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State of the TPA Industry + Forecast for 2008

By SPBA President Fred Hunt - October 2007

This is tough-love candor, because we don't want to hear whining when it is too late later.

For 28 years, these reports have been straight talk, and turned out to be amazingly accurate.

Your survival and success in business depends on three things:

1.  Alert & innovative:  We are already in the first stages of the biggest evolution in healthcare and its payment in the past 65 years.  No matter what direction things might take politically, the TPAs & Stop-Loss who will survive and thrive are those who stay alert to the changes & opportunities, and are innovative to turn the changes into profitable opportunitiesYou can not achieve that success by doing things the way you always have or saying you are "too busy" to pay attention and give strategic thought to making the changes & challenges into business opportunities.  SPBA has positioned you to be on the ground floor of this opportunity, and we will continue to help you towards that success.  However, YOU need to make the mental & strategy commitment in your firm.

Historical perspective:  In case you are moaning and thinking that big changes mean the end of opportunity, think back to the last big evolution about 1980.  The whiners said that single employers below 1,000 lives in the self-funded & TPA market was impossible or a disaster waiting to happen.  They said that health coverage would never be more than a tiny sideline for TPAs, compared to the long-dominant defined benefit pension market.  Stop-Loss; what was that??  Technology?? Computers would kill precision and personalization of TPA work, the whiners said.

2.  Shape your future:  The second life-or-death activity for your survival is to shape public opinion and thus political outcomes before government ignorantly stuffs something down your throat.  We have been prodding you and providing tools for your success for years.   The game has already started, and too many of you have been procrastinating.

If you think SPBA has a team of shiny-shoe lobbyists who can direct Congress, the White House, and state governments to use common sense and cost-efficiently, you are wrong.  For your protection, SPBA does NOT take formal political "positions" or participate in traditional lobbying.  Why?  First, the clients of SPBA members cover the entire political spectrum.  We don't want to get you in trouble with your clients because your association is a visible proponent of some bill or proposal.   Second,  there are several thousand associations (the biggest segment being related to health).  No matter how wise our position or persuasion as a national association might be, we are just a tiny voice.  Consequently, SPBA's modus operandi is to be more like a think-tank, to provide unbiased and candid insights, and warn proponents of various proposals about unforeseen potholes or side effects of their ideas.   We get those insights from you, and we end up having more impact on legislation, regulations, and court cases than if we were a direct lobbyist.  However, our credibility & effectiveness depends on YOU.

Obviously, it is always clear to everyone what SPBA thinks about an issue or proposal, and we share that perspective with members, government & media, and anyone else who will listen.  Another reason we do not adopt formal "positions" and "support" is that what a proposal or bill said or meant yesterday can be dramatically different the next day because of some tiny change.  We may have been a supporter yesterday, but a critic of the bill or idea today.  If an organization has a formal "position" or "support", it takes valuable political time to change.  Government staffers who shape laws & regulations freely admit, "The devil is in the details."  So, it is the net impact & elusive details on which we focus.  So, don't get bogged down in whether you or an organization has a "position" or formally supports some bill or proposal.

SPBA members have huge power if YOU will turn it on.   SPBA may be tiny as a lobbing organization.  However, you and your colleagues and clients have potential for a GIGANTIC voice with perspective & credibility in your hometown market areas.  Congressmen listen VERY carefully to voices & ideas from their home district or state.  So, you have a double-advantage.  If you inform local public opinion, that knowledge and reaction will be obvious to Congressmen.  So educating the people in your area is as important as talking to a Congressman....maybe more influential long term.  You have clout because you are reporting to Congressmen and your local media things that are impacting thousands of local voters, and you are an expert on the impacts on an impressive range of the local employers and thus jobs & economy.  You may be modest and think that you don't understand everything, but you are miles ahead of even the "experts".  There is no embarrassment if you're asked a question and don't have the specific answer.  Frankly, because you have the big-picture of how the medical, patient and payment functions interplay, you can steer the discussion and give a better answer than just some silly statistic.   Just be calm, fair, and candid.  Don't fall into name-calling.  You're the expert; act like it.


As mentioned, TPA services, products, and focus are already shifting, and seemed to evolve from the unspoken thought stage to actually brainstorming during the recent SPBA Fall meeting in Salt Lake City.  Some TPAs are thinking that the traditional TPA core service of claims processing is getting to be more and more trouble, yet often not profitable, and competition is slanted against TPAs.  On the other hand, they find  an ever-growing array of services & programs employers or individuals want.  These include such things as a wide range of wellness offerings, investment and other assistance for the growing HSA market, and more.  They can be done from scratch,  or with a growing number of specialized vendors.  TPAs are finding that the profit margin is far above what is earned from claims-processing, and the legal & regulatory headaches are much fewer.

Consequently, a growing number of TPAs are expressing confidence that even if significant changes might take place the in basic health "insurance" & claims-paying scene, TPAs will still have profitable and growing market niches .  Hearing the Canadian TPAs at the Fall meeting say that they do just fine administering only "fringe" benefits outside the Canadian national insurance opened eyes.  So, the message is that TPAs have a bright future, if they remain alert, up-to-speed, and each firm makes itself a leader in shaping public and thus political opinion.

Historical perspective: In 1993, most people thought that the Clinton health reform proposal  would wipe out the TPA industry.  Not so!  SPBA analyzed the  bill and found that there would have been 41 duties EVERY employer in the country would need to do to comply.  TPAs would be the logical entities to provide those administrative services for every employer in the country.  It would be like the tax-preparation industry during the massive tax reform.  They assumed they would be eliminated by "simplification" of the tax code, but a year later, the tax preparation market had grown 50% because the new "simplification"  that became law was more complex. 

TPAs and Stop-Loss need to keep intense wide vision to grasp and build opportunities as they evolve and in the wake of any government actions.  The TPA business in 5-10 years may look as different as today's market looks to SPBA founders who thought "TPA" meant pensions in Taft-Hartley plans.  Being alert , proactive & innovative will make the successful TPAs.

3.  All this talk of change, however, does NOT change what has always been the most important formula for TPAs success: very attentive personalized service.  Nothing can kill a TPA faster than the perception by clients that the TPA has become impersonal.  Our large & merged TPAs need to work doubly-hard.  There is a tendency to cut off key staff in merged or branch offices.  However, clients think of that local office as the TPA firm.  We see far too many situations in which clients call their local office, and the staff there are no longer in the loop of information from UPDATEs and attending SPBA meetings.  Those branch staff sound dumb to the client, and that often leads to eventual loss of the client.  TPAs, large & small, need to be sure all their employees are in the loop for cutting-edge information or they'll lose the business.  Ironically, sometimes the buyer or investor dropped the branch staff to save money, but the eventual loss is always much greater.  The SPBA Board has adjusted the membership categories starting in 2008 to add more automatic slots for "contact" individuals for the firm.

So, in summary, we are already on the road to the biggest change in the delivery & payment of health care and employee benefits in 65 years.  It is still early enough to shape national policy and the strategy of your firm for the future (though time is running out to get in on the ground floor)  Be open to change and be alert to opportunities to grow or adapt your services.  And finally, never forget the importance of informed, flexible, personalized service and having all your staff fully in the loop of information and industry developments.