the spot, and plans can evolve with the shifting needs of the workforce.
This flexibility is especially important for cost containment and to adjust to the hundreds of legislative and regulatory changes and federally mandated benefits imposed by the government every year. In a traditional insurance plan, the insurance company makes one decision for all policyholders on how these new rules will be implemented, whereas a TPA works with each plan to see how the changes can be implemented most efficiently for each plan or individual worker.
Third party administrators, like Blue Solutions Administrator, represent a powerful ally for businesses and individuals navigating the complexities of health insurance. By offering expertise, flexibility, and excellent service, third party administrators add significant value to your self-funded plan.
Contact us today to see how Blue Solutions Administrator can help set you up with a self-funded plan that will lower your healthcare costs.