Truth About TPA Fees

The Truth About TPA Fees

Written By 

Patrick McTighe


Every carrier hypes their networks and discounts, but the biggest impact to healthcare spend is made at the employee level by reducing the volume and severity of claims. Delta Navigator (powered by Rightway) has been independently verified to reduce total claims spending by 15%!  For a group with $7M in total claims, that’s a savings of over $1 Million, without requiring a network change to chase better discounts.  The reality is that claims have a 10x, 20x or 50x impact on total cost versus PEPM admin fees, but too many brokers don’t ask the right questions, so groups and their employees end up overpaying for healthcare.  

Financial Accuracy

Every year we see RFP responses from carriers and TPAs boasting accuracy rates of 98.5%, 99.1% or 99.5%.  Delta’s accuracy rate is OVER 99.9%!  For a group spending $3M on claims annually, a difference of 0.8% accuracy equates to almost $25k.  That’s free money!

What Isn’t Being Asked by Brokers?

    1. Any sales rep worth her/his salt can tell a strong story about their company’s impact on claims.  The right questions should request statistically valid proof of a TPA’s impact on paid claims. 

    1. Many TPAs and carriers have slick presentations and client lists, but shrivel up at a request for guarantees around impact on paid claims.  Ask for a claims reduction guarantee.

    1. OON (Out of Network) negotiated claims is a sneaky way TPAs and carriers make money off clients.  OON claims are easily negotiated down to 50%, and the TPA or carrier usually has it in their contract to keep 50% of the savings – that’s 25% of the (inflated) claim amount!  The best brokers not only ask TPAs what percent of negotiated savings is retained, they do the math on the OON claims to calculate how much the carrier or TPA is making instead of returning more money to the plan.

    1. Financial Accuracy Guarantees are standard requests in TPA RFPs.  Very few brokers, however, do the math to see how much money a group will save with a higher degree of financial accuracy.  Don’t let your clients lose money due to sloppy TPA/carrier finances.  Ask for a HIGH BAR for financial accuracy, and stiff penalties if not attained.

    1. Many brokers don’t investigate the impact of Financial Accuracy on PEPM fees.  The difference in Financial Accuracy between the incumbent and a potential replacement TPA can be easily calculated – and it’s often the value of 1-2 months of admin fees.  This savings is realized without any effort of involvement by the group or broker – it’s just a TPA doing their job well.  The question is:  how much money will be gained by our client with better financial accuracy at 1%?  0.5%?  0.3%?  And factor that into the TPA proposal.

TPA admin fees are a necessary piece of an RFP, but better questions around claims and financial accuracy go a long way in truly calculating a TPA/Carrier’s proposal.  Asking the right questions will expose where most RFP respondents are making money at the clients’ expense.

Remember – It’s not about Admin Fees.  It’s about the client and their employees.


About Author

Patrick McTighe

Chief Experience Officer

Patrick has over 30 years’ experience in the industry working as a Broker, Consultant and Executive. He has extensive knowledge in Self-Funding, Stop Loss Contracts, Medical Risk Management, Wellness Programs, and Retiree and Medicare Plans. Patrick has been a pioneer in the field of Employee & Retiree Benefits developing innovative and highly effective health care solutions for employers. Patrick also earned his Bachelor’s Degree in Political Science from UCLA and achieved Scouting’s Highest Award, Eagle Scout.