Third Party Benefits Administrators Key Terms

Knowing key terms can help you understand the services offered by third party administrators

By Deborah Barr

A third party administrator (TPA) performs certain services for self-insured companies. A self-insured company is one that pays employee medical claims out of its own company funds instead of contracting with an insurance company. The type of services offered by a third party administrator depends on whether it is contracted to perform administrative services only (known as an ASO contract) or whether it has full-service capabilities.

Here are some key terms that describe services provided by full-service TPAs.

Stop-loss insurance administration

Stop-loss is a type of reinsurance-insurance that helps protect a company against extremely high-cost claims. Stop-loss insurance can be aggregate (when total claims reach a certain dollar limit), or it may be specific, pertaining to individual high-cost claims.
Try: To learn more about stop loss insurance, visit 360 Degrees of Financial Literacy.

Subrogation

Subrogation means that the insurer has the right to collect any money from the injured person that the lawsuit awarded them for medical costs. When an insured person receives health care benefits, for example, after a car accident, and then later receives money in a lawsuit related to the accident, some states allow subrogation. Subrogation, simply stated, allows the insurance company to be reimbursed for the medical claims they paid.
Try: For more information about subrogation, visit FreeAdvice.com.

Coordination of benefits

When a person is covered by more than one insurance policy, coordination of benefits prevents them from receiving double payments. Using established rules, coordination of benefits determines which company has the primary obligation to pay, and which company has secondary responsibility.
Try: You can find more information about coordination of benefits at the FinancialWeb portal.

Utilization review

In utilization review, a nurse determines whether inpatient or outpatient services are medically necessary. Inpatient review may include pre-admission, concurrent, and retrospective reviews as well as discharge planning. Outpatient review focuses on procedures that are often over-utilized. Other types of utilization review focus on elective procedures such as varicose vein surgery, or diagnostic procedures such as CT scans.
Try: You can learn more about inpatient utilization review at the MedCost Benefit Services website.

COBRA administration

COBRA is the federal law that allows former employees and their dependents to continue their healthcare coverage under certain circumstances. COBRA administration is complex and employers must follow strict guidelines. For this reason many companies prefer to outsource their COBRA administration to an experienced TPA.
Try: Visit Aflac to learn more about how TPAs administer COBRA.

Flexible spending account administration

There are two types of flexible spending accounts (FSAs). A dependent care FSA allows employees to use pre-tax dollars to pay for childcare or elder care. A healthcare FSA allows the use of pre-tax dollars to pay for healthcare expenses not covered by insurance. IRS regulations for both types of FSAs are strict, and many employers prefer to outsource FSA administration to a TPA.
Try: To learn about the tax advantages of flexible spending accounts visit Lesley University.