Blog // HealthSmart Blog // October 2018

Choosing Wisely When Self-funding: Understanding the Difference Between TPAs and Carriers

10/18/2018 1:38:49 PM

Choosing Wisely When Self-funding:
Understanding the Difference Between TPAs and Carriers

by Ron Wozny, Vice President of Marketing

In our last blog, we discussed some of the benefits of self-funding your healthcare benefits. If you’ve made the decision to self-fund your business’ health insurance, you are well on your way to taking control of healthcare costs for you and your employees. But now the real work begins. It’s important to understand your options when deciding what works best for you.

Your first decision is choosing how to administer your health plan. When outsourcing your plan, you can use either a Third Party Administrator (TPA) like HealthSmart or an Administrative Services Only (ASO) program from an insurer (Carrier). In either case, they’ll help you design and build your plan and then manage the day-to-day. But that’s essentially where the similarities end.

While a Carrier option may work from some employers, TPAs provide some very clear and convincing advantages to ensure you’re providing excellent healthcare benefits while protecting your bottom line. Here are some things to consider.

  1. Cost. If nothing else, there’s the sheer cost of running your health plan. Carriers may charge upwards of $30 per employee per month (PEPM) for administrative fees, whereas a TPA generally charges $15 PEPM or less. If you’re a small employer with 250 employees, this equates to a $45,000 a year difference in fees. Also, be careful of Carriers’ “hidden costs” like auto-adjudication, whereby your plan may be forced to adhere to specific claim guidelines to pay automatically versus having human oversight of what’s actually being approved. Further, if a Carrier decides to audit their paid claims, they’ll keep a big chunk of what’s recovered – generally one-third to half of the recovered amount. But wait, there’s more.
  2. Reimbursement. When it comes to reimbursement, not everything with Carriers is as it appears. Carriers justify their higher PEPM administrative service fees because they claim members will see significant savings with access to their proprietary networks. Carriers suggest the savings will exceed the administrative fees, yet they typically reimburse providers at over 250 percent of Medicare. In some cases, Carriers may actually pay providers more than what was billed due to contracts they have with the providers. TPAs, on the other hand, are much more likely to review large billings and are able to provide reimbursements based on “Usual, Customary and Reasonable” (UCR) charges. UCR is the amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service. The UCR amount sometimes is used to determine the allowed amount. Further, TPAs are also more likely to review claims to identify fraud, waste and overbilling.
  3. Flexibility. With Carriers, you’re typically buying a “one size fits all” model. In many cases, employers end up paying for things their employees don’t really need or want. A quality TPA can either provide a bundled program built on their experience and expertise or unbundle their solutions to deliver only the solutions you want, based on your specific needs. Further, TPAs can build plans that use providers and networks that best serve their client, whereas a Carrier is limited by their providers and networks.
  4. Technology. Many Carriers are working with outdated technology and software platforms and simply cannot capture the member and plan data employers need to help their employees. When employers can identify team members that are at higher risk of illness or disease, they can help them with making healthier lifestyle choices, such as exercise and nutrition. When employees get healthier, the costs for their healthcare go down. Additionally, some TPAs are able to use this data to direct members to low-cost, high quality providers to improve outcomes while reducing healthcare costs.
  5. Service. With the Carriers’ standardized “plug and play” solutions, there’s not much room for customized service. Moreover, Carrier’s program loyalties will typically lie with their parent company, in the interest of furthering financial success. With TPAs, their success is directly tied to the success of their clients, and as such, are much more likely to be service-oriented to help their clients meet their goals and objectives. Employers will generally find that Carriers operate with rigid rules and policies, while quality TPAs are partners in their success.
  6. Reference Based Pricing. While Carriers and TPAs both offer a PPO solution, some TPAs like HealthSmart offer what Carriers don’t… Reference Based Pricing. In this model, providers are reimbursed at a negotiated rate based on what Medicare pays plus a specific percentage. On average, hospitals and facilities bill at 500 percent of Medicare, but our Reference Based Pricing Solution, SmartDecision, negotiates rates as low as 140 percent of Medicare, which is a 60 to 70 percent savings. We also add in other tools, like MyDecision, which offers bundled pricing for many elective, non-emergent procedures with no out-of-pocket for the member. We also provide access to physician and ancillary PPOs, and provide cost and quality transparency data on hospitals and providers. HealthSmart takes this a step further by adding a concierge service with live representatives to help members and providers navigate their way through the entire care episode. Try getting that from a Carrier.
The decision to self-fund is big, with many questions to be answered. Brokers can help employers navigate their options and make wise, informed decisions. When balancing the cost, flexibility and service, it is crucial to find the right TPA to help achieve your benefit goals.

To learn more about how HealthSmart can help you build the best health plan that does what the Carriers can’t, contact us today!