The administrative burden of managing health benefits is one of the biggest challenges small employers face. With so many other priorities on your plate, handling compliance, reimbursements, and paperwork alone can feel impossible.
That's why many small employers, particularly those who offer self-funded health plans, look for solutions to help carry the load. One option is to outsource your employee benefits administration to a third-party administrator (TPA).
In this article, we'll explain what a TPA does and how much they cost. We'll also cover whether it makes sense to use TPA if you offer a health reimbursement arrangement (HRA) as your health benefit.
In this blog post, you'll learn:
- How third-party administrators (TPAs) handle insurance claims and employee benefit plan services.
- What core and non-core services TPAs offer to support self-insured health plans.
- Which factors to consider when deciding between TPAs and administrative services only providers (ASOs).
What is a third-party administrator (TPA)?
A TPA is an organization or individual that processes medical insurance claims and other aspects of an employee benefit plan for a separate entity. Insurance companies often outsource their claims operations to TPAs. Employers with self-funded health plans frequently use them as well. When either of these entities leverages a TPA to perform a task traditionally handled by the insurance carrier or employer, it's referred to as “outsourcing.”
An employer offering a self-funded or level-funded insurance plan can use a TPA to handle its employees' insurance claims. The employer still acts as an insurance company and underwrites the risk. So, the risk of loss remains with the plan sponsor, not with the TPA.
What does a third-party administrator do?
TPAs perform various services that they categorize as core or non-core. Core TPA services are those every employer uses, such as claims processing and enrollment. Non-core services, like medical management and mental health administration, are supplemental. TPAs charge for these services separately.
TPAs supporting self-insured health plans can also provide administrative services that would otherwise rest on an organization's human resources and finance teams. A TPA may also fulfill annual reporting requirements.
Because a TPA can handle a wide range of health plan needs, they tailor each TPA-administered plan to fit the needs of the plan sponsor and their specific workforce.
Some of the most common operational services a typical TPA might provide are:
- Claims adjudication
- Record keeping
- Health benefits reporting and analytics
- Supporting stop-loss coverage
- Managed care
- Medical provider services, including access to healthcare networks and consolidating payments
- COBRA administration
- Mental health administrations
- Return to work programs
- Renewal application
- Customer service for plan members
When it comes to administering an HRA, TPAs will often:
- Provide applicable plan documents
- Accept and substantiate reimbursement requests
- Disburse money to employees from an organization's account
TPAs can charge for and provide more than 4,000 possible combinations of products and supplemental services. Claims adjudication services have various service lengths, ranging from a year to the life of a claim.
How much does a third-party administrator cost?
Forecasting the costs and pricing of comprehensive services can be challenging. All TPAs have different pricing systems with a menu of personalized services available, each with a different price. This includes insurance services shared among several related firms and/or outsourced to specialists.
This can make shopping around for the right TPA service like comparing apples and oranges. The savings from a low-cost TPA can be swiftly wiped out with one mishandled claim. At the same time, the highest-priced TPA may not guarantee top-quality service or be the best fit for your organization.
TPAs have other business interests, too. For example, they can push employees to choose certain policies because they'll earn a commission on the sale. This means they may recommend policies that aren't best for your employees.
Before entering into a contract with a TPA, your organization should get:
- A clear description of the services they offer
- An overview of fees or charges for TPA services (like any potential filing fee or renewal fee that may arise)
- Contact information for client references
- A summary of state TPA licensure requirements
What's the difference between a third-party administrator and an administrative services only provider?
When considering getting administrative help for your self-insured or level-funded plan, you'll likely encounter administrative services only (ASO) providers in addition to TPAs. Before you choose one or the other, you should know how they both operate within the health insurance industry.
Both service providers can provide support for a self-funded or level-funded plan. However, they do have their differences:
- A TPA may operate independently of health insurance companies, offering greater flexibility in plan design and healthcare provider networks
- An ASO is typically a subsidiary of a health insurance company, which may limit your company's provider network options to those the insurer allows
While TPAs and ASOs may perform similar functions, the independent management of some TPAs versus the ASO as a subsidiary of a health insurer can make a difference in a plan's health network options. With a TPA, companies can often gain more health coverage, funding, and reimbursement options.
What's the difference between a third-party administrator and a health insurance carrier?
In a group health insurance context, the insurer managing a fully-insured health plan provides coverage and handles many administrative tasks. This includes claims operations and Employee Retirement Income Security Act (ERISA) compliance.
With a self-funded health plan, the company pays for actual employee healthcare costs through a fund, a model that can provide cost-saving opportunities. Instead of providing health insurance or employee benefit plans, a TPA helps coordinate reporting from outside vendors and offers administrative services to support the self-funded health plan.
Do you have to use a third-party administrator for HRAs?
While HRAs are a type of self-funded health benefit, they function much differently from a self-funded group policy. They're not as complex on the surface, but they’re likely unfamiliar to employers and employees. This can create challenges with onboarding and education. They also don't come with annual rate hikes or have steep participation rates that many small employers can't meet.
Compliance considerations can be difficult to understand, especially with an individual coverage HRA (ICHRA). This is why some employers may consider a TPA if they offer an HRA.
When it comes to administering an HRA, TPAs will often:
- Provide applicable documents for employee benefit plans
- Accept and substantiate reimbursement requests
- Disburse money to employees from an organization's account
However, many TPAs require you to pre-fund an account with each employee's annual allowance. This is a large sum of money to pay up front, and administrators often invest these funds and collect the interest for themselves.
The alternative: Use PeopleKeep as your HRA administrator
If you're wary of relinquishing control of your healthcare benefit to a TPA, know that outsourcing isn't your only option. In many cases, you can use administration software. If your organization offers an HRA, utilizing PeopleKeep by Remodel Health's benefits administration software is an excellent alternative.
We handle the most time-consuming tasks, like preparing and updating legal plan documents, and reviewing employee reimbursement requests. We even send you a weekly email report with any reimbursements you need to approve. That way, you stay in complete control without worrying about the fine print.
You and your employees will have access to our award-winning customer support team every step of the way. So whether you have questions about administering your HRA, how to reimburse your employees, or whether or not an expense qualifies, we're here to help.
Finally, while TPAs often require an up-front investment, our HRA software administration allows you to pay as you go for a simple monthly fee and no long-term commitments.
Conclusion
Outsourcing administration of your level-funded or self-funded employer health plan to a TPA can be a tempting option, but it comes with more up-front costs, a less direct line of support for your employees, and loss of control of your benefit.
If you are considering an HRA for your health benefit and want the independence of administering it on your own, but want a time-saving tool to handle the more tedious tasks, schedule a call with a PeopleKeep HRA specialist to get started.
This article was originally published on December 9, 2012. It was last updated on October 23, 2025.
