What is Third-Party Claims Administrator

A third-party claims administrator processes claims for a third-party company. Insurance companies and employee benefit providers often employ third-party administrators to process their claims. These administrators also often help to process employee retirement plans and flexible spending accounts.

BREAKING DOWN Third-Party Claims Administrator

Third-party claims administrators are used most commonly by health and commercial liability insurance providers.

On the health insurance side, third-party claims administrators are normally contracted by health insurers or self-insuring companies to administer services, including claims administration, premium collection, enrollment and other administrative activities. In addition, a hospital or provider organization desiring to set up its own health plan will often outsource certain responsibilities to a third-party administrator. For example, an employer may choose to help finance the health care costs of its employees by contracting with a third-party claims administrator to administer many aspects of a self-funded health care plan.

Third-Party Claims Administrators and Commercial Liability Insurance

In the context of commercial liability insurance providers, third-party claims administrators act much like claims adjusters for the insurance company and sometimes works in conjunction with the insurance company's internal claims adjuster, outside claims investigator or defense counsel. In some situations, a third-party claims administrator will choose defense counsel. Usually, the larger the self-insured retention (SIR), the more responsibility the TPA has over the control of the way the claim is handled and ultimately resolved. A SIR is works much like a deductible, but rather than being paid at the end of a claim, when a loss payment is made to a claimant, the money is paid up front by the insured for costs, expenses and attorney fees as the claim moves forward. Some SIRS are in the millions of dollars and the third-party claims administrators that handle their claims are large multinational non-insurance entities. In contrast, some self-insureds choose not to outsource claims administration, preferring instead to handle all claims in house.

This is known as self-administration.

Third-Party Claims Administrators and Retirement Plans

Third-party claims administrators sometimes also manage retirement plans, such as a 401(k). Such third-party administrators are often partially managed by an investment company. However, instead of handling all the plan contributions by employees, distributions to employees, and other aspects of plan processing, the investment company may rely on the third-party administrator to handle the associated administrative work and while the investment company handles investment management.

Third-Party Claims Administrators and Life Insurance

Life insurance carriers generally process their own claims. Many investment firms that manage retirement plan assets also outsource this service in order to better focus on investment management.