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Do I need a third-party administrator (TPA)?

Written by: Gabrielle Smith
June 7, 2021 at 8:23 AM

As a small employer, you likely have a hundred different tasks on your mind to keep your organization running smoothly. This can make administering your employees’ health benefits, like a health reimbursement arrangement (HRA), just another task to add to your never-ending to-do list.

That’s why many small employers look to other solutions for help carrying the load. One option is to outsource the administration of your benefit to a third-party administrator (TPA).

If you’ve never worked with a TPA before, this article will fill you in on what they do, how much they cost, and offer an alternative solution to help how you administer your health benefits on your own.

What is a third-party administrator (TPA)?

A TPA is an organization that processes insurance claims or certain aspects of employee benefit plans, like an HRA, for a separate entity. This can be viewed as “outsourcing” the administration of the claims processing, since the TPA is performing a task traditionally handled by the insurance company or the organization itself.

Often in the case of insurance claims, a TPA handles the claims processing for an employer that self-insures its employees. In this case, the employer is acting as an insurance company and underwrites the risk. The risk of loss remains with the employer, and not with the TPA.

What does a third-party administrator do?

TPAs offer many different products and services, and are broken down by core expenses and non-core expenses.

Core expenses are the costs of services of TPAs that every employer uses, such as claims processing and enrollment. Non-core services are supplemental, separately charged services, such as medical management, mental health administration, and others.

Some of the most common services a typical TPA might provide are:

  • Claims handling
  • Actuarial
  • Loss control
  • Managed care
  • Provider services
  • COBRA
  • Mental health administrations
  • Return to work programs

When it comes to administering an HRA, TPAs will often:

  • Provide plan documents
  • Accept and substantiate reimbursement requests
  • Disburse money to employees from an organization’s account

Together with the core products, there are more than 4,000 possible combinations of products and supplemental services that TPAs charge for. Claims services are provided with a variety of service lengths, ranging from 12 months to the life of a claim.

How much does a third-party administrator cost?

TPAs in general have difficulties in forecasting the costs and pricing of their products. TPAs all have different pricing systems with a menu of services available, each with a different price, including services shared among several related firms and/or outsourced to specialists.

This can make shopping around for the right TPA like comparing apples and oranges. The savings from a low cost TPA can be swiftly wiped out with one mishandled reimbursement, while the highest priced TPA may not be a guarantee of quality or be the best fit for your organization.

What’s more, for HRAs, 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.

TPAs have other business interests, too. For example, they can push employees to choose certain policies because they earn a commission on their sale. This means your employees will be directed toward policies that are best for your administrator, not policies that are best for your employees.

Do I have to use a third-party administrator?

If you’re wary of relinquishing control of your HRA to a TPA, know that outsourcing isn’t your only option. Utilizing a benefits automation software like PeopleKeep’s is a great alternative.

We handle all of the most time-consuming tasks, like preparing and updating legal documents, reviewing reimbursements, and even sending you a weekly email report with any reimbursements you need to approve. That way you stay in complete control without having to worry about the fine print.

In addition, 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.

Learn more about how PeopleKeep can help you administer your organization’s HRA

Conclusion

Outsourcing administration of your HRA 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 prefer the independence of administering your HRA on your own, but want a time-saving tool to handle the more tedious tasks, a benefits software solution like PeopleKeep’s is your best choice.

This article was originally published on December 9, 2012. It was last updated June 7, 2021.

Topics: HRA Administration, Health Reimbursement Arrangement

Additional Resources

Watch our webinar to learn how to offer an HRA from our experts.
Get our guide on how to offer health benefits with a small budget.

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