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"Biggest" and "Independent" TPAs

A practical perspective from SPBA Past President Fred Hunt

I am often asked to identify the “biggest” and/or “independent”  TPAs.  I always warn that every statistic about TPAs, benefits, insurance, health and just about everything else has a 1,000% built-in distortion factor.  The terms biggest & independent TPAs triggers that warning. 

ERISA envisioned TPAs as being absolutely independent without the most remote possible conflict of interest or incentive.  When I became SPBA President in 1980, there were already some strains for very logical business reasons and it got fuzzier as the TPA profession grew exponentially.  As explained below, that is NOT to say that attention to fiduciary duty declined!  The most common is that many firms became TPAs sideways from existing agencies or brokers.  Also, with new laws & requirements, many TPAs started sister companies for COBRA, wellness, etc.   Today, there are financial institutions, insurers, HMOs, medical entities, etc. with corporate ties to TPAs.   So, now judging the independence of a TPA is like DOL's answer to all tough questions, "It depends on facts & circumstances."

Fortunately, SPBA TPAs have done an impressive job of following the spirit of impartial independence ERISA envisioned.  In part, this is because ERISA's fiduciary duty expectations require that the TPAs and everyone who has a role with plan assets & administration be purer than pure.  SPBA is famous for ingraining its members with a strong sense of fiduciary duty.  So, even SPBA member TPAs who may be owned by agent/brokerages, insurers, HMOs, medical etc. think independently like a TPA and perform their duties with that mindset...not with what would profit a sister or parent firm.  We warn potential buyers of TPAs not to expect a purchased TPA to put the interests of the parent entity over the interests of the client plan & participants.  This sometimes takes guts, but this honor system has worked well.

This raises another vocabulary confusion.  What is the difference between TPA and ASO?  The difference is like Ford and Mercury....different marketing names.  TPA is the term used in statutes & regulations.  ASO emerged when TPAs with self-funding plans started taking over more and more of insurer's market, so they created a look-alike called ASO.  When asked how I differentiate, I say that it has been my observation that firms that call themselves TPAs, and certainly SPBA members,  think & serve clients as independent TPAs (even if they  have owner or sister firms).  TPAs are very attuned to ERISA, self-funding and the wide range of laws, compliance duties & restrictions. 

On the other hand, I have noticed that self-funding administrators that call themselves ASO tend to be still very much under the wing of the parent insurance company, so they think from an insurance perspective.  Furthermore, ASOs tend to rely on the legal and compliance team of the insurance company.  Insurance law & ERISA and other employee benefits law is often dramatically different.  So, it is like relying on British lawyers to interpret and obey complex US laws.  Sometimes this means that practices that might be fine for insurers or other US businesses (like "self-dealing") could be a federal criminal breach of fiduciary duty for services & business practices to many types of self-funded plans.

So, that is an extremely long-winded way to say that "independent" is in the eye of the beholder, and SPBA no longer keep track, because  seemingly-logical answers would have the 1,000% range of answers.

So, for example, I heard that 92% of a major insurance company’s  book of business is now ASO, and several other insurers not far behind.  So, if ASO = TPA, and ( for the sake of example I'll assume) the insurer is an independent business entity, then that insurance company might well be the largest independent “TPA”.   

Looking ahead: Because of the many penalties, fees, and restrictions imposed on “insurance companies” in PPACA and related regulations, I suspect many large insurance companies with large percents of their book of business in self-funding, may soon rename themselves TPAs in order to avoid some over-eager state, local or federal bureaucrat or court from slapping some fine or restriction on their self-funding operations because they are “insurance companies”.

After hearing this explanation, many people ask which of our SPBA member TPAs are largest. The SPBA Directory (available on the website) reports the administrative fee income related to employee benefits (and for a truer picture of what they bring to the table, we tell them to include what might be multiple technically-separate corporations, such as a sister firm for COBRA, for wellness, etc.). Virtually all of SPBA's largest firms are conglomerations of purchased firms, and the tenderness of the client marketplace not to rock the boat with changes means that most of those subsidiary TPAs still calm clients by seeming as personalized an independent operation as possible.

This isn't the easy statistical answer people would like, but I hope that the overkill of explanation will help you understand the situation & reasons, and avoid stumbling into a number....and then having it turn out to be misleading or out of context.