Large employers are turning to third-party administrative services-only plans to control the rising cost of group health insurance. These plans provide underwriting, accounting, and administration services while the employer assumes financial risk and pays claims. TPAs offer health and dental insurance, disability plans, and pension policies. These plans handle claims processing, billing, and employee communications. Companies save on mark-up fees and can tailor coverage to reflect their needs. However, there is a greater financial risk if a stop-loss plan or maximum coverage limit is not in place.
Only Administrative Services are third-party health insurance plans that provide health policy assistance for large employers. These services generally provide underwriting, accounting and administration services while the employer assumes all financial risk and pays claims.
In an effort to control the rising cost of group health insurance, large employers are increasingly turning to these administrative services just to insure their employees. These plans are gaining popularity because the employer essentially insures themselves and pays the third party only for administrative costs.
Insurance companies and administrators that only offer administrative service plans are also known as third-party administrators (TPAs). Health and dental insurance are the most common services offered by TPAs. Larger companies sometimes use administrative services only for disability plans and pension policies. As their popularity grows, TPAs begin offering services to small and medium-sized businesses.
Administrative services-only plans typically handle claims processing, billing, preparation of benefit payments, employee communications, provision of manuals, statements, and reports, withholding tax, and services government reporting. Because they charge a flat fee for these services, companies save on some of the other expenses that traditional health insurance plans include in premiums. To minimize the financial risk associated with paying claims, businesses can purchase a stop-loss policy that requires the TPA to pay claims that exceed a pre-set amount.
When companies use administrative services plans only, they save on mark-up fees usually included in traditional premiums. Insurance companies charge for profit, risk management, sales commissions, claims, reserves, inflation factors and rate adjustments. When companies don’t pay these fees in premiums, they may choose to pass the savings on to employees or increase coverage benefits. These plans allow companies to tailor coverage to reflect the needs of a particular company, rather than an entire industry. For example, the company may set limits on coverage when certain categories are more expensive or used more by employees.
Administrative services-only plans eliminate the need for the annual premium renewal process with a traditional group insurance plan. This can be a stressful time for businesses because insurance premiums tend to go up while benefits tend to go down every year. Because these plans are less cost-based, costs remain relatively constant and may include benefits that traditional insurance plans may exclude, such as cosmetic surgery and alternative health care provider services.
There are some disadvantages when using only an administrative service. A company may experience greater financial risk if a stop-loss plan or maximum coverage limit is not in place. Claims can fluctuate over time and exceed budget amounts, especially for smaller companies that are less able to absorb the loss.
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