There are two types of claims handlers: Third -Party Administrators (TPAs) and insurance companies.
Adjusters to Handle Claims
An insurance company has adjusters that handle claims. Independent companies also have adjusters to handle claims.
- A TPA is an independent company that adjusts claims.
- A TPA’s focus is on administering workers compensation benefits in accordance with state laws.
- “Unbundling” occurs when an insurance company allows the employer to use a TPA.
3 Types of Workers’ Comp Claim Offices
There are three types of workers compensation claim offices. They are:
- The insurance company claims office.
- The third-party administrators’ claims office.
- The in-house claims office of the self-insured employer.
While their approach to handling the work comp claims may be very similar and all three types of claim offices must abide by the same regulations in their state, the organizational structure of the claims office will differ, sometimes significantly.
In the areas where the insurance company has some volume of claims, but not enough to justify the cost of operating their own claims office, they will enter into a contract with a third-party administrator (TPA) to handle their claims for them.
Ownership of the Workers’ Comp Claims Office
The TPA claims office will be set up basically the same as the insurance company claims office. The primary difference between the claims office of the insurance company and the TPA is in the ownership of the claims office. The TPA is a separate company from the insurance company. The TPA claims office will have very limited, if any, contact with underwriting, sales, and the other departments of the insurer.
While the claims handling activities are transferred to the TPA, the insurer or the self-insured employer who contracted with the TPA for claim service remains financially liable/obligated to pay the cost of the claims. The insurance company can not contract away its responsibility to its policyholders.
The TPA will handle claims for several different insurance companies and/or self-insured employers at the same time. Through combining the claim volume of claims of several companies, there are enough claims to justify the cost of the claims office.
Reduce The Cost of Workers’ Compensation
The reason large employers self-insure their claims are to reduce the cost of workers compensation. Since the self-insured employer does not have an insurance company to handle their claims, they have two choices, utilize a TPA claims office or create their own claims office. The self-insured employer can create an “in-house claims office.” The claim manager, claim supervisors, claims adjusters and support staff are all employees of the self-insured employer. By utilizing their own employees to handle the work comp claims, the employer reduces the operational cost of insurance. The primary drawback of an in-house claims office is the employer usually does not have the expertise necessary to adjust claims and must hire employees with the necessary skills. The in-house claims office is usually unrelated to the primary business field of the self-insured employer.
The primary reason there are three types of claims offices is the cost of administration of claims. The insurance company claims office is the most cost efficient way for it to handle a large volume of claims. The TPA claims office provides smaller insurers, self-insured employers and large insurers with limited volume in an area, with a lower cost way of administering claims than having their own claims office. The in-house administration of claims is also tied to the ability of the large self-insured employer to handle work comp claims more cost effectively than contracting the claims handling to a TPA.
Remember: In addition to the cost of workers’ compensation premiums and losses, you also pay for a third-party administrator(TPA) or insurance company to administer claim benefits.
Author Robert Elliott, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers Compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. See www.LowerWC.com for more information. Contact: Info@ReduceYourWorkersComp.com.
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers’ comp issues.
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