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A third-party administrator (TPA) is a company that is outsourced to process employee insurance benefits or claims on behalf of the employer. A TPA is often hired by a company that self-insures its employees or by an insurance company itself to process its claims. These functions are often outsourced for health and liability insurance. A third circumstance when a TPA may be used is for managing employee retirement accounts, such as 401(k)s.
One of the primary health insurance claims processing a third-party administrator is involved with is in the managed care industry. Working with health insurance claims, a TPA generally manages the entire process from beginning to end. The role includes administering the claims, collecting the insurance premiums, enrolling the insured members, and other administrative tasks.
A TPA working with liability insurance works a bit differently than those that work with health insurance. With liability insurance, also referred to as commercial general liability (CGL), insurance premiums are collected by the third-party administrator upfront. This means that rather than processing claims after the procedure is provided, such as with health insurance, TPAs act more as a claims adjuster after the incident that triggered the claim.
In these situations, a third-party administrator is responsible for assessing the accident where the claim needs to be paid. The TPA then decides how to manage the process, such as investigating the claim and rendering a decision on it. Some companies establish a department within their company where the TPAs work, while other businesses opt to outsource these roles to a business and individuals who do not work on-premise or for the company with the policy.
Another subset of third-party administrators manage employee retirement accounts. While the choice of investments is often managed by a financial company or advisor, a third-party administrator may manage the employer-employee administration of the plan. For example, the TPA often works to enroll the employees and set up contributions from their paychecks into the 401(k) plan. The TPA also works as the liaison between the investment company holding the 401(k) and the employee when distributions are made. If any administrative tasks need to be addressed, the investment company contacts the TPA to help work through the matter, while the investment company handles the investment portion of the plan.