This article briefly describes what third party administrators are and how they function. It also gives a brief description of the advantages stemming from contracting a TPA to handle employee contributions and claims.
Third party administrators (TPAs) are firms that handle insurance claims or benefit schemes for companies that outsource such functions. They often operate independent of insurance firms and play the role of go-betweens for client-companies, employees and insurers.
TPA functions include the collection of contributions from employees and the settling of claims relating to the various insurance covers. In the area of contributions, TPAs act as collection agents for insurance firms to which they direct funds on behalf of the client-company. They typically charge a small fee based on the number of employees that they handle.
In the settling of claims, TPAs serve companies by helping employees process claims (mostly related to healthcare or pensions) when they arise. TPAs can also assist the insurance firms that serve its
client-companies by functioning as a claims adjuster. In this insurance administration role, they become the primary verifier of claims whenever there is a dispute, answering the questions of claims investigators and other relevant stakeholders.
TPAs also handle pension payments and other retirement plans. In this case, they direct funds to pension authorities when contributed by firms and pay employees when they want to redeem their dues. Companies often choose this pension administrator option because of the technical nature of pension plans. This may demand too much input from internal accountants. To cut down on the expenses of pension processing, many firms turn to third party administrators for their technical expertise.
The primary advantage of TPAs is their cost-effectiveness. Companies often contract TPAs because these entities have the benefit of being less expensive than insurance agencies. This attracts numerous firms that want benefit and insurance services without the high costs. TPAs are also a highly concentrated pool of professionals who understand insurance and benefit laws that they can easily tailor to suit employees and firms.
TPA specialisation At the same time, using TPAs enables a firm to retain control over its money unlike in the insurance agencies arrangement that puts discretion over funds in external hands. Lastly, TPAs are specialised in particular schemes or benefits such that the experts in a particular area are readily available for companies at affordable rates.