SPBA is often asked about studies or statistics about staffing & operating ratios for TPAs. Well, there is nothing reliable, and we would warn you against trying to apply any numbers you do see or comparing to seemingly-similar businesses (such as HMOs or insurance companies). The question seems very logical on the surface, and thus SPBA has tried on several occasions to find the answers. After one such survey of operating expenses of TPAs firms, the results were announced (based on the data submitted by TPA firms).
The report started out by saying "Thirty percent of the TPAs have no office rent or overhead expenses. Twenty percent have no staff or fewer than 5 staff. Ten percent have no telephones." Those statistics were technically true, and included some major TPA firms. What????, you say. The one answer we (and other researchers) have found is that there is no universal "right" answer. As the old wise saying goes, "When youÍve seen one TPA, youÍve seen one TPA." Each TPAÍs structure, services, client mix, philosophy of service and market is different.
As you look through the SPBA Directory of TPAs, you immediately notice in the charts the differences between firms of the same size. So, that tells you that comparisons are between apples & oranges. The issue of staffing is often further vastly confused because of the ownership & corporate structure of many TPAs. Many are part of a multi-firm arrangement (TPA + insurance agency Inc. + UR Inc. + who knows what all working in the same office). Often the rent, staffing, and other expenses get assigned to one or the other by quirk or growth pattern. So, you can imagine how a TPA (with many workers who technically are paid by a sister operation) showing only a few actual employees would devastate any statistical pattern. So, organizational structure and the number of services are obvious wild cards in any such evaluation. Often, the source of salary is split or assumes direct commission income to individuals as an offset, so salary surveys are also badly skewed by reporting partial salaries. Furthermore, there is no way to tell how thoroughly client services are provided and/or if they are outsourced (which would obviously impact the staffing numbers). By "thorough" we donÍt mean how well the services are done, but whether it is, for instance, the full-blown service for each client, or do the clients want something less thorough, or only a few clients want the service.
Types of client is also a factor. There were some old studies on this which confirm common sense. For example, it is much more staff-efficient to service a large single-employer clientele compared to a multiple-employer where there are many entities involved. The range of coverages in client plans also, obviously, is a major factor in the staffing and other expenses needed to provide the service.
Are HMO and insurance company operating ratios comparable? No, and would probably cause a TPA & clients into serious legal & market problems. Why? TPAs give much more personalized service and find that they need to provide much more specific government compliance implementation service. Government compliance is the biggest threat and cost to clients. One of the major reasons for the phenomenal growth in TPAs is that TPAs have earned a reputation for not only keeping up with the latest twists and turns, but also taking the time to help the client understand and apply it to their situation. Remember that every claim processed requires a certain amount of government compliance review to avoid later headaches & fines. To be competitive in the TPA marketplace, that is expected. (It is not purely altruistic. TPAs have taken this pro-active role, because they have seen that if the client gets into a mess, it is the TPA who has to use uncountable hours to clean it up, so the large time/staff investment in government compliance is actually an efficiency.)
We realize that this is not the answer you wanted. However, we can tell you that the true answer to your question about what is the "right" operating & financial ratios is that if the system you now have is working and seems, in itself, efficient, and clients are happy, it is probably the right balance for your firm.
Finally, adding more confusion, the TPA business & client needs are far from static. Every year there are many new requirements, which can eat up lots of staff time & TPA costs. For example, the upcoming DOL Claims regs will probably have several more requirements, as will the privacy/confidentiality, patient protection, EDI, etc. So, what was "right" last week may be under-manned this week, and clients expect flawless continuity, so you have to be prepared and flexible with adequate staff & expertise. To avoid being financially drained by all this government tinkering, we suggest that TPAs build into their administrative fee or other system some way to be paid when new duties or time to research and clean up old client messes arise. So, many TPAs see added work as an added opportunity.