A very large employer asked SPBA's Past President Fred Hunt what criteria a consultant should recommend back to the employer whether or not to hire a TPA. Below is Fred's answer. This is presented, because sometimes TPAs and their current & prospective clients take for granted the value & advantages of using a TPA. So, read on…..
This will probably sound self-serving, but let me assure you that SPBA has a reputation for candor. You won't need an expensive consultant to tell you whether you should use a TPA. Your common sense will answer that.
Just as more and more people use a tax preparation firm to do their taxes, because of the complexity, the vast majority of US workers in non-federal employee benefit health plans are in plans using TPAs. Why? When two of the largest corporations in the country kept trying to join SPBA, claiming to be "TPAs". These mega corporations are clearly not TPAs, but they kept trying to join SPBA. Finally, when I ran into the Senior VP of one, he admitted that even though they were a gigantic profitable firm, they could no longer afford to administer their benefit plan in-house. Why? He said that every time there was a new regulation, opinion, court case, newspaper article, or they got something in the mail from a government agency, they would end up spending at least $100,000 on lawyers, consultants, etc. trying to figure out what it meant and were they the only ones. It was also time-consuming and stressful, and insurance companies and others often could not give a personalized answer. The corporate Senior VP said, "your smallest TPA member has probably been alerted by SPBA and/or can pick up the phone and get those answers instantly."
To demonstrate how important this is, every year, there are about 1,000 new laws, regulations, interpretations, opinions, announcements, and major court cases impacting employee benefit plans or sponsoring employers. Not all of them apply to all plans, but you need someone who knows. You need someone who can get a quick grasp; and you need someone willing to work with you on a personalized basis to see how your plan can best adapt. The requirements emanate from a few hundred different government agencies & offices. Only a fraction of these requirements are adequately discussed, even in the trade press, and, believe it or not, many of the requirements never get final comprehensive guidance how to comply (but must still be obeyed). Adding insult to injury, Congress has designed the penalties for even "innocent" or unknowing transgressions to be very heavy-handed onto the employer, and often not hitting until years later. So, the question of whether you need a TPA is whether you want to walk through the mine field with a guide who will both guide, but also carry much of the load for you. That's not a hard decision.
Because of the personalized nature of the plan your TPA willhelp you design, and the ever-changing government requirements, and because the TPA takes pride in keeping you ahead of the curve on these issues, the relationship between TPA and employer is going to be much more close and frequent than with an insurance agent, broker, HMO or other entity. So, frankly, one of your considerations should be whether you feel a cooperative comfort level with the TPA, because you're going to be a team working on some delicate issues on occasion. Needless to say, you should also ask where any TPA gets its government compliance information and how do they convey & implement that with you. I can't claim that SPBA members never have an oversight, but I can assure you that they are deluged with information about how to best serve your plan.
Again using the analogy of a tax preparation firm, the professional tax-preparer not only keeps you within the law, but also maximizes your cost efficiency. TPAs pride themselves in giving clients very personalized service to custom-design the most cost-effective program for the particular employer and workforce. This means that the workers and employer get the biggest bang for the buck.
On our public website, at www.spbatpa.org there is a piece entitled "Choosing & Evaluating TPA Services" Between that and the piece "Everything You Wanted to Know About TPAs", your consulting process will be done (and you've, thus, already saved paying a consulting fee!)
Each TPA tends to have its own style and specialize in certain types of plans or services. I am gratified to tell you that TPAs have a reputation for professionalism, that if they don't feel they are the best for your type of workforce or your needs, they will usually refer you to another firm, sometimes their top competitor. They see themselves as ambassadors of the whole TPA industry, and they want you to have a good experience.
So, in terms of dollars, legality, and the joy of personalized product & service, yes, you want a TPA, and a perfect firm is out there waiting for you.
Frederick D. Hunt
SPBA Past President
SPBA is the national association of Third Party Administration (TPA) firms which offer a comprehensive ongoing array of employee benefit plan administration services to clients of every size and format of employment. There are also entities who call themselves "TPAs" who serve only one product or type of benefit (such as dental or Rx); there are "TPAs" who provide only the processing function with no design or compliance service, and there are many entities who just like to claim they are "TPAs". SPBA is the association of comprehensive full-service TPA firms. When interviewing TPAs, you should ask if they are a member of SPBA so you know to whom you are entrusting this important function for your firm & workers.