Administrative Services are third-party health insurance plans that provide assistance for large employers, allowing them to self-insure and pay only for administrative costs. Third Party Administrators (TPAs) offer services such as claims processing, billing, and benefit payment preparation. These plans save companies money on traditional premium fees and allow for customized coverage, but may come with increased financial risk.
Administrative Services are only third-party health insurance plans that provide health care policy assistance for large employers. These services typically provide underwriting, bookkeeping, and administration services, while the employer assumes all financial risk and pays claims.
In an effort to control the rising costs of group health insurance, large employers are increasingly turning to these administrative services that plan only to insure employees. These plans are gaining popularity because the employer essentially self-insures and pays the third party only for administrative costs.
Insurance companies and administrators that offer administrative service plans only are known as Third Party Administrators (TPAs). Medical and dental insurance are the most common services offered by TPAs. Larger companies sometimes use administrative service plans for pension and disability policies only. As their popularity grows, TPAs begin to offer services to small and medium-sized businesses.
Administrative service plans typically handle claims processing, billing, benefit payment preparation, employee communications, provision of manuals, statements and reports, tax withholding, and government reporting services. By charging a flat fee for these services, companies save on some of the other fees that traditional health insurance plans include in premiums. To minimize the financial risk associated with paying claims, companies can purchase a stop-loss policy that requires the TPA to pay claims that exceed a set amount.
When businesses use only managed service plans, they save money on premium fees typically included in traditional premiums. Insurance companies charge for earnings, risk management, sales commissions, claims, reserves, inflation factors, and rate adjustments. When companies don’t pay these fees in premiums, they can choose to pass the savings on to employees or increase coverage benefits. These plans allow companies to customize coverage to reflect the needs of the 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 service plans only 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 each year. Since these plans are lower in cost, costs remain relatively constant and may include benefits that traditional insurance plans may exclude, such as cosmetic surgery and services from alternative health care providers.
There are some disadvantages when using only administrative services. A business may experience increased financial risk if it does not have a stop-loss plan or maximum coverage limit. Claims can fluctuate over time and exceed budget amounts, especially for smaller businesses that have less capacity to absorb the loss.
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