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TPA Competition Rollercoaster - Ongoing

The Dec. 7th (green UPDATE)  + SPBA Public website have the 25th annual State of the TPA Industry & Forecast for 2005.  You should read it to see how it fits with what you are seeing in your market.  You should also read it because it goes on SPBA's public website, so hundreds of researchers, investors, brokers, and others read it.  The discussion below is just to put today's market challenges from competitors into historical perspective.

Many of you tell us about being under extreme competitive pressure from various kinds of fully-insured plans.  This, too, will pass.  The TPA business is like farming.  Some years are great, but some years have a drought or a swarm of insects devouring your crop.  This has always been the trend, and yet the TPA market has continued to grow several thousand percent.  So, keep faith in the future, and think how to market the unique value & service you offer (more on that later in this e-mail).

Some of the tribulations we've survived:

>>TPAs started mainly as major players with Taft-Hartley collectively-bargained plans.  Unionized employment (and thus people in such plans) has shrunk about 60% in the past 25 years.   That drop was a huge loss from the original TPA market.

>>In 1980, self-funding for single employers, other than for mega mega firms, was treated almost like an embarrassing disease.  It was also common wisdom "fact" that self-funding was "dangerous" and "wouldn't work" for employers below 500 employee lives,  In the early 1980's, TPAs gave proof of what worked, and that "minimum safe" size quickly dropped to 200, 100, and there are now a few plans of about 25 (with strong employer cash-flow). 

>>National Health Insurance, Hillarycare, and a host of other proposals, limitations, regulations, etc. all seemed certain to replace or choke the benefits and/or self-funded market.  Even the threat of such programs chilled the market.  Instead, the TPA market girded itself, and kept on growing.

>>HMOs & Managed care have been the 800 pound gorilla in the TPA market twice.  In the old days, HMOs had the legal power to go to your client and mandate them to offer an HMO.  SPBA took a leading role in hurrying an end to that frustrating law.  In the 1990's, HMOs remained the darling of government, and huge managed care companies started under-pricing in order to lure away your clients to build their numbers.  Things were getting desperate.  However, HMOs then became despised by government & patients (spawning the Patients Rights & DOL Claims Regs), so many TPAs were soon flooded with former and new clients who were "HMO refugees".  Now, Michael Moore will be releasing a movie called "Sicko", which will, reportedly, further trash the reputation of HMOs, so they may lose even more market to TPAs next year.

The Role of Insurers

Ironically, the biggest boost to the TPA & self-funding market came from purveyors of fully-insured products.  They are bureaucratic and with short-sighted financial patience.  They love to tinker with and rearrange their target markets & strategy.  Consequently, they often arbitrarily dump or avoid clients in the prime market for TPAs.  Meanwhile, insurers put themselves on a roller-coaster of under-pricing to gain market, and then dumping the market when economic reality hits.  SoÉjust be patient

2005 is going to be a horrible year for insurersÉeven worse than the hell HMOs experienced a few years ago.   Investigations by some State Attorneys General plus lots of hearings & rhetoric from Congress should not only expose and put pressure on unfair commissions & marketing practices, but having the insured market dragged through the mud will probably also generate a flow of client "refugees" next year from fully-insured plans to TPAs.   Reach out to smooth the way for these refugees.

Getting Paid What You're Worth

The sad reality is that TPAs have never found a way to price & market their most valuable (and unmatched) service.  Computers have allowed basic claims processing to be pretty mundane.  There are some mass-procesing firms who sometimes call themselves TPAs as well many off-shore offers to just crank out claims in a fast mechanical process. 

However, SPBA TPAs are in the business of offering personalization personalization personalization.  It is design, advice, experience, and lots of hand-holding as part of what we call compliance.  There is no function in an SPBA TPA firm that is "mundane".  Every step and every staff member is on the front lines of government compliance & customer service.  Since the financial & liability risk from even an inadvertent error in government compliance can cost far more than some expensive medical claims, this TPA care & attention is invaluable.   We must be careful that government compliance is not confused with practicing law and giving legal advice.  TPA compliance & personalization services are just professional real-world expertise guiding through the minefield of design & compliance.  Each SPBA TPA is part of a large national network sharing insights and helping to steer government policy via SPBA.

As you know so well, personalization & compliance take a lot of time and money as well as quick thinking & response.  That's why insurers and production houses don't even venture into the compliance arena.  They may print a brochure or give some general announcement, but no personalization.  It's not a cost-efficient service for them.

The "problem" is that SPBA TPAs think of personalization & sharing expertise as "just part of the job".  It's also a little hard to  describe & sell (since you don't want to seem to be offering legal services or guaranteeing a trouble-free trip through the mine field).  However, it means that TPAs are giving away services that are the most expensive for the TPA to maintain and of the most long-lasting value to the client.  It is a dilemma.  If TPAs can solve it, the market fluctuations and competition swings will fade dramatically.  You're selling something that clients need and competitors can't provide.

SPBA is very candid with potential clients about what's important.  On the public website at   one of the most-selected pieces is entitled "Choosing & Evaluating TPA Services".  It repeatedly emphasizes the difference & value of  SPBA TPAs' personalization & government compliance.  Perhaps you should print it out and/or use some of the other pieces & insights about the many personalization & compliance service you provide, as a way to slide into a discussion with clients & brokers about the extra value you bring to the table (and perhaps mention that this unique talent deserves some extra remuneration).  We've got to start moving towards recognition of the value of this service that you're now mostly giving away for free.

Let me end by saying that we occasionally get calls from potential clients seeking TPAs.  I normally verbally tell them and also point them to pieces on the SPBA Public Website.   By the time I've explained the personalization & compliance story, they are adamant that anything except an SPBA TPA is unacceptable.  So, the message obviously sells.

Associations are not allowed to recommend one member over another, and we are careful not to do so.  However, the potential clients often have complex questions.  In such cases, the TPA Directory is our guide of who does the kind of plan or client or geographical area the employer needs.  We then tell them to call the TPA and say that SPBA has appointed them to be an ambassador for the whole profession to give insight.  I am extremely proud to say that the professionalism of SPBA Ambassadors is amazing.  They give generously of their time. 

Sometimes the client falls in love and hires that TPA.  However, there are many cases in which TPAs will tell the potential client, "I'd love your piece of business, but I think you should also talk to my competitor" (or sometimes they recommend a competitor and even call ahead to give the other TPA a heads-up).  We also sometimes recommend the media talk to "the real experts" (you).  I often get calls or e-mail back from clients or media who have talked with you.  They are amazed, and that kind of self-less professionalism is the best advertising & reputation the TPA profession could get.

The morals of this story are:

(1).  There have always been ups and downs in the competition TPAs face, but the TPA market emerges each time larger and stronger.   We are on the eve of another growth spurt as competing forms of health coverage get dragged through the mud of public opinion.

(2).  TPAs are actually providing a much more refined and valuable service than their non-TPA competitors.  The challenge is how to convey that message and get paid for the unique extra-value services. 

(3).  The extra-value message sells well when presented, and the professionalism among TPA firms makes the reputation shine all the brighter.