Below you can learn more about Third Party Administrators (TPA's) and how they effect Employers and Unions. We interviewed one of our Professional Liability Brokers, Paul Hacker to explain the term "TPA" and how it may relate to your professional liability coverage.
Drew Smith: Good Morning Paul. How are you?
Paul Hacker: I’m doing great, how about you?
Drew: Great, thanks. So what can you tell us about your position at Axis Insurance Services, LLC?
Paul: I’m currently a Professional Liability Broker. I primarily focus on professional and management liability, specifically in the insurance agents and broker E&O market and in the healthcare field.
Drew: And you’ve learned a lot about professional and management liability. One topic that seems to come up frequently within management liability are TPA's. What exactly is a TPA?
Paul: The acronym TPA stands for Third Party Administrator. TPAs provide a number of services across many different lines of business. For example, a TPA can administer Workers Comp programs, Medical/hospital/pharmacy/dental/vision/HRA/HSA/FSA, and COBRA, Pensions, and Disability plans.
Drew: Who typically uses a TPA?
Paul: Employers and Unions often self-insure their benefit plans for several reasons. First, self-insurance brings immediate cash flow advantages over paying a fully insured fixed premium for employees (single and family premium). Second, you have greater flexibility designing your plans and establishing eligibility rules for employees and members. Third, you are under ERISA which is a Federal Mandate and you do not have to abide by state mandates. Finally, groups self-insure because they can better control and mitigate their risks.
A number of carriers in health, comp, ancillary benefits, and disability often outsource their claims processing, billing, and eligibility to TPAs. TPAs are much more nimble when it comes to claims processing, they have the staff, and the technology to process claims much more efficiently and for a cheaper cost than the large corporate entities.
Drew: What does a TPA typically do?
Paul: Depending on the type of engagement, TPA's can process claims, maintain eligibility, answer phones, bill clients, pay commissions, etc.
Drew: What are some claims scenarios?
Paul: We find more E&O claims are filed when the client and TPA are breaking up. In other words, when a client is terminating their contract with the TPA, the client may file an E&O claim because they do not want to pay for their Stop Loss or other costs to close out paying the claims for that period. TPAs need a broad professional services definition in order to reimburse them for E&O claims that arise post client terminating their services.
Some of the common claims we see that clients file against their TPA are as follows:
1). TPA does not fund a stop loss claim to the reinsurer. Reinsurer sues the TPA and the client. Or the client sues the TPA when the SL carrier denies reimbursing due to past a time limit.
2). Client sends in eligibility request to remove an ee(employee). The TPA never processes. The ee then is diagnosed w cancer. The employer does not want the bad press taking an ee off the plan b/c the TPA did not process the eligibility request. Employer sues the TPA for error.
Drew: Why is it important?
Paul: TPAs provide an alternative funding arrangement to employers and unions. And in today’s time when health care plans are increasing their fully insured premiums to record levels, TPAs and self-funding provides a much-needed cost effective alternative. To give you an example of a fully insured high deductible health plan option in NYS for an employer or union with 100 or less eligible employees, a single monthly rate is $750, and a family rate is $2000. In a TPA arrangement, there is no fixed premium rates, but rather a monthly administration charge, PPO access fee, and ancillary fees for Utilization Management, PBMs, etc. Of course, the self-funded account sets aside a certain claim budget to pay for the medical/hospital/Rx claims and this is determined during the implementation phase of the self-funding process.