Questions You Should Ask Before Working with a Third Party Administrator (TPA)
Thanks to high premiums and a changing healthcare landscape, employers are looking for a more affordable alternative to employee health insurance. One option is self-funded or level funded health insurance. To manage this process, many businesses opt for TPA.
At Healthcare Consultants Inc., we have walked many businesses throughout Houston, Texas through the process of adding a TPA . Over the past 25 years, many questions have popped up throughout that time regarding TPAs. Our goal is to keep you as informed as possible, which is why we’ve listed a few important questions you should ask before choosing a TPA to administer your plan.
What is the Role of TPA in Insurance?
The role of a third party administrator in health insurance is fairly straightforward. They are an organization that processes your insurance claims and aspects of your employee benefit plans. They handle claims processing for employers, such as yourself, who use self-insured or partly funded health insurance plans.
Typically, you’ll use a TPA if you want to reduce the confusion around claims and manage a large health insurance group. They are separate entities that work for and with your company, however, their interests may not always align, which is why we highly recommend doing your due diligence before signing on the dotted line.
How Do I Choose a TPA? Questions to Ask Before Hiring
Aside from the general rules and regulations that TPAs must adhere to under Texas state law, there are a few simple, yet critical, questions you should ask before hiring one for your employee health insurance strategy.
Is my plan partially self-funded, self-funded, or level funded?
TPA’s, in general, handle claims processing for employers that use self-insurance plans for their employees. Therefore, it is a good idea to inquire if you’re going to keep a partially self-funded, self-funded, or level funded plan.
If you’re keeping a self-funded or partially self-funded health insurance plan, then another question to ask is if you have the option to pay as claims are incurred or if you must contribute a set amount to a reserve each month. Your TPA will need that information before handling claims payments.
What network can I choose between?
What about your network options? Is your TPA already contracted with the networks that you need for your company? Are you able to choose between networks for your employees? This is important for both you and your employees.
Can I use the PBM of my choosing?
Your Pharmacy Benefits Management team or PBM manages your prescription drug programs. If you already have a PBM that you like, ask your TPA if they allow you to continue working with that team. The ethicality of PBM’s has come under fire in recent years, particularly because of the processes of kickbacks to TPAs. For this reason, your TPA should allow you to use any PBM you are comfortable with, and if they don’t, think twice before you use their services.
Our personal favorite here is EHIM. They offer the option to pay one flat monthly service fee without the headache of paying per transaction. They also are strongly against the norm of kickbacks thus helping saving clients even more.
What is the run-out liability on these plans?
If you don’t want to pay unnecessary fees because of your TPA, then ask about the run-out liability on your plan. Run-off liability is the period of time that follows your termination of a plan. During that time, any claims you incurred before your termination date are being paid. Most contracts have 3 to 6 months of run-out protection included. This gives you time to submit claims, clarify issues with the claims, etc.
You need to know what your run-out liability is in order to hire an efficient TPA who understands your insurance contract.
What portion of the reserves do we get? When do we get them? Are there any stipulations?
Most of TPA Administration has to do with understanding your business’ health insurance plan. One area of concern is your reserves. With a self-funded plan, your company will determine what the worst cost claims amount is per year then consider the TPA costs associated with that number. Let’s say your business determines that the number is $2 million. You hold something like $1.5 million for reserves for those potential claims.
At the end of the year, your claims only amounted to something like $1 million. That leaves $500K in reserves. After fixed costs from your TPA, your question will be, what portion of those reserves are mine and when can I get them back? Also, are there any additional stipulations applied to these reserves I should know about? And do you have to renew the same plan from the previous year?
At the end of the day, your plan costs will be determined by stop-loss premiums and out-of-pocket expenses to your TPA. Of course, you can always speak with a health insurance agent to reduce your costs by changing your plan structure.
Who is the reinsurance carrier, and what is their company rating?
If you are in a partially self-funded arrangement, you will likely need to carry reinsurance. Reinsurance protects you if a large sum of claims is filed beyond the amount you put in reserves. Your third-party administrator will be responsible for paying those claims and may suggest a reinsurance company. Before you make a decision, ask about their company rating. This is perhaps the most expensive part of self-funded health insurance.
Of course, the smaller your employee pool, the less of a risk you’ll be taking. The lower the amount you opt to pay for reinsurance coverage, the higher your costs for the insurance will be. Your TPA should have access to your reinsurance carrier in a way that makes filing claims much easier. However, ultimately it should be your choice what carrier you use and the costs you’re willing to pay.
Why Should I opt for TPA Services?
A TPA is an important part of any self-funded health insurance plan. Self-funded insurance gives employers a broader scope of benefits options to work with. It can also reduce costs without negatively impacting employees. In contrast, a full-funded insurance plan can be more expensive. With either option, however, a TPA can eliminate much of the confusion surrounding the claims process.
We’ve listed a few of the questions above to give you a good basis to build on prior to moving forward with your health plan. However, there is always more to consider. Schedule a meeting with us to ensure you are asking ALL the right questions.