Third Party Administrator: What is a TPA in health insurance?

What is a TPA Insurance


A third-party administrator (TPA) in the health insurance industry is an administrative services provider that delivers support for self-insured health plans. Here’s what they do, how they differ from administrative services only (ASO) providers, and the benefits for plan administration.

Outsourcing to a TPA like Collective Health can be an attractive option for organizations looking to take advantage of the significant cost savings associated with self-insuring their healthcare plans.

By partnering with a trusted TPA, companies can enjoy overall cost savings by self-insuring their health plans without significantly adding to the administrative burden for human resources (HR) and finance teams.

A TPA can also work with an employer to implement employee benefit plans, can help familiarize the employer with healthcare options they may not have considered, and can provide ongoing member support.

Table of contents

What is a TPA for health insurance?

A third-party administrator (TPA) provides administrative services for self-funded health plans, sometimes referred to as self-insured health plans, in the health insurance industry. A TPA can also provide access to healthcare networks and may be able to source additional vendors, such as stop-loss insurers.

Unlike an insurer, a TPA does not take on the financial risk for a company’s health benefits claims.

Because a TPA works as a connector between businesses with self-funded health plans and insurance providers, the term TPA Insurance isn’t accurate. TPAs may provide a valuable service by adjudicating claims under self-funded health plans and working with healthcare provider networks.

TPA providers may also maintain relationships with insurers through which employers may access specialized insurance coverage, called stop-loss insurance, which helps limit high claims risks for employers that offer self-funded health plans. In this case, as well, the TPA is not the insurer.

TPA vs ASO: what’s the difference?

When considering a self-funded health plan, you’ll encounter both TPAs and Administrative Services Only (ASO) providers.

TPAs may operate independent of health insurance companies, in such cases potentially offering more flexibility in plan structure and healthcare network providers. An

ASO is typically a wholly-owned subsidiary of a health insurance company, which may limit your company’s provider network options to those available from the parent insurer.

Both can provide support for self-funded health plans. However, each serves a specific need. These two structures share some similarities but also differ in important ways:

AutonomyA TPA may operate independent of insurance companies.An ASO is typically a subsidiary of a health insurance company.
NetworksA TPA often offers several PPO networks to choose from.An ASO is typically limited to provider networks from the parent insurer.
ServiceA TPA can assist in a wide range of areas, including enhanced reporting.An ASO typically has limited services it can provide.

Outside of that notable difference, TPAs and ASOs both provide services for your self-funded healthcare plan. For example, both may allow outsourcing of insurance claims processing and record keeping.

By partnering with a TPA, companies can often gain more coverage options as well as funding and reimbursement options. While TPA and ASOs may perform similar functions, the independent management of some TPAs versus the ASO as a subsidiary of a health insurer can make a difference in a plan’s network options.

TPAs have their benefits. Once you’ve chosen a plan structure, a TPA can provide support for the plan, streamlining the process for plan members.

What is the difference between a TPA and an insurance company

Most people are familiar with how a health insurance policy works at a basic level:

The insurance provider sells coverage to protect against healthcare expenses. In exchange for insurance premiums, the insurer shoulders the risk of claims that exceed collected premiums. If actual claim costs come in lower than collected premiums, the insurer typically doesn’t refund premiums.

In a group health insurance context, the insurer managing the fully-insured health plan provides coverage but also handles many administrative tasks, such as claims processing and Employee Retirement Income Security Act (ERISA) compliance.

Instead of providing insurance, a TPA provides administrative services for claims to support a self-funded health plan. TPAs may also help coordinate reporting from outside vendors. Unlike an insurer, a third-party administrator doesn’t take on any risk for claims and doesn’t provide insurance or health benefits.

With a self-funded health plan, the company pays for actual employee healthcare costs through a fund, a model that can provide cost-saving opportunities, while the TPA provides support for claims adjudication and other administrative tasks.

Benefits of hiring a third party administrator

It’s best to discuss the benefits of hiring a TPA in the context of designing and managing a cost-effective self-funded healthcare plan. A TPA’s first role is that of service provider to the plan, a role that continues as your self-funded healthcare plan evolves.

“The greatest “product” advantage TPAs have is flexibility and personalized service. Every TPA-administered plan is custom-designed for the plan sponsor’s needs and specific workforce.”– Fred Hunt, past President, Society of Professional Benefits Administrators (SPBA)

TPAs supporting self-insured healthcare plans also may take on support for administrative burdens that typically otherwise rest on the human resources and finance teams within an organization. These admin tasks might include:

In addition, a TPA may also offer detailed reporting, providing a better understanding of healthcare expenses.

What services do TPAs provide?

The services provided by a TPA may span a broad spectrum and can often be customized. As in many industries, you can tailor your agreement to match your requirements. TPA services can include:

While a TPA can handle a wide range of healthcare plan needs, you can also often choose customized services to meet your needs. For example, some businesses might choose not to use stop-loss insurance. Your TPA agreement isn’t necessarily all-or-none, but it’s often more efficient to utilize a TPA.

Choosing the best health plan TPA for your company

TPAs offer a wide variety of benefits for companies considering self-funded healthcare plans. To learn more about how our TPA services can benefit your business or your clients, take a self-guided tour of the Collective Health platform.

Article Sources

Deliver a better healthcare experience for your people and your team.

Take a self-guided tour