What does a TPA do in a self-funded plan?
A TPA runs the day-to-day operations of a self-funded or level-funded health plan. The employer funds the claims and keeps the risk. The TPA does the work an insurer would do on a fully insured plan, under a contract with the employer.
Most health plan TPAs handle five jobs:
- Claims. The TPA checks each claim against the plan document, prices it, and pays it from the employer’s claims account. It must follow the ERISA claims procedure deadlines, such as deciding most post-service claims within 30 days and pre-service claims within 15 days, and it handles denials and the first level of appeals.
- Networks. Independent TPAs usually rent a preferred provider network rather than own one. The employer gets the network’s discounts, and the network charges an access fee for them.
- Stop-loss filing. Self-funded plans buy stop-loss insurance to cap large claims. The TPA tracks claims against the stop-loss deductibles, sends large-claim notices to the carrier, and files for reimbursement when a claim crosses the limit.
- Member service. ID cards, a call center, a member portal and explanations of benefits.
- Data and reporting. Claims reports, large-claim reports, funding reports and the raw claims data the plan needs to see what drives its cost.
The word “TPA” also shows up in retirement plans and workers’ compensation, where separate administrators do different work. This page covers health plan TPAs.
Should you use an ASO or an independent TPA?
Either can work. An insurance carrier can administer your plan through an administrative services only (ASO) contract, or you can hire an independent TPA that is not tied to one carrier.
| Carrier ASO | Independent TPA | |
|---|---|---|
| Who administers | A national or regional insurance carrier | A standalone administration company |
| Network | The carrier’s own network | A rented network, often chosen by the employer |
| Stop-loss | Often bought from the same carrier | Bought separately, from a carrier the employer chooses |
| Pharmacy | Often bundled with the carrier’s PBM | Usually carved out to a separate PBM or PBA |
| Flexibility | Standard plan designs and programs | More room to add vendors and change plan design |
| Data access | Varies; check the contract | Varies; check the contract |
| Watch for | Limited claims data and bundled fees | Add-on fees and more vendors to coordinate |
Neither model is better on its face. A carrier ASO is simpler to run. An independent TPA gives you more choices, and more contracts to manage. The choice usually follows from how you want to set up your network, stop-loss and pharmacy. For the bigger funding decision, see self-funded vs. fully insured.
What should you check in a TPA contract?
Check the terms that decide what you are buying, because TPAs can look identical on paper and perform very differently. These terms matter most.
Claims audit rights. The contract should let you audit claims with an independent auditor you choose, at a reasonable frequency, without heavy limits on sample size, look-back period or auditor fees. It should also say how overpayments found in an audit get recovered and returned to the plan.
Data ownership. The claims data belongs to the plan. Since the Consolidated Appropriations Act, 2021, contracts cannot stop a group health plan from getting de-identified claims and encounter data for its members, electronically and on request. Put the format, frequency and delivery at termination in writing, including the data for claims paid during runout.
Fees. Most TPAs charge an administrative fee per employee per month. Ask for every other fee too: network access, cost containment programs that keep a share of savings, subrogation recoveries, clinical programs, and any commissions from stop-loss or other vendors. If the TPA expects $1,000 or more in compensation, ERISA section 408(b)(2) requires it to disclose its direct and indirect compensation to the plan fiduciary in writing before you contract or renew.
Network access fees. Rented networks charge for access, often as a fee per employee per month, a percentage of the discount, or both. Ask how the fee is calculated and whether it shows up on your invoice or inside the claims you pay.
Stop-loss coordination. Your stop-loss policy and your TPA contract must line up. Check that the TPA’s claims rules match the policy, that it will send large-claim notices on time, and who pays if a late filing means a claim isn’t reimbursed. Gaps between the two contracts are one of the most expensive problems in self-funding.
Fiduciary role and appeals. Many TPA contracts say the TPA is not a plan fiduciary and that the employer, as plan administrator, makes final decisions on appeals. Know which one your contract says, because the employer is responsible for any decision the TPA does not take on.
Service levels. Look for written standards for claims accuracy, claims turnaround and call center response, with fee credits if the TPA misses them.
How does a TPA differ from a PBA?
A TPA and a pharmacy benefits administrator do the same kind of job on different claims. The TPA administers the plan’s medical claims. A pharmacy benefits administrator administers its prescription drug claims, usually for a stated fee, without the rebate deals and owned pharmacies a large PBM may bring.
| TPA | PBA | |
|---|---|---|
| Claims it handles | Medical, and sometimes dental and vision | Prescription drugs |
| Network | Rented medical provider network | Retail, mail order and specialty pharmacy network |
| Pricing it manages | Provider discounts and fee schedules | Drug pricing, rebates and the formulary |
| Typical plan | Self-funded or level-funded | Self-funded or level-funded, with pharmacy carved out |
Some TPAs offer pharmacy through a PBM partner, and some plans hire a PBA or PBM directly. Either way, the TPA and the pharmacy vendor need to share accumulator data so a member’s medical and drug spending both count toward the same deductible and out-of-pocket limit. For a full comparison of pharmacy vendors, see how to choose a PBM.
Where does a TPA stop and the employer start?
Hiring a TPA does not move your responsibility for the plan. The DOL says an employer that hires a service provider must monitor that provider periodically to make sure the plan is run prudently. In practice that means:
- Review claims and fee reports at least every quarter, and ask questions when something moves.
- Audit claims on a regular cycle, not only when something looks wrong.
- Test your data access by asking for de-identified claims data and confirming it arrives complete.
- Confirm compliance filings the TPA handles for you, such as the gag clause attestation, in writing each year.
- Keep the business associate agreement current, since the TPA handles the plan’s protected health information under HIPAA.
The TPA also depends on the eligibility data you send it. If enrollment is wrong, claims will be paid or denied wrong. That side of the work is covered in employee benefits administration.
How do you choose a TPA?
Start with what your plan needs, not with a vendor list. Then compare finalists on the same terms.
| What to compare | Questions to ask |
|---|---|
| Experience | How many plans like ours do you administer? Can we speak to clients of our size and industry? |
| Claims performance | What are your claims accuracy and turnaround numbers, and will you guarantee them in the contract? |
| Data | What claims data do we get, in what format and how often? What do we get when the contract ends? |
| Fees | What is every fee you and your affiliates will earn from our plan, including network and vendor fees? |
| Stop-loss | Which stop-loss carriers do you work with, and who is liable for a late or missed filing? |
| Member service | Who answers our employees’ calls, and what are your response standards? |
| Implementation | What is your timeline, who manages it, and how do you handle claims from the prior administrator? |
Ethos Benefits runs this kind of side-by-side review through its TPA procurement work.
