Third Party Administrator (TPA) is an independent company that is paid by the employer to handle the administrative tasks related to the health insurance plan.
Some employers may choose to self-fund the health insurance plan that they offer to their employees. This means that all health claims that are incurred by the group of employees and their dependents will be paid by the employer instead of the health insurance carrier.
Some of the benefits for the employer to self-fund include:
Claim processing and plan administration requires a great deal of skill, knowledge and expertise and most employers simply do not have the staff nor do they wish to spend the time and money needed to develop a team that can handle the claim function in-house. They would rather use a Third Party Administrator (TPA).
A Third Party Administrator allows the employer to outsource the claim administration and claim handling portion to an outside company that specializes in making this process invisible to the plan members. The Third Party Administrator could, based on the needs of the employer, handle all or part of the claim processing and plan administration responsibilities, including:
The Third Party Administrator charges a fee for the services that they provide and that fee could be on a per claim, per employee, per service, incurred claims or any other basis as determined by the Third Party Administrator.
So why does this matter?
In truth, this really has no bearing at all on claim processing. The medical billing process is the same and the Third Party Administrator will handle the claim handling process and plan administration just like a health insurance carrier would - in accordance with the plan provisions and benefits.
In most cases, the patient, the provider of service, nor the medical biller will have any idea whether a plan is fully insured by the insurance carrier or self-funded by the employer. The Third Party Administrator’s goal is to make the process seamless to plan members.