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Evaluation of self-funded benefit plans helps avoid outsourcing headaches


Employers that outsource administration of their self-funded health benefits plans to third-party administrators expect great service at a fair price.

With potentially millions of health-plan dollars at stake, that relationship can sour quickly if problems arise.

But employers can avoid hassles with their TPA by asking the right questions upfront and negotiating contract terms, benefits experts say.

“You should not just sign a boilerplate agreement without really reading through (it),” said Carl Mowery, managing director of compensation and benefits consulting at Grant Thornton L.L.P., a Chicago-based audit, tax and advisory company. The employer needs to understand its responsibilities and those of the TPA, he said.

Working with a TPA allows self-funded employers significant leeway to tailor an administrative services package, but widely varying capabilities mean it's important to evaluate providers based on plan requirements and employee needs.

Some TPAs provide basic services, such as claims processing and enrollment, while many offer everything from case management and COBRA services to summary plan descriptions.

“It makes it so easy, so attractive, that sometimes employers forget that you really need to look at the underlying agreement,” said James Napoli, a Fairfax, Va.-based partner at labor and employment law firm Constangy, Brooks & Smith L.L.P.


Many TPAs try to include language in the service agreement to limit their financial liability, but the health plan fiduciary — usually an administrative committee or a plan administrator — must understand the potential risk it assumes if that language remains, he said.

Some TPAs offer stop-loss protection through a preferred reinsurer.

“Sometimes that's fine, and sometimes this isn't the stop-loss carrier you would have bought on your own,” said Scott Stitt, a partner and Employee Retirement Income Security Act attorney with Columbus, Ohio-based James E. Arnold & Associates L.P.A.

Merchants 5 Star Inc., a Marietta, Ohio, moving and storage company, learned that that hard way when its now-defunct TPA, Employer Benefit Services of Ohio Inc., aligned with a questionable stop-loss insurer, Mr. Stitt said.

Jeff Starner, the trucking company's CEO, said his insurance agent vouched for the TPA but missed a giant red flag: The TPA's stop-loss provider, United Re, was neither an insurance company nor was it licensed to offer insurance in Ohio.

When claims went unpaid, Ohio State University Hospital sued Merchants 5 Star, leading the trucking company to sue the agent and insurer. The case ultimately was settled, he said.

“We had such a bad experience, and it cost us so much money, that we returned to a fully insured plan,” Mr. Starner said.


With health care reform, employers have even more reason to vet their TPA.

Donald Mollihan, a partner at Phoenix-based Arizona Benefits Consultants L.L.C., said employers should ask TPAs what compliance services they offer, noting that most provide a significant amount of Patient Protection and Affordable Care Act compliance services, including required reporting and notices.

Employers also need to find a TPA with a provider network that is in sync with their local, regional or national presence.

“The beautiful part of a TPA is they can represent several different rental networks, and so they're going to have a really good idea, based on your utilization, where employees are going, where maybe the best deal is going to be,” said Bob Charlesworth, an owner of Overland Park, Kan.-based Charlesworth Benefits L.C., whose clients include mostly small and midsize employers.