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TPA’s 101 – Part I

I often get asked my position regarding TPA’s.  So I decided to have a short lesson on what to ask of your TPA and why you should consider using one.

First, let’s clarify what a TPA is.  They are third party administrators.  You could also be talking about a broker – if you’re in the insurance world.  Other examples of TPA’s would be in dealing with your pension, 401(k) or worker’s compensation plans.

So let’s walk through a few situations…

First, let’s talk about insurance brokers.  I can’t tell you how many times I’ve heard about a CFO asking the HR person, “Why do we need a broker?”  The answer is simple.  And it’s so simple that typically your by-the-book CFO doesn’t get it.  The company does not pay the broker directly and they are a tremendous resource.  Yes, that’s right; it is not an operating expense.  They are paid a commission directly from the insurance carrier.  The broker is the one you call if you have escalated issues.  They normally have back-door relationships with the carriers and have direct access to decision-making liaisons.  They are also the ones that go out and competitive-shop your plans every year.  This is where their relationships are key – they can give pushback and help lower your rates.  They can also create plan designs that will help your company save money and still be able to put a plan you’re proud of in front of your employees.  One broker I continue to recommend has helped companies save millions of dollars year after year.  So ask me again why you should hire a broker?  It’s a no-brainer.  They fight the battles that you can’t fight with the insurance companies.  And they have the ability to maneuver better than you because they’re in a position to send or not send business to the carriers.  I once saw a broker walk into a situation and get a 6% (increase) quote on an insurance renewal, whereas the previous broker (that had just been fired) received a 60% quote.  The company was much happier with 6% obviously.

Second, if you’re talking about worker’s compensation, the term is TPA’s.  Now, I will tell you that you will have to pay for this service.  But my experience has been that it is an all-inclusive one-time payment – no matter how many claims or how much they have to do for you – it’s all covered and based on your claims experience.  Anyway, here’s why you should hire a TPA.  Worker’s compensation is an elaborate labyrinth and mess of paperwork.  They keep it all stright for you.  They file your claims and appeals.  They hire the attorney and send them to your hearings (most TPA’s include the hearing fees as a part of their yearly retainer fee).  Keep in mind that a TPA can also attend a hearing on your behalf, but normally, it would be advised to send an attorney, because the practice of law definition usually hinders the TPA from participating in every aspect of a hearing (i.e. cross-examination).  TPA’s can also work with their actuary to help decide if financially, you should settle a claim or if a claim is eligible for handicapped reimbursement.  I once had a TPA discover a $25,000 error that the Bureau of Worker’s Compensation had made regarding a reserve on a claim.  They also can advise you on how to handle a claim real-time, whereas an MCO has to take more of a neutral stance.

This post turned out to be a little longer than I had originally planned, so we’ll turn it into a multi-part series.  In Part II we’ll talk about what you should be doing to make sure that your TPA and broker are doing what they should be doing.

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