How to choose a TPA for a self funded plan

Carrier ASO and an independent TPA

Administrative services only, or ASO, is the carrier’s unbundled administration contract. The carrier processes claims, rents its network, and sends the bill for administration. You fund the claims. Stop-loss may be the same carrier’s policy or a separate one. The appeal is one party and a network people already know. The cost is leverage: the network, the claim office, and sometimes the stop-loss move together.

An independent third-party administrator is not the medical carrier. It processes claims, rents network access from one or more networks, and does not have to place stop-loss with itself. You can compare administrators without treating the network brand as the whole decision.

Neither structure is a discount by itself. The point of self funding, if it fits, is on is self funding right for 50 to 500 employees. The funding comparison is on level funded vs fully insured.

Bundled and unbundled stop-loss

Bundled means one organization sells administration and stop-loss together. The invoice is simpler. At renewal, a laser (a higher specific deductible on one named person) or a sharp stop-loss increase can hold the administrator in place, because leaving the policy means leaving the claim office.

Unbundled means the stop-loss policy is placed on its own. You can market stop-loss without moving administration, and you can market administration without moving stop-loss. That is the leverage. Ask whether a new laser can be added at renewal, whether the renewal rate is capped, and who owns the claim history the next stop-loss carrier will use to price the renewal.

The contract words for specific, aggregate, lasers, and run-out are on stop-loss basics.

Network access and repricing

The network is a separate price from the administration fee. Ask these before you accept either arrangement:

• Is the network a rental, and what is the access fee: a per-employee amount, a percent of savings, or both?
• On a single claim, can you see the billed charge, the allowed amount, and the discount, or only a net number?
• Does the administrator pass the network’s allowed amount through, or is there a spread between what the network allows and what the plan is charged?
• Which hospitals and physician groups your people use are in the network, and what the out-of-network rule is?

A lower administration fee that hides a spread in the allowed amount is not a lower cost. Ask for a sample remittance, with the names removed, before the arrangement goes through.

Pharmacy carve-in and carve-out

Carve-in keeps pharmacy with the medical administrator. One vendor, one file, and less room to change pharmacy terms without reopening medical administration.

Carve-out is a separate pharmacy benefit contract. You can change it, or keep it, without moving the medical administrator. You also take on a second service agreement, a second data feed, and a rebate definition you have to read.

The questions are the same either way: pass-through or spread pricing, what counts as a rebate, specialty channel rules, and claim-level verification rights. They are on PBM contract questions.

The claim file and the monthly lag report

The plan should own the claim data. Put that in the contract, including what you receive if you leave.

Each month, ask for a lag report: claims incurred in a month, shown by the month they were paid. That triangle is how you see whether the reserve is keeping up. Also ask for notice when one person crosses a threshold you set, so a specific stop-loss claim is not a surprise at renewal.

Claim-level detail on a named person stays behind a business associate agreement. The monthly report the CFO reads can still show totals, large claims above a threshold, and the lag, without turning the finance meeting into a clinical chart.

Banking and funding

Self funding means the company moves cash to pay claims, on a schedule. Ask:

• Whose bank account is drafted, and who has authority to draft it?
• How often is it funded: daily, weekly, or when the account hits a floor?
• Who reconciles the draft to the lag report, and how fast?
• Are employee contributions held in the employer’s general assets briefly, or in an account that could be plan assets?

The float is part of the price. An arrangement that holds the company’s cash longer than claims require is a cost, even when the administration fee looks small.

Run-out administration if you switch later

When you change administrators, claims incurred before the change and paid after it still have to be processed. The outgoing administrator usually charges a run-out administration fee for that work. Ask for the monthly amount, how many months it runs, and whether it is optional or automatic.

Also ask for the exit package: the claim file, accumulator balances, prior authorization history, and the banking cutoff date. A low first-year administration fee is incomplete if leaving costs a year of run-out fees and a file you cannot take.

What ERISA section 408(b)(2) expects you to see

ERISA section 408(b)(2)(B) requires a covered service provider to a group health plan to disclose direct and indirect compensation in writing before the contract is entered into, extended, or renewed, when that provider expects compensation at or above the statute’s threshold. The statute lists benefits administration, stop-loss insurance, and pharmacy benefit management among the services.

Indirect compensation is the piece CFOs miss: network access fees, stop-loss bonuses, pharmacy revenue, and anything else that does not show up as the administration fee on the invoice. Ask the ASO carrier, the independent administrator, and anyone placing stop-loss or pharmacy for that disclosure in dollars, before the arrangement goes through. DOL Field Assistance Bulletin 2021-03 is the Department of Labor’s explanation.

Pay on a current engagement is carrier commission, often set in the rates the carrier files with the state. Every dollar paid on the contract is disclosed in writing, in dollars and per employee, before the plan goes through, for the current plan and every option quoted. Call (808) 358-1477 or email aloha@mattragudo.com.

What is the difference between a carrier ASO and an independent TPA?

Administrative services only means the medical carrier administers the plan and usually rents you its network. You fund the claims. An independent third-party administrator is not that carrier. It administers claims, may rent one or more networks, and stop-loss is placed as its own policy. The better fit is the one that leaves you a real choice at renewal.

Why does bundled stop-loss change renewal leverage?

If administration and stop-loss are sold together, a laser or a rate jump on one person can lock the whole arrangement. You may not be able to move stop-loss without moving the claim office. Unbundled placement lets you market stop-loss on its own, and market the administrator on its own.

Who should own the claim file?

The plan should. Ask for a monthly lag report, incurred month by paid month, and for a copy of the claim file if you change administrators. Also ask what the run-out administration fee is, for how many months, and whether prior approvals and accumulator balances move with you.

Can pharmacy stay with the administrator or leave?

Both are contract choices. Carve-in means pharmacy runs through the same administrator as medical. Carve-out means a separate pharmacy contract. The questions to ask either way are on the PBM contract page, including pricing, rebates, and claim-level verification rights.

What compensation has to be disclosed?

ERISA section 408(b)(2)(B), added by the Consolidated Appropriations Act of 2021, requires a covered service provider that expects direct or indirect compensation at or above the statute’s threshold to disclose that compensation in writing before the contract is entered, extended, or renewed. Benefits administration, stop-loss, and pharmacy benefit management are among the services named in the statute. DOL Field Assistance Bulletin 2021-03 explains the disclosure.

I built and sold a health insurance agency: grew it to 60 agents in about 3 years, then sold it. Licensed insurance agent since 2014: Texas license 2501238, NPN 17369817.