Third party administrator companies: what a TPA does for a plan it does not insure
- Benefits cost per employee a year
- $11,900
- Per employee a month
- $991.67
- As a percent of base salary
- 19.2
The numbers on this page come from the inputs you enter and the method stated: 3,600 seconds to an hour, 52 weeks to a year, twelve months to a year, and nothing else. No industry shrinkage figure, no occupancy benchmark and no assumption about your attrition; every one of those is yours to enter.
What is a third party administrator, in the plainest terms available: a firm that operates a benefit plan it does not insure, for an employer that does not want to operate it. The third party is the clue. The employer sponsors the plan, a carrier or the employer's own money bears the claims, and the administrator sits between them doing the work. This page covers what TPA companies actually do, the two arrangements they are paid under, where a TPA sits next to a broker and a carrier, and the questions worth asking before you appoint one.
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What the work is
Taking enrollment and applying the eligibility rule, adjudicating and paying claims where the plan is self-funded, handling the continuation rights of people who leave, keeping the plan documents current, and producing the filings the plan year ends with. On a self-funded plan the claims half is the substance of the job and the reason a TPA exists at all: somebody has to decide what the plan pays, against the plan's own written terms.
Why self-funding is where the phrase comes from
An employer that buys insurance has a carrier that both bears the risk and administers the plan. An employer that funds claims from its own money still needs the administration, and cannot do it itself at any reasonable cost, so it buys the administration separately. That is the third party. If somebody offers you a TPA for a fully insured plan, ask precisely which work the carrier is not doing.
How TPA companies are paid, and the part to ask about
Usually a rate per employee per month, sometimes per participant per plan, and on self-funded health plans frequently with additional revenue from the networks and vendors the plan uses. That last part is the one worth asking about directly, because it is real money that does not appear on your invoice and it can influence which network and which vendors the plan ends up using.
What to ask before appointing one
How a claim decision is documented and how an appeal works. What report shows who became eligible and who ceased to be, monthly. Which filings they assemble and which they hand back. What revenue they receive from anyone other than you. And what you get on the last day of the agreement, in what format. Five questions, each with a factual answer, and the quality of the answers is the assessment.
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Third party administrator companies: common questions
What is a third party administrator in one sentence? A firm that operates a benefit plan it does not insure, on behalf of the employer that sponsors it, doing the enrollment, eligibility, claims administration where the plan is self-funded, continuation coverage and filings.
Do TPA companies bear any of the risk? No. That is the distinction from a carrier. On a self-funded plan the employer's money pays the claims and the administrator decides what the plan owes against the plan's written terms. Stop-loss cover, where the employer buys protection against unusually large claims, is bought from an insurer and not from the administrator.
Is a TPA the same as a broker? No. A broker advises on design and goes to market. A TPA operates the plan afterwards. One firm can do both, and when it does, ask for the two priced separately so the operating work has a visible price.
Does Orgplanly work with our TPA? Not as an integration. It holds the plan the benefit cost is budgeted inside, so the administration fee and the package cost sit per employee beside the headcount they were planned for. It administers nothing and ranks no administrator.
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