What is TPA in Healthcare?
TPA in healthcare stands for Third Party Administrator – most often a state-licensed individual or organization that acts as an independent intermediary between an employer’s self-funded health plan and healthcare providers. Although independent, the purpose of a TPA in healthcare is to support self-funded health plans by managing administrative tasks and processes on health plans’ behalf.
Most employers with fifty or more full-time employees – including full-time equivalent (FTE) employees – are required to provide health insurance under the Affordable Care Act (ACA). Those with fewer than fifty FTE employees may choose to provide health insurance in order to attract and retain employees, or to benefit from Small Business Health Care Tax Credits or the Small Business Health Options Program (also known as the SHOP Marketplace).
To comply with ACA, private sector employers have several health plan options. These include, but are not limited to:
- Fully insured employer-sponsored health plans, in which employers pay a fixed premium to a commercial insurance carrier that covers the cost of medical claims.
- Self-funded employer-sponsored health plans, in which employers cover the cost of medical claims (often backed by a stop loss insurance to limit financial liability).
- Health Reimbursement Arrangements (HRAs), in which employees are reimbursed for qualifying medical expenses up to a fixed dollar amount per year.
- Multiple Employer Welfare Arrangements (MEWAs), in which groups of employers combine contributions to obtain better rates or benefits for employees.
Nearly Half of Employers Provide Self-Funded Health Insurance
Most private sector employers with a workforce of one hundred or more FTE employees are required to file Form 5500 annually. Form 5500 provides the IRS and Department of Labor with information about benefits provided to employees and how the benefits are administered. Following a 2021 analysis of Form 5500s, the Department of Labor calculated that 25,500 of 60,500 health plans are self-funded, with a further 4,100 being partially self-funded.
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There are several reasons why nearly half of all private employers take advantage (or partially take advantage) of self-funded health plans. Self-funded health plans eliminate state premium, broker, and insurance commission taxes, and do not contribute to commercial insurance carriers’ profits. They can also allow employers to customize their plans to meet the needs of their workforces – subject to the requirements of state and ERISA regulations.
However, while self-funded health plans can be cheaper for employers, and give employers more freedom over the design and control of their plans, there can also be disadvantages. For example, the cost benefits can be negated by the indirect costs of self-administrating a plan, while the customization and control benefits can be negated by what services healthcare providers are willing to provide and the conditions under which they are willing to provide them.
The Role of a TPA in Healthcare
A TPA in healthcare mitigates the disadvantages of self-funded health plans by managing administrative tasks and processes on the employer’s behalf. Indeed, in many cases engaging a TPA in healthcare can further reduce costs and increase health plan flexibility by using the TPAs experience and existing technologies to streamline administrative tasks and processes, and by leveraging economies of scale to identify cost savings across a network of healthcare providers.
However, because different employers have different requirements for their self-funded health plans, there is no such thing as a one-size-fits-all TPA in healthcare. Most individuals or organizations offering TPA services customize their services to suit the employer. Typically, however, healthcare TPAs will structure their portfolio of services around the following elements:
Benefit Plan Design and Implementation
A TPA in healthcare can assist with the design and implementation of a self-funded employer-sponsored health plan – customizing it as required to include benefits such as health, pharmacy, dental, vision, and retirement planning.
Enrollment, Disenrollment, and Eligibility
The TPA can manage the enrollment and disenrollment processes for employees and dependent plan members, ensure coverage details are kept up-to-date, and maintain compliance with eligibility requirements.
Provider Network Setup and Management
Healthcare TPAs also negotiate contracts with new or existing healthcare providers, manage provider networks to ensure the benefits being provided by the health plan are always available, and facilitate payments to providers.
Customer Service for Plan Members
One of the most time-saving benefits of a TPA in healthcare is that employees and plan members can direct their inquiries, concerns, or issues related to their benefits or coverage to the TPA, who then provides the assistance required.
Claims Processing and Management
TPAs handle and process all insurance claims, manage eligibility and verification, adjudicate claims, and issue payments to healthcare providers or policyholders when payments are due under a partial plan or stop loss policy.
Large Case Management Coordination
Large cases may involve several healthcare providers across a network. A TPA in healthcare evaluates the medical necessity and appropriateness of healthcare services or treatments to ensure they meet established guidelines.
Healthcare TPAs and HIPAA Compliance
With regards to the issue of HIPAA compliance, the requirement to comply with HIPAA depends on whether the self-funded employer-sponsored health plan has fifty or more plan members. If so, the health plan qualifies as a covered entity under the definition of a group health plan in §160.103 of the HIPAA Administrative Simplification Requirements. If the group plan has fewer than fifty plan members, it does not qualify as a covered entity and HIPAA does not apply.
A TPA in healthcare that provides services on behalf of a group health plan that qualifies as a covered entity is a business associate of the covered entity if it is an independent intermediary between the employer’s self-funded health plan and healthcare providers. In such cases, it is necessary for the employer and the healthcare TPA to enter into a Business Associate Agreement before any Protected Health Information (PHI) is disclosed to the healthcare TPA.
However, if the TPA is providing “Administrative Services” on behalf of a commercial insurance carrier (more commonly described as an “ASO in healthcare”), the commercial insurance carrier qualifies as a covered entity. Disclosures of PHI between the two parties are permitted without a Business Associate Agreement under §164.506 of the HIPAA Privacy Rule (“Uses and Disclosures to Carry Out Treatment, Payment, or Health Care Operations”.)
Employers who need further information about the role of a TPA in healthcare and the HIPAA requirements for Business Associate Agreements are advised to seek professional compliance advice.
