The selection of a third party administrator (TPA) is critical to the success of the claims operation. With the wide variety of TPAs available for self-insured workers compensation insurance programs, determining the best TPA for a program will require an understanding of the difference between TPAs. When issuing a Request For a Proposal (RFP), it is possible to receive numerous proposals from TPAs that differ extensively in skills, qualifications, support services, and price.
The large national TPAs with an office in every state, or even every large city, may have the size and breadth of operations to have experts in every insurance line. The local and regional TPAs will often specialize in one product line. For example, a TPA that is excellent and has a strong reputation handling property insurance claims may not have the expertise needed in workers compensation claims. When selecting a TPA, a solid, verifiable background in workers compensation is necessary for the self-insured employer’s program.
A common mistake self-insured employers make is measuring qualifications of a TPA based on its size. The small TPA with four or five adjusters can be an excellent fit for the mid-size employer which has a limited number of workers compensation claims each month. The small TPA can provide a high level of consistency, for the same designated adjuster will be working all claims. Conversely, a large self-insured employer will need a larger TPA to handle the claims, as the number of additional claims from the large employer could overwhelm the personnel resources of the small TPA.
Any TPA being considered for the self-insured program should have a presence in the state(s) where business takes place. The TPA must understand the specific requirements of the workers compensation laws in the state where the claims occur. This includes both having the state required adjuster’s license for all adjusters and a program of continuing education and training.
Another consideration beyond the licensing and experience of the adjusters in workers compensation is the level of experience in the industry. A TPA that specializes in the handling of workers compensation claims for the manufacturing industry may not have any experience in the trucking industry. Ask the TPA being considered to provide a list of companies they work for in the pertinent industry.
A TPA that appears to be the right size, has the right skill set, with experience in your industry still may not be the best TPA to select for a self-insured workers compensation program if it does not have the necessary support services.
The TPA with an established workers compensation claims handling program has built a network of medical providers, triage nurses, nurse case managers, medical fees schedule reviewers, defense attorneys, surveillance companies and IT support. A TPA that thinks the RFP is a good reason to expand into handling workers compensation claims will have a difficult time handling claims without an established support network.
Most locally established TPA’s will have carefully built up a network of support services to cover the services they do not provide. Regardless of the size of the TPA, they will utilize a medical providers network, defense attorneys and surveillance companies that are separate businesses. While large national TPAs will provide their own nurse case managers and medical bill review service, most regional and local TPAs will utilize outside vendors. A review of the support services provided by the TPA or arranged by the TPA is a necessary part of the review process in the selection of the best TPA.
One of the primary reasons for the decline in the number of TPAs available is the cost of technology systems. Each individual claim produces volumes of documents and data. The TPA must have an integrated risk management information system that is compatible with the claims data information system. This includes the ability to accept electronic submission of the First Report of Injury, along with the ability to submit all state forms through the EDI system required by the state.
The pricing structure will vary as there are several pricing structures used by TPAs. Some bill an hourly rate plus out of pocket expenses. This is referred to as time and expense billing. Other TPAs will charge a flat fee per file for each claim they handle, with different flat fees for the complexity of the claim. A third approach is a lump sum program fee where all claims are handled for one set monthly or quarterly payment.
Regardless of the pricing structure offered by the TPA, be sure to ask about what other expenses will be incurred. Ask if there are extra charges for a data and technology interface, as well as if there are additional charges for related in-house services like EDI interface and ISO filings.
We strongly recommend not to select your TPA solely on price. A TPA that provides the lowest price per claim file will often increase the overall cost far more due to overloading their adjusters with too many claim files. Look at “value” not just “price.”
Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.
Editor Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their Workers Compensation costs by 20% – 50%. He is a writer, speaker, and website publisher. Contact: Mstack@ReduceYourWorkersComp.com
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