Third party administrators (TPAs) are intermediaries within the medical billing system who either operate as a network or access networks to price claims. TPAs often handle claims processing for employers who self-insure their employees rather than use a traditional group health plan. Also labor unions who offer coverage for members usually use TPA pricing.
The TPA functions as a network to price claims and serves the provider, the patient, and the employer by keeping healthcare costs under control.
The reality is that most small companies are not in the healthcare business. They offer coverage to their employees but want to control the cost. By self-insuring — which means that the company actually pays the healthcare providers from a company account — the small company is, in theory, able to save money.
Here’s how the cost savings is supposed to work: When a small company provides healthcare for its employees through a commercial carrier, the carrier prices the policy based on the health history and ages of the employees. Typically, a small group health plan costs a company about $450 per month per employee.
If an employer chooses to self insure and uses a TPA, the employer pays a fee to be part of the network but then pays only the cost of the individual claims. The TPA negotiates the price through network pricing.
The downside of this arrangement is that, in the event of a catastrophe that affects several employees, the company could be in a dire financial situation. The success of using a TPA depends, in part, on playing the odds that something that lands everyone in the hospital won’t happen.
Most providers view TPAs as run-of-the-mill network contracts, which they essentially are, although some TPA networks are funded by all parties. The provider may be responsible for paying a fee on adjudicated claims as part of the network agreement, and the insurer also pays a fee to participate in the network.
Understanding the difference between an insurer and a TPA is important, especially when claims don’t process as expected, because the nature of the problem determines who you contact:
If a TPA has incorrectly priced the claim, you need to address the issue through the TPA.
If the payer didn’t pay the claim according to the TPA pricing agreement, then you need to secure a copy of the claim adjudication sent to the payer and demand that the claim be reprocessed according to the pricing.
Check your checks and balances before you call — make sure you’re barking up the right tree before you pursue a TPA claim.
