Employers Turn to Third-Party Administrators to Reduce Health Care Costs

The nation’s sour economy has added a new step to the tango of self-insured employers and third-party administrators handling their medical claims.

Employers still want a partner that provides first-rate claims administration and customer service, and many require TPAs to provide sophisticated data-mining tools and care management programs. But experts say employers’ efforts to stretch available dollars are keeping TPAs on their toes.

“All employers today, I think pretty much without exception, are trying to figure out ways to save money,” says James L. Rivetts, president of JLR & Associates. a health care insurance services firm in North Bend, Washington. Whatever they can do, whether it’s shifting more costs to their employees or assuming more risk, “that’s exactly what they’re going to do,” he says.

For self-funded employers, the business of medical claims administration is fairly competitive and the scope of services offered continues to expand to meet marketplace demands, experts say.

“I think that the TPA market offers a broad range of services … that can meet most employers’ expectations,” says Dan Priga, a principal in Pittsburgh for Mercer.

Self-funding health care benefits remains a popular option among large corporations, according to Mercer’s National Survey of Employer-Sponsored Health Plans.

For large employers with more than 500 employees, self-funded health care plans remain fairly stable, with 68 percent self-funding health care coverage in 2003 and 66 percent still doing so last year, according to Mercer.

Among small employers with 10 to 499 employees, the rate of self-insurance was 13 percent in 2003 and 12 percent last year, the survey found.

When shopping for administrative services, employers generally need to make a choice. They can go with administration services provided by one of the large national insurers or outsource claims processing and other administrative functions to a TPA.

“Most of the large self-funded employers are with carriers or with large national TPAs because the small TPAs just don’t have the breadth of services that they need or the networks that they need,” says Helmut Braun, chief operating officer of UMR, a unit of UnitedHealth Group’s United Healthcare. As a large TPA with an insurer relationship, UMR has access to United Healthcare products, including reinsurance and pharmacy benefit management services. UMR also works with outside providers.

Because of their significant market penetration, insurers that provide TPA services generally are able to offer deeper network discounts, experts say. While there are exceptions, “being smaller and having to rent a network is probably one of the negatives when we’re reviewing TPAs against the big players,” says Steve May, a senior benefits consultant with consultancy Milliman in Windsor, Connecticut.

Selecting a national, well-known provider also can be an advantage. “There’s comfort in employees seeing Blue, Cigna, Aetna … those kind of names, because they know who they are,” May says.

However, independent TPAs may have an edge over those connected to insurers—namely, greater flexibility in plan design—depending on a company’s needs, experts say.

CoreSource, a TPA subsidiary of Trustmark Mutual Holding, often wins business from employers that aren’t happy with services provided by their national insurer, says Robert Corrigan, vice president of product management and planning. “We have some unusual groups where the broker knows they have some very unusual needs, and they don’t even bother shopping it to a lot of other carriers,” he says.

Hospital systems, for example, often want to steer employees to their own facilities and doctors, and they want to decide what to pay those providers, Corrigan says. Local governments and school districts are another case in point because they often have complex eligibility requirements.

“The more rules they have, the harder it is for the carriers who have more of a standard approach … and it’s harder for them to fit in the box, so they come to a TPA,” he says.

Employers may feel more comfortable with a local or regional TPA because of the personalized service it offers and the ability to meet face to face to resolve issues, experts says.

Several years ago, CoreSource, which operates in nine U.S. cities, centralized its claims and customer service operations in an effort to improve efficiency and drive margins. The result? “It was horrible,” Corrigan says of the personal touch that the company lost. “What we realized is that we need those people out there that are local. … That’s who they bought.”

Since then, CoreSource has redeployed its customer service representatives in the field.

Most TPAs offer a similar array of administrative services, including eligibility verification, claims adjudication and processing, utilization review and case management. In recent years, many have added prevention, wellness and disease management—either through relationships with specialty providers or in-house capabilities—to boost their value to employers.

“I think TPAs believe that you have to be able to deal with cost by dealing with the cause of the cost,” says Steve Rasnick, president of Self Insured Plans., a Naples, Florida-based TPA.

Claims administrators also are responding to greater demand for data to help identify and manage cost drivers. Employers are mining that information to assess their populations’ health risks and determine, for instance, whether their wellness programs are yielding a return on the investment.

Having that data helped Collier Mosquito Control District in Naples, Florida. It found that some employees were using expensive prescription proton pump inhibitors to treat acid reflux instead of less-costly options. So it tweaked its pharmacy benefit design.

This year, in addition to free generics, over-the-counter medicines such as Prilosec also are free, says Stacy Welch, the district’s director of administration. While data on the free medications is not yet available, the district’s TPA, Self Insured Plans, estimates that steering participants to lower-cost generic proton pump inhibitors could reduce spending on that type of drug as much as 70 percent, depending on utilization.

National insurers already have data warehousing and mining capabilities, but it’s something employers need to make certain that local and regional TPAs have, Mercer’s Priga says.

“Often, the smaller third-party administrators don’t have the resources to be able to do that, so they will link up with partners to perform those services,” Priga says.

While a major consideration in choosing a medical claims administrator is price, and TPAs typically boast lesser costs than claims-handling operations of large insurers, experts say it would be a mistake to make a decision based on price alone.

Administrative expenses account for about 15 percent of an employer’s health care dollar, Milliman’s May says. Employers need to get a read on discounts the TPA’s provider network will achieve, he says.

Having the right network is the most critical part of the equation, UMR’s Braun says.

“There’s more savings opportunity by having the right network than any other thing they can do,” Braun says.