A third-party administrator refers to a company that offers operational services such as claims processing and employee benefits management under contract to another company. In the United States, insurance companies and self – insured companies tend to sometimes outsource their claims processing to third parties. Hence, such companies are often called third – party claims administrators.

Note that the use of third – party administrators is now quite popular in many businesses, and the variety of tasks they undertake is growing. These administrators have very unique roles in the health insurance industry and investment company operations.

Currently, some firms in this service sector are branching into new areas such as forensic accounting services, workers’ compensation audits, and emergency response planning.

Third – party administrators for Workers Compensation typically manage everything, but especially employee retirement programs such as 401(k) plans. In such cases, the company is often owned or managed in part by an investment company.

The investment company handles the money management and the third – party administrator handles the day-to-day account operations and customer care functions. Notably, some third – party administrators have grown into multinational corporations. However, there are also individual administrators who have gained TPA certification and work as independent contractors.

A third – party administrator in the United States is expected to have a deep knowledge of the rules and regulations of the services they are responsible for administering. Each state has its own regulations regarding certification and licensing of TPAs. Some states require that TPAs file copies of their agreements to provide services to insurance companies to the state insurance department.

How to Pick a Third Party Administrator for Work Compensation

Many self – insured employers decide to outsource their workers’ compensation claims handling to a third-party administrator (TPA) instead of creating their own internal operation.

Choosing the right TPA is very necessary because TPAs are required to coordinate very essential functions like managing loss reserves, facilitating claims investigations, issuing claims payments and settlements, coordinating medical management and organizing transitional work. When choosing a TPA, it is very pertinent for companies to first determine what they are looking for. Below are few effective fact-finding questions that can help.

1. TPA Capabilities

The very first thing to do is to find a TPA that can meet your company’s individual needs. Have it in mind that many states are complicated, so the insured must confirm that the TPA has the appropriate expertise by state. Questions that can help understand the TPA’s ability to handle the employer’s specific business include:

  • Do you have the necessary resources to take care of all jurisdictions applicable to the company?
  • Can the TPA provide references within your jurisdiction to support your capabilities?
  • Does the TPA have the capabilities to handle your company’s various business operations?
  • Can the TPA handle all of your company’s claims so that you do not need to enlist multiple TPAs?
  • Is the TPA approved by your insurance carriers?
  • Does the TPA follow best – practices procedures, and can they provide claims handling results to prove it?
  • What quality assurance processes does the TPA have in place to guarantee consistent results between offices and adjusters?

2. Claims System

Do not forget that a TPA’s system is very crucial to the entire process. Adequate claims management requires a system that is easy to access, with enough information readily available when the employer asks for it. Have it in mind that poor and inaccurate data can cause major setbacks if it ends up in the employer’s financial reports. Questions that can help evaluate claims systems include:

  • How can the TPA ensure that your claims system will provide clear, accurate data?
  • Does the TPA claims system meet your company’s financial data reporting requirements?
  • Does the TPA claims system meet your company’s analytic needs for benchmarking, stewardship reports, etc.?
  • What measures do they have in place to help prevent data breach?

3. Personnel

It is very important to state that personnel issues tend to affect the claims outcomes that an employer receives from its TPA. Howbeit, the employer will want to make sure that it is working with an experienced adjuster who can make informed decisions, as opposed to an adjuster using automated responses based on decision trees.

Caseloads at the TPA, employee turnover rate, supervision and other personnel issues will more or less factor in. Questions that can help identify troublesome factors include:

  • Would your company be issued a dedicated account manager or team?
  • Who would be your key contact and provide information and answer questions?
  • How do the TPA adjusters make decisions on their cases? Are they educated and capable of making flexible decisions based on circumstances, or do they use an automated response process?

Have it in mind that during the RFP process, most TPAs will ensure that they have the staff to meet the employer’s needs. It is best to ask for validation.

4. Reason Beyond the Fee

Even though employers regularly make TPA fees the deciding factor, reports have proven that fees only represent 8 percent of total claim costs. According to experts, what many fail to understand is that paying higher fees for a TPA whose adjusters have lower caseloads and are more experienced can significantly reduce overall risk costs!

So instead of focusing on the 8 percent, insured should focus on the remaining 92 percent — the other aspects of the claim that come into effect. Note that this includes evaluating if the TPA can ensure:

  • Effective medical management
  • Timely disposition of claim issues
  • Return – to – work or settlement success
  • Transparency of third – party vendor use in the claims process
  • Ability to minimize leakage and avoid excessive expenditures because of mistakes, errors in judgment, ineffective litigation management, penalties and fines
  • Measures in place to prevent fraud
  • Transparency of managed care capabilities, including bill review and preferred provider organization (PPO) and case management

10 Largest Third – Party Administrators in the United States

  • Sedgwick Claims Mgt.
  • Crawford & Co./ Broadspire
  • UMR Inc.
  • York Risk Services
  • Gallagher Bassett Services
  • CorVel Corp.
  • Meritain Health
  • ESIS Inc.
  • Helmsman Mgt. Services
  • CoreSource Inc.


Have it in mind that choosing the right TPA takes time and due diligence, but it is always worth the time and resources to find the best fit for an employer’s industry and jurisdiction and meet risk – management needs. Also note that it is important to look beyond fees and consider all variables, including staffing, adjuster education, claims systems, reporting capabilities and the TPA’s ability to apply a teamwork approach to supporting your organization’s claims efforts.

Do not forget that a TPA plays a large role in an employer’s workers’ compensation claims outcomes and costs, finding the right one are one of the most important decisions that an employer can make.

Joy Nwokoro