What Is a Third-Party Administrator (TPA)?
A third-party administrator is a company that provides operational services such as claims processing and employee benefits management under contract to another company. Insurance companies and self-insured companies often outsource their claims processing to third parties. Thus, such companies are often called third-party claims administrators.
- Health insurance companies often outsource their claims operations to third-party administrators.
- Liability insurance claims are typically handled by third-party claims administrators.
- The role of third-party administrators is growing to include many other day-to-day operational services.
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Understanding Third-Party Administrators (TPAs)
The use of third-party administrators is now common in many businesses, and the range of tasks they undertake is growing. They have distinct roles in the health insurance industry, commercial liability insurance, and investment company operations. Some firms are moving into new areas such as forensic accounting services, workers' compensation audits, and emergency response planning.
The market size of the third-party administrators and insurance claims adjusters industry in the U.S. has grown 5.1% per year on average between 2015 and 2019. The key factor weighing down this industry is high competition, while low volatility in revenue is the key positive.
Third-party claims administrators are commonly used by health insurance providers, who outsource many of their administrative functions. Not only claims administration but premium billing, customer enrollment, and other day-to-day operations are often handled this way.
A hospital or a health provider organization that sets up its own health plan will often outsource the administrative responsibilities to a third party. A company that opts to self-fund its employee health insurance plan typically contracts with a third-party claims administrator to run the program.
Some third-party claims administrators are multinational giants that handle claims for large corporations.
Types of Third-Party Administrators
In recent years, the types of programs outsourced to third parties have expanded and now may include the processing of employee retirement plans and flexible spending accounts.
Commercial Liability Insurance
Third-party claims administrators for commercial liability insurance providers act much like claims adjusters and may work in conjunction with the insurance company's internal claims adjuster as well as outside claims investigators and defense counsel. The third-party claims administrator may even choose the defense counsel.
Some third-party claims administrators are large multinational non-insurance entities. Generally, these giants in their industry handle the claims of large corporations.
The largest third-party claims administrators by revenue include Sedgwick Claims Mgt., Crawford & Co./Broadspire, and UMR Inc.
Retirement Plan Administration
Third-party claims administrators may manage employee retirement programs such as 401(k) plans. In such cases, the company is often owned or managed in part by an investment company. The investment company handles the money management and the third-party administrator handles the day-to-day account operations and customer care functions.
As noted, some third-party administrators have grown into multinational corporations. However, there are also individual administrators who have gained TPA certification and work as independent contractors. TPAs need a deep knowledge of the rules and regulations of the services they are responsible for administering.
Each state has its own regulations regarding the certification and licensing of TPAs. Some states require that TPAs file copies of their agreements to provide services to insurance companies to the state insurance department.