Custom craftsmanship
TPAs may now offer a number of different services, but it’s their ability to customize that has made them flourish. Because TPAs are generally smaller than insurance companies, they have the ability to be more flexible. “Depending on the nature of the client, some plans get very involved,” says Foot. “We can handle up to 1,000 different classes or divisions. [Some] insurance companies may say you can only have a few divisions or cost centres. If you don’t fit into the box, most insurance companies can’t handle you, [whereas] most TPAs can build into their systems what the client needs.”
Brian Lindenberg, senior partner and Canadian leader of Mercer’s health and benefits professional group, agrees that customized and personalized service is the major advantage of using TPAs. “They will, in some respects, customize their delivery of service to the client’s needs and wants, whereas an insurer is limited,” he says. “And from a price perspective, it doesn’t make sense for insurers to customize all of their client relationships.”
Contractor pitfalls
For some employers, however, the lack of larger national TPAs could pose a problem. “TPAs tend to be strong regionally [and] less so nationally. There are some national players but relatively few,” explains Lindenberg. To serve a national employer effectively, he notes, the TPA would need to have knowledge of the regional differences in government programs such as healthcare, the ability to handle both English and French language requirements, extended call centre hours to handle inquiries coast-to-coast and, in some cases, the ability to handle personalized service in local markets. Smaller TPAs may not be able to offer these services at the national level. If they are able to, these services may not come with the same quality that can be offered at the local level.
“I believe TPAs have been successful in the past because they are able to offer a more customized/personalized service offering. Few have the national infrastructure to deliver a more personalized offering coast-to-coast, and, increasingly, TPAs are unable to compete with the technology platforms of insurers,” adds Lindenberg.
Latour agrees that while some TPAs have very sophisticated software, the insurance industry has really evolved in this area. “We are now able to offer a variety of effective and simple software tools that can help our customers manage their own programs online. It makes it much easier than before.”
Laying the Foundation
Determining the benefits to your organization of using a TPA is the first step. Finding one that will meet your needs, now and in the future, is the next—and may prove to be the biggest challenge.
In a marketplace where the lines are becoming blurred as providers look for ways to increase their market share and add value to their relationships, the services that TPAs typically provide are offered elsewhere. Plan sponsors need to ask, Will this provider make the long-term viability of my plan a priority? What is the best fit for what I need?
Given the wide spectrum of available services and lack of industry guidelines for TPAs, it’s critical that employers do their due diligence before signing any agreements. “Each TPA has a unique offering. As a potential consumer of those services, you have to be able to separate the wheat from the chaff and figure out what TPA A can do compared with what TPA B can do,” Lindenberg explains. “Because there are no standards, this has created a fairly diverse and fragmented delivery channel.”
This is an area that employers often neglect, but checking references and understanding your provider’s business is critical before establishing an ongoing relationship. “I suspect that [plan sponsors] can, and probably should be, doing more from a governance perspective in making sure that the vendors they select—be it a TPA and an insurer or an advisor—are going to be around tomorrow,” Lindenberg adds.
What, exactly, should you be asking? Here are some suggestions from TPAAC.
1. What services do you provide? Are they done in-house or do you contract them out?
Knowing this will help determine if the TPA services are part of the company’s core business or offered as a secondary service. If they are not the most important part of the business, the company may not have the necessary resources to stay current—either with technology or with changes in the group insurance market. Also, knowing if the company that you are hiring is the one that is actually going to do the work is important. If some elements are being outsourced, you should be informed so that you can evaluate these providers as well.
2. Do you have errors and omissions insurance and fidelity bond coverage or comparable protection?
Errors and omissions insurance provides protection to the client in the event that the TPA makes a significant error or omission. Such coverage generally enables the client to recover the cost of the error from the TPA’s insurer. Bond coverage protects the client from loss due to possible criminal activity of the TPA’s employees. TPAs should have both types of coverage.
3. How are the funds protected?
Funds held by a TPA for an insurer should not be used for any other purpose. The TPA has a fiduciary responsibility to ensure that premiums and claims funds are kept separate from its operating funds, typically held in a separate trust account.
4. What type of claims do you adjudicate, and how?
If the TPA adjudicates claims, you need to know which claims they adjudicate. It’s also important to know if this is done in-house, on the company’s own systems, or through an outside vendor.
5. What is the turnaround time from the point that you receive a claim to sending the cheque and the explanation of benefits statement?
Electronic data interchange claims are instant; however, many claims are still paid on a reimbursement basis. Claims turnaround is critical for employee satisfaction. If claims take two to three weeks to be adjudicated, then employee confidence in your plan can be eroded.
Employers certainly have an abundance of choice when looking for TPA services, but understanding what your organization needs—and what to look for in a provider—will help you hit the nail on the head. BC
April Scott-Clarke is assistant editor of Benefits Canada.
april.scottclarke@rci.rogers.com
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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the April 2010 edition of BENEFITS CANADA magazine.