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Blog, Healthcare Costs, Insurance
January 2, 2023

Advantages of TPAs in Health Insurance

4 minute read
As they enjoy the advantages of TPAs in health insurance, a man and woman shake hands with their third-party administrator over completed paperwork.

Many businesses are switching to self-funded healthcare plans—also called self-insured health plans—in response to the ongoing escalation of healthcare costs. In comparison to fully insured plans that go through private insurance providers, with self-funded plans, companies use their own funds to pay for employee healthcare.

Why would businesses make this choice? Because eliminating the middleman also eliminates exorbitant insurance premiums, deductibles, copays, and coinsurance—saving employers money they had otherwise paid with traditional insurance plans.

While this can be a greatly beneficial change, choosing self-funded healthcare passes on extra responsibility. Thankfully, companies can rely on Third-Party Administrators (TPAs) to help them implement self-funded healthcare models efficiently and successfully.

Read on to learn more about the advantages offered by TPAs in health insurance.

What Is a TPA?

In general terms, a third-party administrator is a company contracted to provide administrative and operational services to another organization.

With traditional private insurance, organizations purchase employee coverage from companies or brokers, and the insurance company typically handles the administrative work. At the minimum level of service, TPAs take over these time-consuming yet vital operational tasks—processing of claims and settlement—for self-funded healthcare plans.

Why Use TPAs?

When employers switch or incorporate self-funded plans with their insurance, they also assume all administrative and claims work—which makes third-party claims processors fairly common in healthcare. Outsourcing claims processing and other administrative tasks with TPAs helps companies clear this common hurdle for successful self-funded plans.

Performing duties like claims processing, validating provider credentials, and managing benefits plans requires a certain depth of industry-specific knowledge. Because few employers have the specialized training or general bandwidth to perform such detailed tasks in compliance with state and federal requirements, they contract with TPAs to manage them.

Who Are TPAs?

While sometimes TPAs work for insurance companies, others work with investment firms—usually as retirement and benefits administrators. Multinational corporations can also serve as TPAs that process claims for other large agencies. And, with the right licensure and certification (governed by states), some TPAs work as independent contractors.

In short, TPAs offer organizations an expert resource on employee services and the details of healthcare administration. They take on the daily operations of employee healthcare so organizations can stay focused on business goals.

 

What’s the Difference Between a TPA and a Broker?

Brokers and TPAs both work with corporations to facilitate their employee healthcare plans. While their duties certainly have some areas of overlap, some fine distinctions can help discern the role of a broker from a TPA.

The central role of healthcare brokers is to help employers find, purchase, and enroll in a healthcare plan. Though they often represent multiple insurance providers, brokers strive to simplify the acquisition of healthcare plans that meet an organization’s budget requirements.

While TPAs also help simplify complex tasks, the distinction from brokers lies more in degree than in kind. Organizations hire TPAs to outsource administrative duties once the company healthcare plan is in place. They handle billing, claims processing, employee enrollment, and maintain compliance with state and federal insurance regulations.

If a broker is like a car salesperson who helps clients decide what kind of car (or insurance plan) to buy, the extended metaphor would liken a TPA to someone who keeps track of the financing, maintenance, and repairs and files the registration renewal on the owner’s behalf.

What Are the Advantages of TPAs in Health Insurance?

Now that you know the baseline functions of a TPA in self-funded healthcare plans, let’s take a look at some additional advantages they can offer in terms of health insurance. Beyond carrying the administrative burden of claims processing, TPAs can also assist with:

  • Claims adjudication. TPAs can review claims to decide whether they are reimbursable and process eligible claims.
  • Employee health plan onboarding. TPAs can create educational materials to ensure employees are informed about health plan benefits for easy enrollment.
  • Ensuring state and federal compliance. Their depth of expertise enables TPAs to ensure health plans remain compliant with federal and state-mandated regulations.
  • Coaching employers on unexplored healthcare options. Options for improving self-funded plans may require industry expertise—TPAs can recommend that employers incorporate certain advantageous choices unknown to the general public.
  • Providing access to healthcare networks. Because many TPAs have relationships with other healthcare provider networks, particularly if they are independent contractors, they can open doors to more coverage options.
  • Sourcing stop-loss insurers and other vendors. Stop-loss insurance mitigates the risk of catastrophic claims that employers take on with self-funded plans. TPAs can source different options to find employers the right stop-loss plan.
  • Reporting expenses and keeping records. TPAs can provide consistent and reliable reports using metrics like claim volume, dollar amounts, and membership status.

TPAs offer a range of benefits and advantages beyond easing the burden of clerical duties. Employers may choose to customize these benefits depending on their organization’s needs.

For example, if a company with a small HR department also has a TPA proficient in creating communications materials, their assistance with open enrollment and onboarding events will reduce the workload strain on HR. This ensures a smooth open enrollment and onboarding process and allows the HR department to focus on more urgent matters.

A TPA’s expert guidance offers employers the advantage of collaboration: crafting a healthcare plan with an experienced professional is far easier than creating a plan solo, from the ground up.

Providing excellent healthcare coverage can be an expensive and challenging puzzle. TPAs can help companies put those pieces together more easily, especially when switching to a self-funded healthcare plan.

Partnering with experts in self-funded healthcare is another avenue employers can take to streamline insurance initiatives.

6 Degrees Health: Are Cost Containment Solutions the Final Piece?

Now that you know the advantages of TPAs in health insurance, you’ll want to partner with an expert in self-funded healthcare plans. 6 Degrees Health is a service-first company founded by healthcare industry veterans with the goal of delivering a positive experience and significant cost savings in healthcare for employers and their employees.

We work directly with TPAs to bring our proven cost-containment solutions to employers, backed by our cutting-edge, proprietary software, reference-based pricing solution and clean claim reviews. This not only helps employers save up to 40% on their healthcare spend but also cuts through exploitative industry billing practices to bring balance and transparency back to healthcare.

Want to learn more about the advantages of TPAs in health insurance? Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.

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