Intro to Self-Funding
TPAs: Understanding the Definitions
Just as the term “consultant” is used to describe a variety of professional services, “third party administrator” or “TPA” is often used to do the same. It has come to be associated with many different definitions and levels of service these days.
For this website, our use of “TPA” is in reference to the comprehensive-service definition. What does that mean? When “TPA” is mentioned in laws and regulations, the general understanding is that it refers to benefit administrators who fit the comprehensive-service category and have client health insurance plans that follow the rules set forth by ERISA and its fiduciary responsibilities.
Comprehensive-service TPAs across the U.S. provide a wide range of ongoing services to their client plans and trustees, which can include:
- Claims Processing
- Stop loss insurance placement
- Government reporting related to ERISA and its Form 5500
- HIPAA and regulatory compliance
- Pharmacy benefit management (PBM)
- COBRA management
- Disease management
- Utilization review
- Wellness programs
Note: Like law and CPA firms, TPAs perform only those duties requested and delegated by the client, so there is no standard list. Under ERISA, the plan sponsor holds the title of the official Administrator of the plan.
With client health plans as the main focus, comprehensive-service TPAs put a lot of emphasis on educating employers and plan sponsors and helping them meet ERISA and other compliance requirements.
Other Ways the Term TPA is Used
Over the years, people have applied the term “TPA” to a variety of businesses and services. These are among the most common:
- ASO (Administrative Service Only) – Because TPAs and self-funding were considered competition to traditional insurers in the 1980s, “ASO” became a way for insurers to try to market the same product and service under a different name. Legally, there is no difference between a TPA and an ASO. Self-funding via ASO is regulated under federal law, but the term ASO virtually goes without mention in government-issued content. Additionally, while ASOs are extremely well-versed in insurance law, some are less familiar with the intricate details of ERISA law, which is critical to well-performing self-funded health plans.
- Specialty TPAs – This phrase is used in reference to administrators who offer just one or a few types of health insurance coverage (vision, dental, prescription, 401K, HSA, etc.). Some client plans will partner with multiple companies, including a comprehensive-service TPA for the main plan needs and a specialty TPA(s) for other services.
- Minimal TPAs – These tend to be explained as large entities that have a very minimal TPA function. Because the TPA portion is only a small part of their other, unrelated business, they are often not aware of ERISA fiduciary responsibility and other compliance matters.
- TPAs of Convenience – This classification refers to companies who market themselves as TPAs and often claim to be the biggest, most efficient, etc. When questioned about the specific responsibilities and/or compliance aspects of being a TPA, however, many will retract their declaration.
Rounding out the list, there are also In-House Benefits Administrators who are sometimes referred to as TPAs, but this staff must often rely on outside counsel and law firms for assistance. Property & Casualty and Workers Compensation groups also may be described as TPAs. The issue with this? The services they provide and markets they serve are vastly different from the TPAs dealing with employee benefits.
As the self-funding industry has evolved, the term “TPA” has taken on several new meanings in the last few decades. The definition this site uses – and one that is most commonly referred to by the federal government – is the comprehensive-service TPA. This refers to a benefits administrator who offers a wide range of services under client-focused, self-funded plans that follow ERISA requirements.