Many self-insured employers choose to outsource their workers’ compensation claims handling to a third-party administrator (TPA) instead of creating their own internal operation. Choosing the right TPA is crucial because TPAs will be coordinating essential functions like managing loss reserves, facilitating claims investigations, issuing claims payments and settlements, coordinating medical management and organizing transitional work.
When picking a TPA, it is important for companies to first determine what they are looking for. There are several effective fact-finding questions that can help.
First and foremost, employers must find a TPA that can meet their company’s individual needs, which can vary by type of business and location. Many states are complicated, so the insured must confirm that the TPA has the appropriate expertise by state. Questions that can help uncover the TPA’s ability to handle the employer’s specific business include:
- Do you have the appropriate resources to handle all jurisdictions applicable to my company?
- Can you provide references within my jurisdiction to support your capabilities?
- Do you have the capabilities to handle my company’s various business operations?
- Can you handle all of my company’s claims so that I do not need to enlist multiple TPAs?
- Are you approved by my insurance carriers?
- Are you following best-practices procedures, and can you provide claims handling results to prove it?
- What quality assurance processes do you have in place to guarantee consistent results between offices and adjusters?
A TPA’s system is very important to the entire process. Effective claims management requires a system that is easy to access, with enough information readily available when the employer asks for it. Poor and inaccurate data can cause major headaches if it ends up in the employer’s financial reports. Questions that can help evaluate claims systems include:
- How can you ensure that your claims system will provide clear, accurate data?
- Does your claims system meet my company’s financial data reporting requirements?
- Does your claims system meet my company’s analytic needs for benchmarking, stewardship reports, etc.?
- What measures do you have in place to help prevent data breach?
Personnel issues often affect the claims outcomes that an employer receives from its TPA. The employer will want to ensure that it is working with an experienced adjuster who can make informed decisions, as opposed to an adjuster using automated responses based on decision trees. Caseloads at the TPA, employee turnover rate, supervision and other personnel issues can also factor in. Questions that can help identify troublesome factors include:
- Would my company be issued a dedicated account manager or team?
- Who would be my key contact and provide information and answer questions?
- How do your adjusters make decisions on their cases? Are they educated and capable of making flexible decisions based on circumstances, or do you use an automated response process?
During the RFP process, most TPAs will insist that they have the staff to meet the employer’s needs. It is best to ask for validation.
Thinking Beyond the Fee
Although employers regularly make TPA fees the deciding factor, estimates show that fees only represent 8% of total claim costs. What many fail to realize is that paying higher fees for a TPA whose adjusters have lower caseloads and are more experienced can significantly reduce overall risk costs.
Rather than focusing on the 8%, insureds should focus on the remaining 92% — the other aspects of the claim that come into effect. This includes evaluating if the TPA can ensure:
- Effective medical management
- Timely disposition of claim issues
- Return-to-work or settlement success
- Transparency of third-party vendor use in the claims process
- Ability to minimize leakage and avoid excessive expenditures because of mistakes, errors in judgment, ineffective litigation management, penalties and fines
- Measures in place to prevent fraud
- Transparency of managed care capabilities, including bill review and preferred provider organization (PPO) and case management
Choosing the right TPA takes time and due diligence, but it is worth the effort to find the best fit for an employer’s industry and jurisdiction and meet risk-management needs. It is important to look beyond fees and consider all variables, including staffing, adjuster education, claims systems, reporting capabilities and the TPA’s ability to apply a teamwork approach to supporting your organization’s claims efforts.
Considering that a TPA plays a large role in an employer’s workers’ compensation claims outcomes and costs, finding the right one is one of the most important decisions that an employer can make.