A third-party administrator (TPA) processes employee benefits or insurance claims on behalf of the employer, often hired by self-insured companies or insurance companies. TPAs manage health and liability insurance claims and employee retirement accounts such as 401(k)s.
A third-party administrator (TPA) is a third-party company to process employee benefits or insurance claims on behalf of the employer. A TPA is often hired by a company that self-insures its employees or by an insurance company to process your claims. These functions are often outsourced to health and liability insurance. A third circumstance where a TPA can be used is to manage employee retirement accounts such as 401(k)s.
One of the primary health insurance claims that a third-party administrator sues is in the managed care industry. Working with health insurance claims, a TPA usually manages the entire process from beginning to end. The role includes administering claims, collecting insurance premiums, enrolling insured members, and other administrative tasks.
A TPA working with liability insurance works a little differently than those working with health insurance. With general liability insurance, also known as commercial general liability (CGL), insurance premiums are collected by the third-party administrator. This means that rather than processing claims after the procedure is provided, as with health insurance, TPAs act more like a claims adjuster after the incident that triggered the claim.
In these situations, a third-party administrator is responsible for assessing the accident where the claim needs to be paid. The TPA decides how to manage the process, how to investigate the claim and make a decision about it. Some companies establish a department within the company where TPAs work, while other companies choose to outsource these functions to a company and individuals who do not work locally or to the company with the policy.
Another subset of third-party administrators manage employee retirement accounts. While the choice of investments is usually managed by a company or financial adviser, an external trustee may manage the employer-employee administration of the plan. For example, the TPA often works to enroll employees and set up contributions from their paychecks into the 401(k) plan. The TPA also functions as the liaison between the investment firm holding the 401(k) and the employee when distributions are made. If any administrative tasks need to be resolved, the investment firm contacts TPA to help resolve the issue, while the investment firm handles the investment portion of the plan.