What Is a Third-Party Administrator? And Should I Have One?

As a business owner, there are certain tasks that you’re more than willing to handle yourself. 

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But, when it comes to things like managing your employees’ retirement plans or dealing with insurance claims? Well, those are responsibilities you’d rather get off your plate and delegate to somebody else. 

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That’s where a third-party administrator comes in. 

What Is a Third-Party Administrator (TPA)?

A third-party administrator is a business that works under contract to provide administrative services on behalf of another company. They can range in size from small businesses to large companies.

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Third-party administrators will often handle things like claims administration and claims processing, risk management, retirement plan administration, 401ks, or everyday human resources department problems. However, they’re most frequently responsible for handling medical and insurance claims while remaining in compliance with federal regulations.

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Since they act as a third-party between companies and customers, they are known as third-party administrators. However, you might also hear them referred to as an “administrative services only” (ASO) entity.

What Do Third-Party Administrators Do?

Third-party administrators can help with many mundane administrative functions, like claims administration, employee benefits management, and other daily administrative operations. 

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TPAs most frequently work in the area of insurance claims, acting as claims adjusters on behalf of commercial insurance companies and overseeing the claims process from beginning to end, typically in conjunction with the insurance company’s staff. 

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A small third-party administrator may only provide services for one type of insurance, like workers’ compensation insurance. These TPAs could handle auditing workers’ compensation policies and minimizing risk through loss prevention.

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Working with a TPA in the insurance industry can help companies expedite claims, evaluate data and analytics, and provide risk management. TPAs may handle general liability claims or take a look at professional liabilities. 

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While TPAs most commonly focus on insurance and claim processing, they offer other services as well. For example, an investment company may hire a third-party administrator to handle employee benefit plans or to create a plan to recruit skilled workers and encourage the retention of important employees. 

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Needless to say, there are quite a few services, and the types of programs outsourced to third-party administrators have grown. In fact, 80 percent of large companies fully or partially outsource some of the more complex aspects of employee benefits, including 401ks, COBRA, and flexible spending account administration.

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To put this simply, third-party administrators can handle many types of work, including the following:

Administrative Work

• Customer service and customer enrollment
• Consolidated billing to vendors
• Record keeping
• Workers’ compensation insurance
• Industrial hygiene inspections
• Emergency response plans
• Loss control programs
• Forensic accounting
• Return-to-work programs
• Retirement plans

Healthcare

• Medicaid
• Long- and short-term disability
• Pharmacy benefits management
• ERISA compliance
• Negotiating and planning stop-loss coverage
• Coordinating with health care providers
• Enrolling employees and their dependents in healthcare plans
• Bundling medical benefits with dental, vision, or disability benefits
• Health Reimbursement Arrangements (HRAs)
• COBRA assistance (for employees who qualify due to termination or reduced hours)

Financial

• Loan support
• Audit support
• Monitoring reports and fees
• Preparing annual returns and reports
• Processing flexible spending accounts
• IRS compliance

What Are The Benefits of a Third-Party Administrator (TPA)?

Companies can pick and choose what tasks are outsourced to a third-party administrator, and how many tasks are delegated will depend on what the company can afford. Start-ups and small companies often choose to keep their own services in-house, but midsize or large companies may benefit from handing off specific responsibilities to a third-party administrator. 

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For instance, if your company is self-insuring a healthcare plan, all of the administration tasks for that health insurance become your responsibility as the employer. The regulations of managing a self-funded healthcare plan can be overwhelming and cause a lot of headaches. 

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For that reason, working with an outside expert is often a better choice, as it offers the following advantages: 

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• Saving time: You have enough to worry about as a business owner. Handing off highly technical work to a skilled third party can take tasks off your plate so you can focus elsewhere.
  
  
• Handling difficult personnel problems: Human resources departments have to deal with a lot of tough conversations. When employees leave your company, voluntarily or not, difficult emotional issues can follow. Having an impartial third-party involved ensures that employees are treated fairly and can help provide conflict resolution quickly.
  
  
• Increasing your peace of mind: You can’t be an expert in everything, and things like insurance claims and retirement plans are complex. When you work with a TPA, you can rest assured that those tasks are being handled by skilled and experienced professionals.

What To Look For When Hiring a TPA

Before signing a contract with a third-party administrator, you should know exactly what services the TPA offers to ensure it’s a match for what you’re looking for. But what other things should you consider? Here’s a quick list of criteria to keep in mind: 

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• Certification: Every state has its own TPA certification and licensing regulations. While some third-party administrators are large corporations, there are independent contractors who are licensed. For example, Oregon requires any business acting as a TPA to be licensed while South Carolina allows exemptions from licensing requirements.
  
  
• Education: Employees working for a TPA are often required to have an education in finance, accounting, or insurance.
  
  
• Experience: Make sure that the TPA has experience performing the services you require. For example, if you need them to handle COBRA assistance, confirm that they’ve dealt with COBRA claims in the past. If you need them to manage liability insurance, ask if they’ve filed liability claims.
  
  
• References: It’s always a good practice to ask potential partners for references. Contact companies that have worked with the third-party administrator to see what their experience was like.
  
  
• Finances: You should also understand what fees and charges third-party administrators include for their services. While there’s an upfront investment involved, it will ideally save you money and time in the long-term.
  
  
• Federal and state compliance: One important role of any TPA is complying with city, state, and federal laws. Does the third-party administrator fulfill its legal requirements? Can you trust them to fulfill yours?
  
  
• Quality control: Privacy is a concern in any business, but third-party administrators have access to a lot of sensitive data, like medical records and employee files. What steps does the TPA take to secure data? Is there a quality control process in place to make sure claims are handled properly?
  
  
• Staff: Find out how many staff members will be assigned to your business. If your assigned adjusters are also juggling other clients, their attention is split. Balancing multiple clients could mean that they will have difficulty handling your claims.

Considering all of these different elements will help you find the third-party administrator that’s the best fit for your business. 

Do You Have to Have A Third-Party Administrator?

Working with a third-party administrator is by no means required. However, outsourcing some of your administrative work can help you achieve your goals for your business by placing some of these important and oftentimes complex tasks in the hands of experts.

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Business owners have enough to worry about and working with a TPA can provide much-needed peace of mind—plus extra time to grow and run your business.