Health insurance is an important benefit to provide to employees, providing financial security for them and keeping your workforce healthy. While most people are familiar with traditional health insurance plans, there’s another key part of the health insurance arena: Third Party Administrators (TPA).
In this comprehensive article, we’ll delve into TPAs, explaining what they are, how they work, and their significance in the realm of health insurance.
What is TPA?
Nigeria’s NHIA Act of 2022 defines Third-Party Administrators as “any organisation with expertise and capability to administer all or a portion of the insurance claims process, including administration of claims, collection of premiums, enrolment and other administrative activities, which is registered by the Authority and has the acronym TPA.”
Third-Party Administration (TPA) in health insurance is an outsourcing of certain administrative functions from insurance companies and employers to an external entity (aka the TPA).
This third party manages aspects of the health insurance plan on behalf of the insurer and employer, ensuring the efficient operation and administration of health insurance benefits for employers.
In many cases in Nigeria, HMOs also act as TPAs for select clients and TPAs still function within the health insurance framework.
How Do TPAs Work?
To understand how TPAs work, first you need to understand how health insurance works.
Think of health insurance like a group of people pooling their funds together and the money is used to cover certain ailments in certain hospitals that have been selected by risk managers. The health insurance company here manages the pool and disburses funds from the pool to the hospitals. This system works because money is put into the pool even if the beneficiaries do not all use it. However, if a rare event (e.g. a black swan event like COVID) happens and the money in the pool isn’t enough to cater for bills, the hospital bares the risk of paying the hospital at a loss.
Now that we understand how health insurance work, how do TPAs actually work?
Like with regular health insurance, TPAs pool funds from a group of money to cover ailments. However, in the case of a TPA, the risk is borne by the company, not the Third-Party Administration. This is because the money in the pool is only managed by the TPA; the TPA does not enjoy the profits or bear the loss in the way regular health insurance companies do. If money in the pool finishes, the company simply has to top up the pool for employees to access care as usual.
It is important to note that TPA still functions within the health insurance framework and administrators similar functions like with regular health insurance. Here’s a deeper breakdown of how Third-Party Administration works and the key functions they handle:
- Administrative Tasks: TPAs manage certain administrative tasks that make the healthcare system more manageable and efficient for everyone involved. Rather than dealing with complex forms and paperwork, employers simply send employee information to the TPA. The TPA then manages the entire enrollment process, collects premiums from the employer, and maintains records of policyholders.
- Claims Processing: Another significant function of TPAs is to process claims from the healthcare providers on behalf of your company. When a policyholder gets medical treatment covered by their health insurance plan, it is submitted as a claim to the TPA. The TPA reviews the claim with the hospital, verifies its accuracy, and calculates the amount to be paid based on the policy terms.
- Provider Network Management: TPAs often maintain a network of healthcare providers and negotiate special rates with them on behalf of your company. If a policyholder visits a healthcare facility within the network, they enjoy the discounted costs.
- Reporting & Analytics: Many TPAs provide frequent reports to the employer about number of employees on the plan, utilization rate, and amount spent so far on claims.
- Customer Service: TPAs act as your go-to source for any concerns or questions you might have. They offer customer support and help policyholders understand their benefits, settle claim inquiries, and provide information about policy coverage.
Relevance & Benefits of TPA In Health Insurance
TPAs are vital cogs in the healthcare machinery for a few reasons:
- Increased Efficiency: Because TPAs handle administrative tasks and claims processing, accessing health insurance is much more streamlined for all parties. This means quicker claims processing and better customer service. Hospitals generally prefer policyholders who use TPAs rather than regular health insurance plans.
- Saved Costs: With health insurance, employers don’t reap any benefits when the money in the pool is more than enough to cover the policyholders (especially if there is low utilisation rate). This means they pay more for benefits that may not actually be used. With TPAs, employers pay for what is used and do not need to pay more unless the money in the pool finishes
- Compliance: The healthcare landscape is subject to numerous regulations and laws which change often (like the new NHIA act of 2022 or Lagos State’s Ilera Eko directive of 2023). TPAs keep up to date with these regulations and help insurance companies and employers stay compliant with the requirements.
Differences Between TPA & Regular Health Insurance Plans
- Administration: Both TPAs and regular health insurance companies handle administrative responsibilities. However, TPAs have a speciality for handling these tasks, while health insurance companies manage them in-house. Think about it like the difference between hiring a professional event planner (TPA) and trying to organise the event yourself (regular HMO plans).
- Provider Networks: While regular HMO plans involve a pre-arranged list of healthcare facilities for your healthcare needs, TPAs can act as scouts, expanding their network to find the best deals for you.
- Flexibility & Customisation: With regular HMO plans, you are limited to the options already defined within their plan. However, TPAs offer more flexibility, allowing you to tailor your healthcare experience to some experience. You can speak with your administrator about what services you need covered in your plan, unlike with regular health insurance where you have to use whatever is in a pre-defied plan from the HMO.
- Risk Bearing: With regular HMO plans, the risk and rewards are borne by the HMO, while with TPAs, the risks and rewards are borne by the company.
Who Should Use TPAs?
TPAs only work favourably for large companies who spend a lot on health benefits (above 10 million naira). For these companies, TPAs help them save cost on benefit spend and provide more customisation for their specific needs. Because health insurance works like a pool, the larger the number of people involved (or the amount spent), the more effective the insurance will be.
Third-Party Administrators (TPA) serve as a crucial bridge, helping insurance companies, employers, and employees (the policyholders).
Motherboard helps to broker custom partnerships with TPAs for large organisations that want to save on health benefits for their employees.
Want a custom TPA plan? Send an email to Motherboard.
