You are here

Everything You Wanted to Know About TPAs But Were Afraid to Ask

SPBA Active Past President Fred Hunt

Very important statistics warning:

Everyone reading this probably hopes & expects to find precise statistics to compile & process.  The truth is that every number & statistic related to employee benefits, health, insurance (and seemingly everything else) has an automatic 1,000% distortion factor because of vast variations of uses of basic vocabulary & terms.  For example, "per life" sounds obvious, but is variously used as one human being...or worker + spouse + many children...or some other description.  Similarly, many marketing terms have come into use which are often knowingly or unknowingly counted as separate or together.  For example, ASO (Administrative Services Only) was a marketing term invented by insurers for their fast-growing self-funding market.  "Minimum Premium" & "Experience-Rated"  are also marketing terms and can have various meanings & legal status depending on the fine print of the plan language.  Almost every basic vocabulary term has multiple meanings (just as most people count their personal truck as a "car").  So, when a survey question is asked, the asker has one idea of what the intended term (such as "per life") means.  The responder may have a differing meaning in mind and/or the researcher or source data-collection of the responder's statistic may be different.  Then, the response collector may have a different idea, adjustments, or way of collating results, and, finally, the presentation of the findings report often has a desired spin or comparison.  Most people who see the (flawed) statistic tend to add, subtract, multiply or divide it with other statistics which almost certainly each have vocabulary distortions, thus vastly expanding the distortion of the final numbers.  So, use statistics as general guides, not gospel.  Also, for your own credibility & reputation, give caveats, because you can be sure that other well-intentioned & careful data-collectors will have come up with very different answers.

This is not what you wanted to hear, and you want to disbelieve this warning.  If it is any comfort, the U.S. government has twice appointed me as lead Expert to assist the major number-crunching agencies of government (GAO, CMS, CBO, BLS, White House Office of Economic Advisors, Congressional Research Service, etc. etc.).  These fine statistical researchers (not to mention hundreds of prestigious private institutions) frequently come up with very different numbers (or differently described) for the same thing.  Uncle Sam wanted to know why the disparities.  The very candid meetings proved the vocabulary problems described above, and that is why I warn you not to rely on a statistic from even a very prestigious source.  It is infected with the voaculary distortion. 

So, in this piece, I will refer to numbers that meet the common sense and some cross-checking testing, but should be seen as guidance, not gospel.

How big is the TPA market? 

Keep in mind the vocabulary warning above, but the common-sense cross-checking range is that about 60% (and growing) of U.S. workers with non-federal health employee benefits are in plans using some degree of Third Party Administration (TPA) firm, including those who use the insurer marketing term "ASO" for their TPA duties.   In fact, an astoundingly large percent of the total business for many large insurance companies is ASO (acting as a TPA) self-funded plans.   A survey several years ago found that 91% of employers outsource their health & insurance to a third party.  30% do so "completely" and 61% partially. (That question is especially prone to misunderstanding, since, legally, the "self" of self-funding names the employer/plan sponsor as the official "Administrator" in the plan document....much as you are the "taxpayer", even if someone else did all the forms).  Another survey of employers that have in-house benefits managers reports that 79% of employers use TPAs.  As different as those statistics seem, when distilled down to bare facts, they support a similar picture that TPAs (whatever vocabulary is used for the fucntion) handle over 60% of workers in non-federal health benefit progams.

It is estimated that of those TPA service providers the vast majority are SPBA members or affiliated.  (Even this statistic is subject to the vocabulary distortion dilemma, since most insurance company ASOs have their TPA-named branches as SPBA members.)  The net point is that SPBA is the main focal point for TPAs.

What is Third Party Administration?

    The terms "Third Party Administration" firm and "Third Party Administrator"  (both known as "TPAs") are used and mis-used in the insurance/benefits field to describe an assortment of arrangements; everything from large and small firms which provide comprehensive ongoing benefits administration and management services to client employer plans (which is SPBA's membership space)...to consulting, law, CPA, or specialty benefits & insurance firms which do a few services, only some kinds of plans, or short-term projects...to insurance agents or brokers who handle various amounts of the paperwork...to insurance companies and Blue Cross Blue Shield associations who offer "Administrative Services Only"  (legally, ASO = TPA)...to a host of new kinds of health plans & arrangements.  There is no single definition or description in Federal or State statutes or regulations for Third Party Administration (though many states have their own TPA statutes).  When people ask me how many TPAs there are, I tell them to take their pick of any number between 200+ and a few thousand...depending on the definition (vocabulary again). Here's one way to separate "real" TPAs from "TPAs-of-convenience" who simply like to claim they are.  When it comes to state TPA licensing, fees and some of the onerous government responsibilities imposed on TPAs, the fake TPAs suddenly become invisible, re-label themselves, or give a blank stare.  TPA licensing is often very demanding, so people just posing as TPAs usually don't want the cost & trouble associated with being a real TPA.  (On the other hand, some states' TPA licensing laws end up including entities not normally considered TPAs, and not including some who are.)  So State licensing and definition of TPA are not synonymousVirtually all of the TPAs considered to be "real TPAs" providing a comprehensive array of services are members of SPBA.

    Adding insult to injury, the term "third party payer" (TPP) is sometimes confused with "Third Party Administrator" (TPA).  Third Party Payor is a much broader term. The third party payor pays money it owns itself, such as an insurance company or government payments.  There are really two different interpretations involved here of the term "third party".  In an insurance company or government payment arrangement, the three "parties" are #1 = the patient, #2 = the doctor/hospital, #3 = the outside payor.  In the TPA sense, the three parties are #1 = the employer/plan/patient /client,  #2 = the doctor/hospital/medical provider, #3 = the TPA firm hired to handle the plan & claims between the employer/plan/patient and the medical provider. 

    There is also a difference between TPAs who manage property/casualty and liability claims...as opposed to the TPAs who specialize in employee benefits such as pensions and health/welfare coverage.  Workers Comp. may fall into both categories of TPA.  For the purposes of this discussion, we will focus solely on TPAs of health, pension, and related employee benefits, which is SPBA’s membership.

How Would You Describe the Role of TPAs With Their Clients?

    TPAs have a relationship with their clients much like that of their sister professions CPA and law firms.  Too many people wrongly think of TPAs being like the insurance industry.  Instead, the relationship resembles that between an employer or plan and their independent CPA firm or outside law firm on retainer.  In both cases...like the relationship between TPAs and their clients...the service is on an ongoing, personalized closely-involved, long term basis.  The difference between TPAs and consulting firms is that the TPA provides a variety of services to the whole plan + implements it + administers it on an on-going basis.  Obviously, the TPA provides a lot of expertise in this process.   Many TPAs  also offer some consulting services.

    TPA firms have another similarity to their sister professions of law and CPAs.  The client retains the legal responsibility for decisions.  Thus, in the eyes of the law, CPAs, attorneys, and TPAs have a recognized role in advising and implementing the decisions...but they do not actually formally make the decisions.  In the case of TPAs, the center of authority for the client employee benefit plan is the Board of Trustees of the plan  (or the plan sponsor directly, if there is no Board of Trustees).  It is important to remember this relationship!!  Government often mandates that "TPAs shall do" one thing or another when the TPAs often do not have the legal authority to initiate such action (just as your tax preparer or lawyer can not do what you don't authorize).  The government would never think of asking independent CPAs or lawyers to over-step their bounds.  It is simply a matter of the TPA profession being less understood. Similarly, TPAs do not make "medical " decisions.  TPAs simply interpret the contractual plan language (in the same way that Medicare officials are not making "medical" decisions when they refuse to pay a bill for a service that Congress says is not a covered benefit).  There is tremendous ignorance and confusion over this point.  TPAs do not make decisions about receiving medical care. In fact, most of the time, the medical care has already been delivered to the patient before the claim arives at the TPA.

Is Total or Partial Off-Shore Out-Sourcing the Wave of the Future for TPAs?

No.  While it sounds like a logical & profitable idea in theory, there are some major legal & psychological factors.  The biggest psychological factor is that the key to success of a TPA is personalization personalization personalization.  Clients want to feel that the TPA is personally dealing with their plan, and has every detail and answer at his fingertips.  Yes, modern electronic communications are wonderful, but even when a merged TPA says that the computer is in another town, clients tend to see it as a decline of personalized service.  Psychology may seem silly, but that’s what makes or breaks a relationship with a client, and has ruined many buy-outs.

There are also legal hurdles.  There are no “mundane” or “routine” duties in a TPA operation.  Remember my description of the thousands of governmental requirements?  The staff person inputting data or doing clerical processing is a first and very important step of government compliance and customer service.  This “mundane” process is where many government compliance issues are triggered or problems avoided.  TPAs have also found that when they sub-contract, there is a chance for something to fall between the cracks.  When that happens, or any compliance confusion or oversight, it generates tremendous extra work (and  often liability) for the TPA (for which he is not compensated).  It can be extremely expensive.  So, doing the functions as a highly-skilled team together is cheaper than having the huge research & repair (often facing huge government penalties) of even uncontrolable or unknowing oversights later.   Also, most of the laws (such as HIPAA privacy, DOL Claims regs, etc.) were written on the assumption that US laws would apply to the people doing the processing.   Plan sponsors would be held responsible for things over which they have no control overseas.

Meanwhile, State TPA licensing authorities seem hesitant to accept off-shore out-sourcing of duties on behalf of a TPA they are licensing.  Similarly, Stop-Loss providers have expressed skepticism about doing business with a TPA whose distant functions it can not easily audit.  So, the problems are practical, not political.

How Did Employee Benefit TPAs Get Started?  What types of plans?

    TPAs are mostly an evolution from other related businesses & needs.  There are reports of a TPA operating as early as 1933.  However, the modern TPA concept has its roots in the jointly-administered multi-employer union/management collectively-bargained employee benefit plans, codified in the 1945 federal Taft-Hartley Act.
 
    Such plans typically are composed of several employers whose workers belong to a single union.  The concept is especially beneficial to workers in trades which move from job to job (such as construction specialties). Not surprisingly, these Taft-Hartley plans are called "multi-employer" plans (not to be confused with the very different term "multiple employer").

    There were also a few TPAs  as early as the late 1950s who specialized in serving plans sponsored by single employers for their own workers.  These corporations tended to be primarily interested in applying this concept only to health coverage, while most Taft-hartley plans at the time centered on pensions.  Today, health is the dominant issue for all TPAs because of so much government regulation.

    TPAs have also  expanded into other markets.  State and local governmental entities (such as school districts) have decided to apply the advantages of self-funding & TPAs.  The same is true of some religious employers (such as a diocese for its workers), and some associations in states where "MEWAs" (described in another piece) are allowed.

What Third Party Administrators Does SPBA Represent?

    SPBA is the national association of Third Party contract employee benefit Administration (TPA) firms of employee benefit plans.  SPBA's membership might best be described as the "core" of the employee benefits TPA business. (See the types of TPAs described above.) SPBA (and the spirit of the ERISA law) aims for its member firms to have an arm's-length independent relationship with clients.  Originally, most TPAs were stand-alone operations, so "independence" was easy to define & judge.  Today, many TPAs either have several sister firms offering services, or they are part of much larger business conglomerates.  Because the actual TPA duties may be coming from an assortment of sister firms for duties such as COBRA, wellness, etc. etc., SPBA judges income based on the estimate of the TPA firm of their total role in employee benefit services. We candidly ask, “How big a player are you in your TPA services?”   All association services and meetings are strictly limited to SPBA members + Stop-Loss Service Partners + Technical Service Partner firms who have tech services specifically tailored to the TPA role.  While many TPAs are also active in other associations, SPBA is the only national association specifically for TPAs. 

  How many SPBA TPAs are there?

At SPBA's founding in late 1975, the original members optimistically estimated that 60 firms might ever be eligible TPAs.  For many years, we have had well over 200 SPBA-member firms.  It should be noted that counting number of firms is no longer an accurate measure of the industry because of recent trends of mergers & buy-outs.  However, the number of TPA offices and plans represented continues to grow significantly because the prior offices & duties of merged or bought firms remain as SPBA members under the merged entity name.  There is also a strong trend of "second generation" TPA firms...run by people who worked in other TPAs + many insurers, Blues, HMOs, investors, and medical groups starting TPA operations.  So, today's 250 named member firms comprise the business of what were over 1,000 TPA firms over the years.   (SPBA membership growth is primarily from reputation & word-of-mouth recommendations.) 

Have There Been Any Patterns Within SPBA's Growth?

    Definitely!  Most of the TPA firms have been started since 1980, and serve single-employer corporate clients, church employers, and state or local governmental employee units.  They also seem to prefer only health, cafeteria, and Consumer-directed (such as HSAs).  The tremendous growth of these new firms has been in every area of the country.  Many enter the TPA business laterally...meaning that they have several years in the employee benefits business as brokers, agents, in insurance companies, HMOs & medical entities.  Many of these firms report that the idea of self-funding and TPA are often suggested by one or more of their now-clients. 

To What Do You Attribute the Spectacular Growth of the TPA Business?

    If you invent a better mousetrap, the public will beat down your door to buy it.  TPAs’ highly-personalized services, and prices have proven perfectly geared to the wants and needs of employers and employee groups.   TPA’s offer innovation and new options of coverage, as well as personalization, flexibility, and the comfort of caring about government compliance duties of the employer.  It's like getting a tailor-made suit versus off-the-rack.

    First, let's consider the "product".  Most plans administered by TPAs involve some degree of self-funding (a.k.a. self-insurance).  Stability of the funding comes via stop-loss reinsurance.  Self-funding has proved so popular that, as noted earlier, many of the insurance companies and Blue Cross Blue Shield and HMOs are offering self-funding as their primary product.  Some TPAs administer fully-insured plans on behalf of insurance companies.

    The greatest "product" advantage TPAs have is flexibility and personalized service.  Every TPA-administered plan is custom-designed for the plan sponsor's needs and specific workforce.  The flexibility allows maximum opportunity for cost-containment and oversight, which will be discussed later.  For example, states now have about 1,200 "mandated benefits" required of fully-insured plans...including such things as toupees in one state and hair implants in another.  With self-funding, the plans get the cost-efficiency to custom-design the benefit package for the wants & needs of that particular group of workers.  That's most bang-for-the-buck for both workers & employers.

    TPAs are especially known for their responsiveness and close personalized service to client plans and participants.  Even the largest TPA firms aim for highly attentive service.  This means that claims are usually processed and finalized in shorter periods of time, questions are handled promptly, and plans can be adapted as the wants and needs of the client workforce change.   This latter flexibility is especially important for cost-containment and to adjust to the hundreds of legislative and regulatory changes and federal mandated benefits Uncle Sam imposes each year.  Normally, an insurance company makes one decision for all policy holders on how the new rules and changes will be implemented.  A TPA works with each plan to see how the changes can be implemented most efficiently for each plan and/or individual worker.  Sometimes this advantage is only a convenience.  Other times, it can represent substantial savings or morale boost for the plan or workers. 

    Important legal compliance point:  Most of the flood of employee benefit requirements are legally imposed on the employer (plan sponsor & trustee)...not on the plan or insurance company.  Since the TPA works closely with the employer on his whole benefits package, compliance tends to be more uniform and comprehensive.  Many insurance companies, Blue Cross Blue Shield associations, and others, understandably, handle compliance only for the items that relate to their services.  There is always the risk that something might "fall through the cracks"...with serious legal consequences.   For example: a trade press survey of non-TPA employers & insurers on two major laws found 91% of the non-TPA plans were unaware or unprepared for the requirements of one law and 81% unaware or unprepared for the other law on the day the laws took effect.  Since government designs fines & penalties even for innocent goofs, government compliance is the biggest risk & cost an employer faces.  Thus, TPAs usually build into their administrative fees more compliance assistance than is included in the prices of insurance companies, Blues, HMOs, etc. (which is why trying to compare insurer with TPA fees is apples & oranges).

    A related advantage of the flexibility and personalized service of TPAs comes in the area of efficiency and cost-containment.  The personalized (and often geographically close) service from TPAs tends to spot obvious errors or abuses (such as everyone who goes to Dr. X ends up getting some untraceable diagnosis & treatment, no matter what the original ailment might have been).  It also means that a senior person of that TPA firm is readily available to cut red tape to help an employer or patient get things straightened out, or brainstorm about other options.  This is a great reassurance, compared to the highly structured hierarchy of the insurance community.  Also, because most government requirements never or only after long delays get full formal guidance on how to comply, there is the advantage that the multiple clients of a TPA, plus the role of SPBA, give an invaluable multi-perspective brain-storming capacity as plans grope through the uncharted requirements.  This latter is a major attraction for employer CEOs & Chief Counsels selecting a type of coverage and TPA.

    The flexibility of TPAs and their willingness to work with plans on cost efficiency has made TPAs leaders in truly cost-effective cost containment.  The important thing is that the techniques work and are custom-made for the needs of specific plans and participants...especially with the rapid evolution these days of new types of coverage & plans.

    Finally, I would attribute much of the success of the TPA business to the spirit of the people.  It is still a fresh and dynamic industry.  TPAs and self-funding are not widely known and understood.  A true (following legal lines, not markering jargon) study would show that probably 80% of the health benefits market uses some form of self-funding, and a majority use some form of TPA.  So, TPAs represent the majority...but have "we try harder" extra determination.  Also, most of the TPAs had been successful in marketing or management in the insurance or medical business, so they realized that the job could be done more efficiently.

    For all these reasons, SPBA TPA’s attract a special niche of clients.  It is important to understand this client market in order to understand what is important to TPAs.  Most SPBA member clients have roughly 50 to 4,000 workers.  At this size, it means that the boss may not know everyone's name, but they know each other from company events and in the community.  So, the boss tends to have a caring & protective feeling towards the employees and plan. Frankly, the boss also does not want to face angry workers.  This special attention of employers is an important factor to remember in thinking about TPAs’ client relations & customs.

What Are the Characteristics of the TPA Firms?

    Many of the firms were started by the people who still run them, with the daily hands-on experience in all facets of the business.  Not surprisingly, the firms tend to take on the personal traits of those people and original clients.  This, of course, accounts for much of the personalization and enthusiasm which has made the TPA business successful.  TPA firms tend to retain their “personality” even after corporate changes.  The “personality” is the comfort factor that retains the clients!  However, it also makes it virtually impossible to make generalizations of how the firms operate.  TPA firms also have the unusual custom of trying to remain invisible.  Unlike their similar sister professions of law firms and the insurance industry, which give their own names more prominence than the client's, TPAs have traditionally made their function seem like an office of the employee benefit plan.  This is not modesty, it is the spirit & role intended by the ERISA law and a professional commitment to emphasize to employers and workers that the plan belongs to them.  (While this is admirable, it means that most people have never heard of TPAs, and are thus skeptical that TPAs have such a huge part of the market.)

What Is Stop-Loss & SPBA Stop-Loss Service Partners?

    Stop-Loss is one of those wonderful terms which means exactly what it says.  It is reinsurance for a self-funded plan, which an employee benefit plan buys (usually arranged by the TPA as a normal part of administration) as back-up insurance to stop the loss from unexpectedly high claims on the plan.  Stop-Loss usually has two points at which it takes effect.  The first is known as the "specific" attachment point.  This applies to the cost of one claim or person.  For instance, open heart surgery could prove an unexpectedly high expense, but it is only reflected in the expenses for a single individual.  Thus, the "specific" attachment point might be set at an amount such as $25,000.  That means that the regular fully-insured  stop-loss reimbursements from a commercial insurance company would begin to reimburse the plan or employer for all charges for that claim above the attachment point.  Important legal note:  Stop-loss reimburses the plan or employer (depending how the contract is written).  It is not insurance on the person.

    The second Stop-Loss trigger is known as the "aggregate" attachment point.  This applies to the total claims of the whole group.  The stop-loss insurance policy begins to reimburse for claims when the total of all claims exceed some set amount.  Stop-Loss is not mandatory. However, Stop-Loss provides a safety net which allows the risk of self-funding to be predictable, and has made self-funding practical for even smaller employers whose cash flow can budget for the possible losses.  Stop-Loss is not unique to self-funding or a sign that self-funding is scary & risky.  Insurance companies of all kinds usually buy re-insurance for the same reasons.

    Note:  The existence of Stop-Loss does not make a plan "insured".  The fact that the employer (totally separate from the plan) or the plan itself buys coverage is no different than if the employer or plan bought fire insurance or other such protection which does not replace the legal responsibility of the plan to pay claims.
 
    SPBA and its member TPAs work closely with leaders of the Stop-Loss industry to increase communication and understanding.  This has tremendously smoothed the TPA/Stop-Loss/plan relationship & functioning.  In 1995, SPBA formalized the cooperation between TPAs & Stop-Loss leaders.  SPBA has a relationship (not a formal associate membership) known as "Stop-Loss Service Partners" to have ongoing shared education between TPAs and Stop-Loss insurance companies, General Managing Underwriters (GMU/MGUs) and re-insurers of stop-loss insurance companies.  This has been a win-win-win for TPAs, S-L & clients. It puts TPAs & Stop-Loss "on the same wavelength" in the face of new government changes and trends in employee benefits.

TPAs & Technology

One would think that mega players would have far out-paced TPAs in the technology arena.  (Confession, many of us thought the same in the old days.)  However, TPAs have excelled in combining technology and government tech requirements with the highly-personalized focus of TPA services, and SPBA and its members have been active players with the government officials in charge of tech policy & applications.  The result is that SPBA members often hear that the technology with the TPA is more "useful" than fancy massive programs from insurers and other large entities. 

A sign of that interest in useful technology is that a new category of Technolgy Service Partners was created in 2014 to, like the success of coordination with Stop-Loss Service Partners, have tech firms with services or products specifically geared to TPAs & client plans (not just generic tech applications) to be on the same "wavelength" and involved in the SPBA brainstorming to adapt to ever-shifting government & marketplace requirements.

Tips on Selling To TPAs

    The individualism & personalized attention which has given TPAs dramatic growth presents a challenge for you.  No two TPAs operate in exactly the same manner.  Every product or service which a TPA buys must first undergo the expense and risk of failure to adapt to a TPA's specific needs and operations.

    This need for tailor-made products and services for TPAs, combined with the natural desire for cost effectiveness and efficiency, which the TPA demands for his client plans, means that the TPA is an informed and wary customer when vendors approach.  Studies show that the corporate overhead of TPA firms is as much as 40% less than that of insurance companies (though TPAs invest a higher percent of their total costs in actual claims processing & services for the client plans).   Also, every TPA has often been told about  the "perfect" product for his needs….by vendors who turn out to be ignorant about true TPA needs & customs as described above.  Thus, TPAs are not push-overs for vendors.  They have cost-efficiency foremost in their minds, and an awareness of the individuality of their needs.  TPAs are wary, but are responsive to products and services which are truly needed, and which show an understanding of the TPA and the client.

    VITAL FACTS FOR VENDORS TO RECOGNIZE: 

>>>When a TPA buys a product or service, the money comes from his own TPA profit unless there is a way to price it as a per-use, per-plan or per-person charge which can be conveniently explained & billed to the client (assuming the client & U.S. Department of Labor will see it as a prudent cost/benefit ratio).   If the TPA pays for the product or service from his pocket, the client is the one who gets the benefit or savings...but the client usually won't recognize the savings or benefit enough to let the TPA raise his fees to recoup the costs of the new product or service.  If your pricing can solve that dilemma, sales to TPAs will increase.

"This is the greatest product/service ever."  I have been with SPBA over a third of a century.  I have been told about the "greatest product/service" or new approach at least 200 times.  I can't think of any that have survived, and most didn't really get off the ground.  Why?  The biggest poison is that the product/service may make perfect sense in theory, but it bombs in the human nature test.  Yes, you can find a way to get the cheapest doctor, cheapest hospital (even with documented quality standards), but people do not want to feel like they are entrusting their life & health to some unknown discount concept....or they don't want to travel far from home when they are feeling vulnerable.  (Don't get defensive; just understand and do not underestimate the human nature factors and employer/employee nuances.)  Also, the product service may actually be for insurance or medical administration, or something, and is a no-fit for TPAs with self-funding. (That's a major turn-off to TPAs.)  So, if you're trying to introduce or sell the greatest no-lose product or service, realize that TPAs know that history is not on your side. 

    Many SPBA members look to SPBA when approached by vendors.  SPBA absolutely does not engage in any commercial activities or endorse any products!  SPBA does occasionally explore what are perceived as needed services to help vendors understand TPAs and/or better target the market.  (The perceived need is based on spontaneous interest expressed by TPAs...not a need or hype generated by the vendor.) The "grapevine" among TPAs works extremely well about products & vendors.  Thus, the best sales advice is, "Make one TPA happy, and the word will spread!"  However, SPBA meetings strictly disallow any commercialism...whether from SPBA members to other members or via exhibits or entertainment suites.  SPBA members tend to view SPBA meetings like a family reunion, so any attempts at commercialism are as unpopular as someone giving a sales pitch at your family Thanksgiving dinner. There is also no advertising in SPBA publications.  One reason is that many SPBA members have some service or product which they would be willing to sell to other members.  We work to preserve the sense of family which SPBA members have for each other.  This policy has been frequently and enthusiastically demanded by the members and works well.  Vendors who have ignored SPBA's policy of no commercialism have earned the ill-will of the SPBA members whom they hoped to attract.  It's the TPA's requested policy, not some staff policy. What's the best way to "crack" into the TPA market?  Make a TPA a very satisfied customer, and the TPA grapevine carries that recommendation far and wide amazingly quickly.  The same is true, of course, if a TPA feels cheated or disappointed.

What Is SPBA's Role or Strategy With Government?

    SPBA has achieved a unique niche in government relations.  Administering the employee benefit plans of over half of non-federal U.S. workers in every size & format of employment means that SPBA TPAs' clientele covers the full range of interests, from union, to corporate to state & local governmental units, big business, small, church workers and each part of the country.  Thus, SPBA takes the role of being a candid resource of real-world insight & expertise, rather than political lobbying & maneuvering.  While we actively & candidly work with the White House, Congress, and agencies on issues...often behind the scenes and/or as the voice for the entire employer/insurance/employee benefits community...our primary goal is working with a couple hundred Federal & state regulatory offices which directly dictate the rules for plans and TPAs (where the rubber meets the road for plans, workers & employers).  Thus, when a law is passed by Congress and signed by the President, most associations consider their work on that issue done...but SPBA's work moves into high gear at that point.  As plan administrators, TPAs know the importance of seemingly minor words and phrases in regulatory language. ("The devil is in the details.")  We work directly with the officials drafting the rules & regulations to be sure that the outcome reflects the intent of Congress, and is as workable as possible to administer.  SPBA and its members have enjoyed enviable success and earned widespread trust & respect this way.

    The SPBA office also serves as a sounding board for TPA members with problems or questions or when a client has an idea to consider.  We receive about 200 calls & e-mails per week from SPBA members who report that a DOL agent questioned a plan for such and such or an attorney told them the IRS wouldn't allow so and so.  Because SPBA continuously works with the actual policy makers in government, the SPBA office is able to refer its members directly to the "horse's mouth" for an answer or explanation or share earlier candid insights.  Not only does this make the SPBA member TPA a great resource for his clients...it also gives the SPBA office exceptionally broad feedback of what the government agencies are saying in response to specific situations & questions (which is important since formal guidance is usually lacking or on formative stage).  This allows SPBA to spread the word to other members about changes in government strategy or interpretations (which the government usually fails to announce, though the changes have legally binding implications).

    SPBA members and their client plans are not the only winners from this government relations strategy.  Many of the government regulators get frustrated that they get so little immediate reliably candid real-world feedback and input about the impact and implication of new rules and changes they are considering imposing.  Thus, the government authorities often call the SPBA office to ask "what would happen if ...?" or "How is this done now?" In all cases, SPBA promises discretion and/or anonymity to both TPAs and government officials.

What's the future for employee benefits TPAs?

    Dozens of times, TPAs and/or employee benefits have been predicted to die.  However, each time, TPAs and their market have blossomed even more.  So, the future for TPAs is bright.  Their flexibility, adaptability, compact management, low overhead, and entrepreneur-like spirit mean that they can roll with the punches (and usually prosper from them). TPAs are also perfectly positioned to maximize the rise in new innovations of health plans, which are usually very eager to have cost-effective administrative expertise.  The 1,000 new laws, regulations, interpretations, and major court decisions government generates each year has solidified the need and specialty of TPAs.  Increasing moves towards value driven “transparency” also increase the role for TPAs.  The analogy has been made that TPAs are like an agile sports car amid the limousines of the insurance business.  It seems we are constantly bemoaning some new horribly complicated imposition on plans and employers...and each year that imposition becomes a new reason why new clients seek out TPAs and a new profit center or service for TPAs.  (This does not in any way mean that we welcome the new horrible impositions.  We fight them vociferously.  It is merely that it is not the stunning blow to TPAs that it could be to other benefit entities.)  Government compliance is quickly becoming a dominant benefits duty.

    All is not rosy.  Like every industry, TPAs could conceivably be crippled or wake up to a different market by the flick of the legislative pen.  On the other hand, responsible politicians see that “single-payer” programs such as VA, Medicare & Medicaid and in other countries is not financially sustainable.  So, most of the recent government laws & actions envision the continuation of the employee benefits system,   However, no matter what the funding method, TPAs are strictly service providers.  They do not participate in the "risk" of the plan.  Thus, future prospects of TPAs are like that of CPA and law firms.  There is work to do as long as there is red tape & bureaucratic requirements.

    Health reform & TPAs?  Health reform has been discussed and forecast since before SPBA was founded in 1975, and each generates forecast gloom & doom from outside observers.  There have been several "health reform" bills passed, and each has faded.  I'm writing this in 2015.  Obamacare/ACA/PPACA has had an unsettling effect in various aspects of health coverage, and the jury is out over its net future.  The good news is that Obamacare/ACA/PPACA did not cause the tumult in self-funding & employee benefit plans that it did in the insurance world. In fact, employee health plans & TPA administration are taking on a whole new value & appreciation for employer plan sponsors and worker plan participants.   Change & reform come naturally to innovative TPAs who fill the needed niches. Or, as people have observed, "TPAs seem to be able to turn lemons into lemonade.  (See warning below about bureaucracy.)

    The biggest risk is that heavy-handed legislation & proposals tend to confuse the words "plan" (as in ERISA employee benefits funding entity) and "plan" used as a vague term to encompass insurance companies, the medical services of an HMO or managed care company, etc.  The laws & rules may ignorantly require ERISA "plans" (and thus TPAs for their clients) to assume responsibility for "medical decision" liability & "quality" issues with which it has no contact.  On the other hand, the good news is that employers & plan sponsors see the difference, and go to TPAs & self-funding.

Should everyone get into the TPA business?

    Absolutely not!  If you like highly organized, predictable, heavily-staffed bureaucratic operations  ...the TPA business is NOT for you!  The same applies when an entity which has a rigid structure buys a TPA and tries to impose its textbook "good management" on the TPA.  Good TPAs bought and then forced into a bureaucratic style (even with the best intentions of "good management") go into decline quickly.  The key to TPA success has always been (and will remain) highly personalized flexible service...even when it seems unorthodox.  Also, if you are not willing to abide by very strict ERISA fiduciary and other government compliance responsibility, you're an accident waiting to happen in this business. Congress designed ERISA to be the ultimate consumer protection law.  That and other laws can make practices that are legal in insurance and other businesses federal criminal offences (jail time) in employee benefits.  TPA is a special business.
 

Fred Hunt

SPBA Active Past President