Intro to Self-Funding
Choosing a TPA
Main Points to Consider
As helpful as it might sound, there is no checklist to follow in choosing the right third party administrator (TPA) to implement your self-funded plan. That’s because an advantage of self-funding is that every plan is totally unique and every employer – whether public- or private-sector – will have different priorities for customizing and administering one.
In terms of general points to keep in mind, take note of the following:
- Compliance Know-How & Coordination – With self-funding, following The Employee Retirement Income Security Act of 1974 (ERISA) and its fiduciary duty requirements is fundamental, just as adhering to other laws that relate to employee benefits is as well. Non-compliance can lead to costly fines and stiff penalties. How well does your TPA know the intricacies of the law? Where does the TPA get their government compliance information and analysis to stay on top of the latest requirements? How will your TPA work with you to ensure health plan compliance? These are important questions to ask as insurance law differs greatly from ERISA law and your TPA needs to be in the know.
- Plan Personalization – The ability to personalize your self-funded plan plays a major role in its success. Does the TPA you’re considering offer full customization or are you limited to choosing between a few pre-packaged plans/providers (government laws and rules require some things to be in all plans)? Can you choose the employee benefit services that will best suit your work population’s health insurance coverage wants and needs?
- Open Communication – A major factor in the long-term employer/TPA relationship is the level of communication. The two need to connect on a regular basis and keep each other informed. Just as a TPA should be communicating the latest regulatory changes and ways to adapt, the employer should be sharing any changes to the health plan, including new hires, terminations, etc.
- Level of Comfort & Trust – Because it’s such a close, ongoing partnership, employers need to feel comfortable working/sharing with their TPAs and trust them to give valuable input on behalf of the employee benefit plan and its participants. If the connection isn’t there, it will be hard to maintain the type of interaction that’s required for successful outcomes.
- Size/Location Considerations – There are different advantages to working with TPAs of every size. A larger firm may offer more national reach or be able to pair you with a team that specializes in a particular service. However, it is often the smaller, more local TPA firm that excels in personalized service. These area firms tend to be more independent and entrepreneurial in approach, often offering a greater level of flexibility, insightful knowledge of the local health care market, and personal, hands-on customer service.
- Cost Considerations – When doing your homework, ask TPAs about their pricing systems. These can range anywhere from one overall fee to rates calculated by the number of health plan participants. They can also vary if employee benefit services are offered by various TPA branches and/or outsourced to specialists. Just remember to take the time to do a thorough comparison of what is being quoted by each TPA.
Making Your Decision
There’s no step-by-step approach to follow when going through the TPA selection process. Two of the main considerations are the firm’s regulatory and compliance knowledge and its capacity to personalize health coverage and medical benefits. Other important factors are the level of comfort and trust shared between the TPA and employer as well as the ability to communicate openly. Size, location and cost are also things to weigh when deciding who will administer your self-funded plan.