Third-party administrators are key health benefits industry players that have grown in size and influence but are relatively unknown and sometimes misunderstood.
The Third-Party Administrators’ Association of Canada represents the majority of TPAs in Canada, which together manage benefits plans for more than 5.3 million Canadians through 70,000 employers, says Mike McClenahan, the TPAAC’s president and vice-president of partner solutions at People Corporation.
TPAs don’t insure benefits plans; rather, they handle administration, such as enrolment, premium billing and plan member communications. Some TPAs are also third-party payers and adjudicate and pay claims on behalf of insurers.
TPAs were created to fill gaps in the benefits industry and help plan sponsors manage complex benefits plans. This includes plans with a variety of designs, locations, divisions or subsidiaries, multi-employer trusts, unionized plans or a specific industry or type of employer.
According to McClenahan, the TPA industry developed decades ago to fill a market need, initially in the union trustee market. “Since then, TPAs have spread into other fields, including the corporate market, multi-employer associations and small [and] medium businesses.”
While some TPAs have expertise and specialize in benefits administration for certain industries, others offer their services to a broad range of plan sponsors. The ownership and business models for TPAs are wide ranging — some operate as not-for-profit trusts and others are publicly or privately held companies. In addition, some TPAs work on behalf of their plan sponsor clients with a variety of insurers to package and price different products that potentially offer better pricing, customization and flexibility.
As aggregators and distributors of insured and non-insured (such as health-care spending accounts) products, administration solutions and communications tools, TPAs are able to provide solutions for plan sponsors’ benefits needs, says McClenahan.
Certain benefits plan advisors offer TPA services and some TPAs also act as benefits plan advisors. The nature of the relationship, says McClenahan, varies depending on the TPA’s distribution strategy. Some bundle services, including administration, communications, underwriting and advisory services through their own licensed advisors. In other cases, the TPA partners with independent group-focused advisors for the distribution of their services.
When asked how TPAs characterize their relationships with insurers, McClenahan says they can vary depending on the market situation, from respectful competitors to valued partners. “TPAs cannot bear risk, so we depend on the insurers to provide insured risk products. In turn, TPAs provide opportunities for insurers to distribute their products and services through distribution networks of partner advisors and plan sponsors.”
Suzanne Lepage is a private health plan strategist.