Blog, Insurance
March 3, 2023

What Is a Third-Party Administrator and How Do They Help Small Businesses?

3 minute read
Employers learn what a third-party administrator is as he explains how he can help reduce their healthcare costs.

Rising healthcare costs are one of the biggest challenges facing small businesses today. Providing adequate employee healthcare coverage is a crucial component of any operation, but has become more burdensome for smaller businesses because they have limited resources.

While per-employer costs are expected to rise by 6.5% in 2023—after reaching $13,020 per employee in 2022—there are some effective tactics that can help mitigate rising costs. A self-funded plan that is administrated by a third-party administrator is one element of a greater cost containment strategy that could help lower how much you spend on healthcare and also improve the efficiency of managing employee care.

So, what is a third-party administrator? This article will explain the role of a third-party administrator, the services they provide for small businesses, and how incorporating them should be part of your cost containment strategy.

What Is a Third-Party Administrator?

Broadly speaking, a third-party administrator (TPA) is a company or individual that collaborates with other organizations to provide administrative and operational services, most often on behalf of a healthcare plan.

Third-party administrators also work with multiple healthcare vendors and insurers to provide various savings solutions for companies. Access to these networks allows them to facilitate plans that effectively fulfill an organization’s needs, which is especially important for small businesses.

Third-party administrators function as active, ongoing participants in a small businesses’ healthcare model. They often perform duties like claims processing, managing benefits plans, and validating provider credentials, which are tasks that most small businesses lack the industry expertise to perform.

While many third-party administrators work for specific companies or firms, they can also act as independent contractors, depending on their certification. TPAs ease the administrative burden of providing healthcare from an employer’s shoulders so they can focus on larger goals.

How Third-Party Administrators Help Small Businesses

Now that we’ve answered the question “what is a third-party administrator?”, you are likely wondering how they might benefit your company. As we mentioned earlier, many tasks that TPAs take on are—theoretically—actions that employers could perform themselves.

While technically, there’s nothing stopping an employer from managing these healthcare tasks in-house, third-party administrators have a swath of specialized healthcare expertise that makes them significantly more efficient at duties, including:

  • Adjudicating claims – Claims processing is a time-consuming exercise. Third-party administrators can handle qualified claims and examine them to determine if they are eligible for reimbursement.
  • Onboarding of employee health plans – Third-party administrators can produce training materials to ensure staff members are aware of a health plan’s advantages during enrollment periods.
  • Guiding employers through alternative healthcare options – Many alternative healthcare options could result in huge savings. These options for enhancing self-funded plans require knowledge of the sector for successful navigation. Third-party administrators can advise businesses to consider options that may not be widely known, like self-funded healthcare plans or reference-based pricing.
  • Opening the doors to healthcare networks – It is possible to access more coverage alternatives when many TPAs have connections to other healthcare provider networks, especially if they work independently.
  • Ensuring compliance with state and federal laws – Because they are healthcare experts, they can review laws to ensure health plans remain compliant with both federal and state regulations.
  • Managing expenses and record keeping – Third-party administrators can provide trustworthy, consistent reports on criteria like membership status, claim volume, and dollar amounts, removing the clerical burden from employers.

While these benefits can lead to savings and more efficient management of healthcare plans, TPAs are only one piece of the puzzle. The advantages of working with a third-party administrator are amplified immensely when coupled with other cost containment solutions through self-funded healthcare plans.

6 Degrees Health for Cost Containment Solutions

If you’re one of the many employers looking to lower what they’re spending on healthcare, you are not alone. Knowing what a third-party administrator does is a crucial first step toward an effective cost-saving approach.

The next step is partnering with an expert in self-funded healthcare. 6 Degrees Health was started by healthcare industry veterans to help employers and their employees benefit from cost containment solutions that lower spending and increase the quality of employee care.

We collaborate closely with industry-leading third-party administrators and health insurance brokers to provide employers access to our proven cost-containment solutions such as our reference-based pricing model and clean claim reviews.

Backed by our cutting-edge benchmarking software, this not only enables companies to save up to 40% on healthcare expenses but also eliminates unfair industry billing methods, restoring fairness and transparency to the healthcare system.

Still asking yourself “what is a third-party administrator”? Speak to a representative today to learn more about third-party administrators and how they can be part of a greater cost containment solution that can help you realize the true benefits of healthcare.


Looking To Lower Your Company Healthcare Coverage Cost?

As a service-first cost containment company, 6 Degrees Health is here to help employers and employees navigate a historically opaque healthcare system to pay only what is fair.

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