To TPA or not to TPA?
By Gordon R. Hart, Partner, Employee Benefits & Pensions
Many of our clients may know about or even use the services of a TPA (Third Party Administrator). TPA's are organizations that “re-package” group insurance products of insurers or claim payors (underwriters). By “re-packaging” we mean that they are treated as a master policyholder on behalf of their clients, and are responsible for maintaining records, coordinating and collecting premiums and even assisting with the underwriting/pricing for the underwriter.
TPA's operate on a few basic principles,
- Clients are willing to pay a surcharge to have their administration and billing consolidated.
- Clients are able to access products and services that would not be normally available as a stand alone policyholder with the insurer(s).
- Clients achieve prem ium cost savings due to the improved retention (administration) costs of the insurer(s).
In comparison to the traditional direct (brokerage) approach, the TPA model did fill a void in the marketplace for SMEs (small to medium sized businesses <250 employees). With the advent of on-line administration, improvement of insurer retention charges in the SME marketplace, and the redevelopment of SME products and services by the insurers, the void has been filled dramatically. Also, TPA organizations have had to make significant investments in their administration systems and services to keep in-line with the insurers' redeveloped offerings. These investments have deteriorated the retention savings initially generated by “grouping” policyholders together.
So the obvious question would be, why deal with a TPA today? Selectpath can see two significant advantages,
- Portability of census data.
- Simplified administration.
By portability of census data, we mean that you enroll an employee once and maintain those records and never have to re-enroll again. Currently, every time a SME policyholder changes underwriters, the employees are forced to re-enroll to populate the new underwriter's claims and administration systems. This requirement is one of the greatest barriers to fair market pricing, and one of the greatest liability risks associated with continuity of coverage and privacy. Utilization of a TPA would deliver complete portability of census and eliminate any of the issues associated with implementing a change of underwriter.
By providing simplified administration (single portal to maintain and report census), policyholders can implement unlimited combinations of plan design, underwriters, and funding methods to ensure that the benefit plan meets the objectives set out by the policyholder.
By achieving both of these two above goals, SMEs can rebalance the power in the current supply and demand within the current employee benefit plan environment. Currently, there is an attrition of providers in the SME marketplace, and with that brings increased power in the hands of the supplier as substitutes reduce. Also, some element of “group think” can occur in which underwriters will provide pricing and coverage that mirrors the competition with little need or desire to push the envelope to increase market share (which generally benefits the policyholder willing to change providers).
So what is stopping the TPA's? Complacency. TPA's with a rare few exceptions have only one to three underwriters as suppliers for their clients. This is because there are only a handful of underwriters that have traditionally looked to TPA's as a distribution model (Claimsecure, Cooperators, Equitable Life, Green Shield, National Life, and SSQ). TPA's value proposition to these underwriters solely revolves around generating target premium volumes. In return, the underwriters provide preferred underwriting, pricing, and overrides (hidden bonus compensation) to the TPA. With that in mind, TPAs rarely have the ability or leverage to maintain multiple underwriting agreements.
Without a significant number of “partner” underwriters, the portability of census data is irrelevant. Also, the value of simplified administration becomes limited.
So what is the answer? Beneflex®. Selectpath has spent the last few years negotiating and building agreements with underwriters to provide products, services, and pricing advantages for our clients. Many of our clients are already Beneflex® participants. By approaching the problem from the supply and demand angle, we will have fixed the greatest problem with the TPA business model, applicability of portability. What this means is that policyholders will have many underwriters, plan design, and funding methods to choose from and therefore compete for their business. This coupled with portability of the census data and simplified administration will deliver efficiencies for the SME marketplace.
Selectpath is now prepared to launch Beneflex® TPA services.
Beneflex® TPA service utilizes the latest web based administration technology with compatibility and integration with a growing number of insurers, HRIS, and Payroll administration systems. Once a policyholder enrolls, their census data is owned by the policyholder not the underwriter. Of course there is a cost. Selectpath is a consulting organization first and foremost, as such, we do not agree with markup or hidden costs. Therefore we have created Beneflex® TPA as a neutral pricing proposition for our organization. This means that Selectpath will only flow through the actual TPA costs to our clients with zero markup. We have also negotiated a sliding scale of costs; this will work to reduce the TPA fees as the participating volume increases. Selectpath currently offers the following underwriters, Accerta, Claimsecure, Equitable Life, ETFS, Green Shield, SSQ, and Sun Life. Additionally Selectpath is working with four new underwriters to deliver additional choice to our Beneflex® clients.
How does Beneflex® TPA services compare with other TPA services,
- Price – Beneflex® is a 2.5% up charge versus 3-5% with most TPAs.
- Technology – Beneflex® is web-based system which provides real-time administration transactions. Flex modules also exist to assist with open enrolments.
- Choice – Beneflex® provides one of the widest selections of underwriters/providers in the marketplace.
- Value Added – Additional services like the Employee Benefits Centre (on-line benefits portal for members), and a wide variety of voluntary products and services (Group Home & Auto Insurance, Employee Assistance Program, Executive Health Plans, Retiree Benefits, Critical Illness, and RRSPs to name a few).
Selectpath continues to strive to deliver a greater value proposition to our clients. As a market leader in SME benefits and pension consulting, we continue to improve the options available based on the unique needs of this market segment. Our clients continually place price, administration, and flexibility at the top of their lists of important decision making factors for their employee benefits.
Beneflex® is the solution.
