Plan sponsors are faced with competing offers by insurance carriers, group managing general agents and third-party administrators, as each group promotes their own unique, yet similar sounding, selling and value propositions.
Group MGAs are firms that specialize in advising group benefits brokers and act as administrative back office, similar to life MGAs , which advise individual life insurance agents and hold their licenses. TPAs work with brokers to make their practices better through the creation of best-in-class offerings by combining benefits lines from a variety of carriers. Insurance carriers offer benefits plans in one complete package — theirs. They may work directly with plan sponsors, but more often they also work with brokers in the service of their clients.
All three types of organizations, regardless of size, partner with benefits brokers, consultants and advisors. The first decision for a plan sponsor is to select an advisor. From there, they should follow (though not necessarily with blind faith) their advisor’s choice of plan provider.
The choice of plan design, carrier strength and rates will determine the direction. Brokers sometimes rely on the guidance and service of group MGAs, TPAs and carriers to help make the job of recommending solutions a better process for them and their clients.
How do these organizations differ if they seem to do the same things?
Benefits plans are quite simple in construct, and yet can be complex in execution. A plan design is chosen. Rates are negotiated. Eligibility files are created and managed. Claims are paid. Renewal rates and plan changes are calculated on the plan’s anniversary date. It renews or may be marketed and eventually moved.
Advisors that seek to bring experts to the table, and yet need advice independent from any one carrier, will seek the service of a group MGA and/or TPA to help meet their client’s needs.
A group MGA partners with an advisor to help find the right carrier and offer objectivity. They’ll help manage the quoting process and assist the broker with the renewal process. They also seek to provide help and advice to brokers that don’t have the extensive resources in-house or prefer to concentrate on clients and sales as their areas of core competency. This means group MGAs act as the broker’s broker and seek to find the best offering from myriad providers.
Group MGAs also help their broker clients by preparing reports for client presentations. They also help negotiate with carriers, as well as TPAs, from whom they help brokers source product and often help the broker present renewals to the client.
A TPA is somewhat different as they’ll create their own offering of products and services, packaging everything as a best-in-class solution from one, two or more life insurance carriers and specialty service providers. A TPA will also actively manage the plan’s eligibility file and, should the decision be made to move a plan, ensure the process of transfer is seamless so new renewal cards for each member aren’t required. In this way, they’re more hands-on in the operation of a benefits plan.
How do TPAs differ from group MGAs?
A group MGA manages offerings from carriers and TPAs. A TPA creates an offering. These custom offerings seek to combine products by carriers and TPAs that wouldn’t be offered by any other organization. A TPA may add specialty services, such as an employee assistance program, cancer care and medical second opinion and diagnostic services.
In most cases, group MGAs are paid an override by the carriers whose products they recommend. These overrides seldom, if ever, represent additional cost to the plan sponsor and are borne by the carrier that seeks to tap into the strength and extensive list of brokers the group MGA brings to the market as consolidator.
TPAs are more hands-on when they manage eligibility and create consolidated premium bills combining all their chosen carriers. Perhaps more importantly, and unique to a TPA, is that in many cases, they will perform the function of claims-payer and play a more active role in the management of disability cases.
Another unique aspect of TPAs is that, while an MGA intercedes to negotiate and manage the quoting and renewal process, a TPA performs those functions in-house since it’s been given wider authority to quote and, in some cases, bind coverage on behalf of its chosen carriers.
This means TPAs act as underwriters. They aren’t only responsible for quoting but also calculating and managing the renewals for their advisor’s client’s plans. As a result, they must bring a higher level of in-house expertise to play as they act like a carrier themselves.
Not every life carrier will work with a TPA because the cost model is completely dependent on removing costs from the construct of a benefits plan based on the roles and responsibilities performed by each party. If the TPA is going to manage eligibility, quote, renew, pay and manage client claims — performing the very functions of a carrier — then the carrier has no business double-dipping for those same functions.
The best carrier and TPA relationships come from a place of confidence where the TPA acts like a custom-created carrier, and the combined carriers on the TPA offering act like the TPA’s reinsurer.
The TPA charges its plan sponsors using a single consolidated bill, the same way a carrier would if they provided everything. TPAs work closely with the broker and, in many cases, the sponsor-to-be is their main point of contact. The costs for this must be competitive or the TPA would fail to justify its offering. This separate and carefully defined set of TPA and carrier roles and responsibilities, and the correct and balanced allocation of pricing, makes this all possible.
While plan sponsors primarily rely on their advisors, the advisors should be responsible for choosing the optimal solution from carrier, group MGA and/or TPA to suit the plan sponsor’s needs and in consideration of their own resources and expertise. Plan sponsors need only keep an open mind and consider all their available options.