When it comes to group insurance, the terms third-party administrator (TPA), third-party payer (TPP) and AGA +Plus are often used to refer to the fact that a third party (other than the insurer) is entrusted with the administration of a plan, which includes:
- billing of premiums
- management of member data (addition, termination and changes to records)
- claims payment
- customer service
Since the vast majority of group insurance plans are administered directly by the insurer, who assumes the risk, why should a company contemplate third-party administration? We can think of several good reasons, starting with the following:
For specialty coverage or in some situations (e.g. self-insurance), it may be better for an employer to use more than one insurer for their group plan. Without a third party, dealing with more than one insurer could be tedious as this often entails separate, more complex billing and premium payments. With a third party, you can merge everything on the same invoice and thus save money!
An administrator can also provide a stronger support to employers by offering customized solutions for the calculation of taxable benefits on payroll statements.
Continuity when changing insurers
An employer who decides to change insurers must normally obtain new enrollment forms and beneficiary designations signed by each employee, and learn how to use a new plan administration portal and new administrative forms. This can be time-consuming for the person in charge of group insurance, on top of all the questions from employees who are also faced with changes.
Changing insurers can also come with several inconveniences for employees: new enrollment, learning how to use a new member portal, loss of information on record (e.g.: proof of school attendance for children, approval of exception drugs), changes to claims administration (e.g.: deductibles, maximums, out-of-pocket expenses), etc.
All these frustrations can be avoided with a third-party administrator. Changing insurers simply requires signing new insurance applications. Delays are substantially reduced and the process is made much easier.
Stronger bargaining power with insurers
By separating risk-taking and plan administration, the company is less dependent on the insurer. As all the data is held by the third-party administrator, it is very easy to change insurers when warranted. Insurers normally know this and will negotiate accordingly upon renewals.
By combining the roles of broker and administrator, a broker will also have a distinct advantage through access to the actual experience data of the group insurance plan and will thus be confident to negotiate on the basis of accurate information.
Appointing a third-party administrator for your group insurance plan makes it much easier to change insurers and thus benefit from rates that will remain competitive. But is it more expensive? Not at all! The insurers will charge lower administration fees as they have less work to do. The fees will simply be reallocated to the third party.
In an upcoming text, we will address the important elements to consider when selecting your third-party administrator.
Follow the link for more details on the AGA +Plus solution.
Please do not hesitate to contact us for more information.
Holding a Bachelor degree in Actuarial Science and a Fellowship with the Canadian Institute of Actuaries, Vincent Soucy worked for the first 10 years of his career in an actuarial consulting firm where he advised national clients on their benefit and retirement plans. He joined AGA in March 2014 and now supervises the consulting, underwriting and actuarial teams.
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