The Role of the Employee Benefits Trust Third Party Administrator
The role of the Third Party Administrator is essentially to replicate the administrative services of an insurance company. These functions can be summarized as follows:
Administrative systems are required to monitor claims and performance. Details of every claim will need to be maintained including the date of treatment, amount, and type. In order to determine a true picture of the self-insured program's performance, it is also important to be able to set up adequate reserves (see below) on individual claims. Efficient monitoring and reporting assist the self-insurer in reacting quickly to worse than expected loss experience.
Paying claims requires specialist skills and expertise. As well as ensuring that all claims are settled promptly, the Third Party Administrator also needs to negotiate with hospitals and other providers, apply large case management techniques and ensure that claims are being paid in accordance with the employer’s benefit plan. Outside claims auditors are often hired to review losses and to ensure that the self-insurer is not being charged too much for an individual claim by a provider.
In order that adequate funds can be set aside for claims, reserves will need to be established for losses that have either happened and not yet been paid or which have happened or may happen, and which have not yet been reported.
Negotiating Managed Care Arrangements
Most third-party administrators will have access to preferred provider networks, large case management firms, and utilization review companies. Preferred provider organizations can provide discounted services in return for being the self-insured plan's chosen network. Case managers and utilization review companies can be used to review and negotiate with providers on large claims and to endeavor to keep claims costs as low as possible.
Assisting with the purchase of Stop-Loss Insurance
A third party administrator will often have relationships with insurers or managing general underwriters. It may make sense for a self-insurer to use a stop-loss provider with whom its administrator has a good working relationship - since any disputes should be more readily fixable. If the administrator is securing coverage for a number of its clients with one insurer, then there may be additional discounts available if the third party administrator’s overall portfolio is profitable.
Types of Employee Benefits Plan Administrator
There are three possible approaches to managing the administration of a self-insured plan.
Appointing a Third Party Administrator
As the self-insurance industry has developed over time, independent Third Party Administrators have grown in number and expertise to satisfy the needs of the self-insured market. Third Party Administrators offer a variety of services. These can range from providing all services relating to a self-insured plan to just those required, such as purely approving claims. Third Party Administrators operate in a competitive marketplace and seek to provide quality-driven services. They can also play a role in the selection of other service providers, such as the procurement of stop-loss.
Entering into an Administrative Services Only (ASO) Arrangement
Since insurance companies have the infrastructure and capability to administer self-insured plans, insurers will sometimes perform the administrative functions required to run a self-insured plan in return for a fee. Companies offering ASO arrangements will often seek to provide stop-loss insurance, as well as life and disability coverages.
Self-administration has traditionally only been performed by the largest companies that can allocate resources and staff to administer employee benefits. This option is, however, becoming increasingly viable to smaller companies with the advent of software packages designed for in-house administration. Self-administration can require adopting a degree of legal responsibility that might be otherwise avoided by having the administration out-sourced. Employers in the USA electing to self-administer should be careful not to fall foul of any Department of Labor conflict of interest concerns that might arise if the employer seeks to save costs by delaying or denying valid claims.
Also in this section
Initial Considerations for Self-Insuring Employee Benefit Trusts
Appointing an Employee Benefit Trust Plan Administrator
How Self-Insured Employee Benefits Stop-Loss Insurance works
Selecting an Employee Benefits Trust Stop-Loss Provider
Self-Insured Employee Benefits In The USA - How The ERISA Act of 1974 Works