Third party administrators are benefits experts who offer flexible options to small, medium and large companies. While they are not as well known as the big insurance companies, they can play a vital role in helping you find and manage the right benefit program for you and your employees.
How are third party administrators different from an insurer?
An insurance company only provides its own products. When you are setting up a benefits plan for your team, you can choose from three or four plans. For example, a basic dental plan might cover 70 percent of costs up to a maximum of $575 per year. The high-end plan could include 100 per cent of the first $500 and 60 percent of costs after that, with an annual maximum limit.
Each of these insurance plans would also have components for prescription drugs and eyecare.
On the other hand, a third party administrator (TPA) in Canada can tailor an insurance plan to meet your particular needs. For example, let’s suppose you are primarily concerned about “catastrophic” drug costs. These are expensive and ongoing drugs that you or your employees might need in the event that they have a chronic illness. In addition, you want a basic dental plan. TPA services can include shopping around with several insurers to find the coverage you need.
In addition, third party administrators often take on the operations and administration duties of an employee benefits plan. They process TPA insurance claims and make sure that your employees are reimbursed.
Since third party administrators are often small companies, they can offer more personalized service than the giant insurance firms.
How much does a third party administrator cost?
It depends. Third party administrators (TPA) may receive a commission on premiums paid to an insurer. Or it can charge a fee to administer your plan, process claims and provide payments. When you begin working with TPA insurance, they will discuss their fee structure.
Advantage of a third party administrator in health insurance
Using TPA services can be helpful in finding the right insurance for your organization. As we have indicated, they will assist you if you don’t want the “cookie cutter” plan available from a single insurance company. They will arrange for several insurers to provide coverage.
If you are working with several insurers, a TPA can make administration easier. With multiple insurers, your employees might have to fill out different forms for each one. And you will have to pay several invoices. A TPA can put all of this under one roof so that it’s easy for your staff to submit their claims and get reimbursement.
TPAs have a lot of experience managing plans and can reduce your headaches. After all, you didn’t start a business to spend all of your time administering benefits.
Should you decide to change insurance companies, a TPA can manage this process. You want to ensure that your employees have continuous coverage.
Are third party administrators regulated?
Many TPAs are members of the Third Party Administrators Association of Canada, which sets standards and has a code of ethics.
However, it is not compulsory to join this organization and it does not have legal powers. This is different than other professions. For example, insurance brokers are regulated under provincial law. In Ontario, the Financial Services Commission of Ontario is responsible for monitoring insurance brokers, in addition to other financial professionals.
So what does this mean if you are looking for a third party administrator? It’s important to conduct your due diligence. Ask the firm for references and speak to their existing clients. How long have they been working with this TPA and what has been their experience? Look at online reviews of the TPA and consider them in making your choice. Ask them if they are members of the TPA association in Canada.
Challenges of a third party administrator
As we have indicated, TPAs are not regulated in the way that insurance brokers and other financial professionals are. This can lead to a certain amount of apprehension among both insurers and employers. They are trusting that the experience of the TPA will enable them to deliver the appropriate services and follow all of the regulations.
This can also result in a barrier to entry for new companies wanting to offer TPA services. Since they are not regulated and don’t have a track record, it can be difficult for a new TPA to attract clients. Typically, they will need to be staffed by people who have several years of experience with another TPA.
Who are the largest third party administrators?
In Canada, one of the largest is the Johnston Group based in Winnipeg. It works with more than 30,000 businesses across the country, handling $600 million in premiums every year. Johnston has 275 employees who handle 3,000 health and dental claims every day.
However, many TPAs are small businesses that may only have a dozen employees. As we have indicated, some clients prefer the personalized touch offered by a smaller TPA.
If you are looking for a third party administrator, you can decide which approach works best for you.
Should you hire a third party administrator?
A third party administrator (TPA) takes on the operations and administrative duties of an employee benefits plan. They can also help you find appropriate coverage, especially if you don’t want the cookie cutter plans offered by most insurance companies.
TPAs are experts in benefits who work with a wide variety of insurance suppliers. They are often small businesses although there are some large TPA companies. If you work with a smaller TPA, you may find that you get more personalized service than from a giant insurer.
