Tag Archives: tpa

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.

Napoleon's Corporal And The Implementation Of Senate Bill 863

SB 863 was passed on the last day of August 2012. It is the largest and most comprehensive change to the California workers compensation system since April 2004 when SB 899 passed.

To make sure that the new law is implemented properly, the California Division of Workers Compensation and the Workers Compensation Appeals Board have both promulgated extensive regulations. Some of the regulations, by their nature, were considered “emergency” and were approved by OAL on December 31.

Because of the extensive impact of the various articles in the legislation, there will be ongoing regulatory efforts at least through the first six months of this year.

I strongly encourage all claims operations to review these regulations and provide their insight, thoughts, and comments on a timely basis to the Division of Workers Compensation. You can find all of the regulations on the California Department of Industrial Relations web site or the California Division of Workers Compensation web site.

Implementing SB 863
On the front lines there are many legitimate questions, such as:

  • How much of the new law applies to my existing cases?
  • If I have started Permanent Disability (PD) advances, and if the employee has returned to his/her regular work, do I still need to advance Permanent Disability?
  • What is Independent Medical Review (IMR)?
  • How will I pay for the Independent Medical Review evaluation?
  • Under what circumstances will I have to use Independent Medical Review?
  • What happens if I have an old case and the applicant attorney claims a sleep disorder?
  • What are the new ways to rate Permanent Disability?
  • What happens if the lien holders have not paid their lien filing fee?

To assist with helping claims operations and claims departments implementing the new law, I have provided an SB 863 Implementation and Survival Guide, organized by Mark Webb. It is intended to assist claims operations in the day-to-day implementation of SB863.

The original wording of the bill can be viewed here.

Napoleon's Corporal
Napoleon Bonaparte conquered most of Europe and North Africa. Many do not know the inside story of why he was a successful a military leader. One reason was his unique and extensive use of cannon. However he also had a secret weapon … His advantage was his use of a corporal.

Napoleon realized that war was a complex endeavor. When his generals outlined the battle plan, he had a random corporal assigned to shine his boots. After the plan was explained to Napoleon, he would look down at the corporal and ask if he understood the plan. If the corporal (who had been listening to the explanation of the plan) understood, Napoleon would then authorize the attack. However if the corporal was confused or did not understand the plan, then Napoleon had his generals re-do the plan to simplify it.

Napoleon understood that it was his front line that needed to execute the battle plan. If the plan was confusing, the front line would not be successful.

I recommend that this concept be considered when implementing SB863.

Here are some additional comments and observations on developing claim procedures to implement SB 863:

  • Usually the best and the brightest are used to develop procedures in claims departments. That does not always result in simple processes. This is because the focus is usually only on compliance with the new laws (which does not include simplifying the existing processes or the new process).
  • When the claims departments are developing their policies, rules and procedures, front line claims assistants and examiners should be included in the development of the processes and should also review the proposed plans to determine if they can be understood and implemented.
  • Unfortunately many times the new procedures result in processes that reflect the axiom “we have always done it this way.” Include folks who think “out of the box” and allow their voices to be heard.
  • SB 863 will result in major changes within the claims offices procedures and claims handling. Now is the time to take advantage of the change and embrace the change rather than to resist the change.
  • The focus on implementation should be: Benefit provision, Compliance, Cost Savings, Simplification, Documentation, Training.
  • For many claims adjusters, this will be the third system that they will be working with (Pre-899, 899 and 863).
  • Segregating claims by system may help but is not a panacea (because many of the provisions of SB863 apply to all existing claims).
  • Claims systems will also have to be changed. Limitations of some of the claims systems will result in problematic work-around procedures for awhile.
  • Sometimes working out a manual process first allows one to identify efficiencies. Do not be afraid to use a manual process for awhile (as the bugs are worked out).
  • Regular reviews of the implementation team specifically focused on simplification are productive.
  • The team should have a dedicated focus on the new law's cost-saving provisions.
  • The team should keep track of its costs and also develop an analysis of costs of implementing the laws.
  • The new laws may change the claims staffing model.
  • Third Party Administrators should notify their customers of the potential increased costs (Permanent Disability, for example) and also projected savings (lien reduction and resolution).
  • Third Party Administrators should review their contracts with their customers to determine if the changes in the laws impact their current pricing models and are best for their clients and for their success.
  • Bill review vendors and Utilization Review companies both have major changes to implement.
  • Special Investigations Units and Fraud Reporting have new issues to report because of the increased conflict of interest provisions in the law. Include the Special Investigations Unit as part of the implementation team.
  • I recommend an implementation team include: A senior claims executive, a senior claims supervisor, a claims examiner, a claims assistant, a bill specialist, a hearing representative, a finance person, a claims system expert, an attorney who knows the new law, and a person who is responsible for documenting the discussions, processes and procedures.
  • Training of the entire staff will take more than just one meeting and more than one month. Assume that there will be a need for re-training on a regular basis for the first nine months.