Tag Archives: third party administrators

Stepping Over Dollars to Pick Up Pennies

The U.S. Department of Labor (DOL) is determined to establish regulation over excessive loads and charges built into and sometimes hidden inside 401(k) plans. The costs are known as basis points, called “Bps” (Bips) in the industry, and they represent hundredths of a percent. For example, a load of 60 basis points equals 0.6%, and 100 basis points equals 1%. The DOL’s logic is that trustees and plan fiduciaries are too often oblivious to the excessive costs built into the plan and the resulting reduction in the investment performance for the plan participants.

But why are we being distracted about 401(k) pennies when the real culprits have created a healthcare system where hundreds and thousands of excessive cost “Bps” are annually overcharged to plan participants and employers?

Where is the outrage over the lack of transparency for disclosing fees, charges, expenses and loads built into the healthcare system and health plans offered to employers by insurance companies and HMOs?

Why is no one demanding accountability for massive claim payment errors, overcharges, hidden charges and compensation, excessive fees, hidden spread pricing or medical errors?

Health plan fiduciaries are typically oblivious to the true costs hidden inside their plans in the same way they don’t understand the all-in costs of their 401(k) plan. The major difference is that healthcare waste can easily be 10 times greater than the “Bps” being scrutinized inside 401(k) plans.

Imagine if the plan sponsor was held accountable to a fiduciary standard when managing the health plan. Ignorance is not a defense available to a fiduciary.

How will you change the way you manage healthcare when the DOL’s Employee Benefit Security Administration declares that health plans are subject to 408(b)(2) regulations?

Do you know what questions to ask? Here are a few to think about. See if you know the answers. If you don’t know the answers, then ask yourself, why not? Are you going to wait until regulations mandate that you act in a prudent manner in the best interest of the plan and the participants?

  1. What is the claims payment error rate by your insurance company, health maintenance organization (HMO) or third-party administrator (TPA)? What’s the impact when 3% to 10% of plan expenses are errors?
  2. How much does spread pricing by the pharmacy benefits manager (PBM) cost the health plan participant?
  3. Which physicians are the bad actors whose practice patterns are more than 300% outside established medical evidence protocols?
  4. Which hospitals charge 1000%-plus above Medicare payment rates?
  5. How much did iatrogenic disorders cost the plan?
  6. What percentage of readmissions were preventable?
  7. How much are labs, urgent care, MRIs and Emergency Departments upcoding and overcharging the health plan? What happens when you are accountable because your health plan and participants are paying four to 10 times more for the exact same services?

Health plan court cases about violating ERISA and fiduciary standards are starting to attract the attention of the DOL. Plan sponsors need to change their focus and look at what is really happening inside their health plan(s) and the all-in costs of their providers, just like they are doing now with the pennies in the 401(k) plan.

The dollars you are stepping over will have a dramatic impact on the bottom line of the health plan and its participants. Be prepared in the not too distant future to manage healthcare to a fiduciary standard. But, what you should be thinking now is, why wait?

Built For Reform: Third Party Administrators And The Affordable Care Act

The Affordable Care Act (ACA) is considered the most significant, albeit poorly written, law that Congress has passed in the last 50 years. As regulators devise the details needed for the law to be fully implemented, unprecedented new administrative and compliance burdens are looming for employers. Independent Third Party Administrators (TPAs) have decades of experience guiding employers through the pitfalls of government rules and requirements. This expertise makes independent Third Party Administrators invaluable to employers trying to mitigate the impact of health care reform.

A Brief History Of The Third Party Administrator Industry
Most employee benefit plans are highly technical and difficult to administer. Those complexities gave birth to the Third Party Administrator industry.

While there are reports of a Third Party Administrator operating as early as 1933, the modern Third Party Administrator concept is rooted in servicing mostly pension plans codified in the 1946 Federal Taft-Hartley Act. Such plans are typically comprised of several employers whose employees belong to a single union.

By the late 1950s, there were also a few Third Party Administrators specializing in servicing medical plans sponsored by single employers. The industry boomed after the enactment of the Employee Retirement Income Security Act of 1974, as employers began exploring the option of self-funding when traditional insurance coverage failed to meet their cost expectations. Today, the administration of self-funded medical plans is the primary line of business for many independent Third Party Administrators.

Employers that self-fund assume the financial risk of paying claims for expenses incurred under the plan. Medical, dental, vision, and short-term disability plans, as well as Health Reimbursement Arrangements (HRAs), can all be part of a self-funded program.

Most employers sponsoring self-funded medical plans purchase stop loss coverage to limit their risk. An insurance carrier becomes liable for the claims that exceed certain pre-determined dollar limits.

The Value Of A Third Party Administrator-Administered Self-Funded Program
Employers can choose to administer their self-funded plans in-house. However, few have the experience to do it well. Considering the heavy penalties for regulatory non-compliance, self-administration is generally ill-advised.

Some insurance carriers offer Administrative Services Only (ASO) contracts to employers that wish to self-fund but rely on the carrier to do the paperwork. Unfortunately, most insurance carriers have benefit administration systems that are too inflexible to accommodate the unique plan designs that are the hallmark of self-funding. In addition, they are more attuned to the legal requirements applicable to fully insured products, which differ dramatically from those for self-funded plans.

Insurance carriers may assume financial risk under an Administrative Services Only contract by providing the stop loss coverage. Conversely, Third Party Administrators are not risk-taking entities so they are clearly in a position to act in the best interest of the plan and its members.

The independent Third Party Administrator industry was built on change. Never having settled for the “one-size-fits-all” approach of the fully insured model, independent Third Party Administrators maintain sophisticated information technologies that adapt easily to new demands, as well as professional staff accustomed to responding to regulations that continually reshape employee benefits in profound ways.

Independent Third Party Administrators usually provide a broad range of à la carte services to self-funded employers: plan design, claims processing, placement of stop loss coverage, case management, access to networks and disease management, wellness, and utilization review vendors, eligibility management and enrollment, subrogation, coordination of benefits, plan document and summary plan description preparation, billing, customer service, compliance assistance, ancillary benefits and add-ons such as Section 125 plans, consulting, and COBRA and HIPPA administration. Independent Third Party Administrators are best at customizing their services and plans to suit a client’s specific needs including benefit philosophies, demographics, risk tolerance, and compliance requirements.

A fully insured arrangement cannot compete with a thoughtfully designed, Third Party Administrator-administered self-funded program. Employers that self-fund enjoy increased financial control, lower operating costs, flexibility with plan design, a choice of networks, detailed reporting of plan usage and claims data, and effective cost management.

The Challenges Of The Affordable Care Act
When small employers (those with fewer than 50 full-time equivalent employees) offer health benefits, the coverage is usually fully insured. However, self-funding has gained momentum among small employers.

In 2014, large employers (those with 50 or more full-time equivalent employees) will be subject to the Affordable Care Act’s “pay or play” requirements. A large employer must offer its full-time employees (working at least 30 hours per week or 130 hours total in any given month) and their children minimum essential coverage that is affordable and provides minimum value. Otherwise, the employer will be subject to a penalty if any of its full-time employees obtains health coverage through a Health Insurance Exchange (now called a Health Insurance Marketplace) and is certified as eligible for a premium tax credit.

The premiums for fully insured coverage are expected to rise significantly due to the Affordable Care Act imposing an annual fee on most insurers, modified community rating in the individual and small group markets, and expensive mandates for essential health benefits. Self-funded plans are exempt from these requirements. In addition, while Affordable Care Act requirements will likely inflate insured premiums, stop loss premiums remain competitive (even for small employers).

Self-Funding As A Strategy For Overcoming The Affordable Care Act’s Challenges
Depending on size, employers must make important decisions about managing the costs associated with health care reform. They can provide coverage or not provide coverage (and possibly pay a penalty), reduce hours, eliminate jobs, or find a way to offer a cost-effective and compliant plan.

Independent Third Party Administrators are the experts at self-funding. A Third Party Administrator can custom design a high quality, Affordable Care Act-compliant, self-funded program that a small or large employer can offer at a controlled cost. For employers looking for flexible solutions to manage costs while continuing to recruit and retain talented employees, a Third Party Administrator-administered self-funded program with medical stop loss coverage is a viable solution.