Employee benefits are complicated. They are difficult to understand, challenging to implement, and time consuming in terms of administration. In so many cases, employers turn to their insurance brokers or third-party administrators (TPAs) for help. Though there is some overlap between insurance brokers and TPAs, the two are distinctly different.
The dividing line in most scenarios is complexity. Companies with highly complex benefits often turn to TPAs while those with simpler plans might rely on a combination of insurance broker services and in-house administration.
The Insurance Broker’s Role
An insurance broker is an individual or agency whose focus is primarily on helping organizations investigate, select, and purchase insurance plans. When it comes to employee benefits, brokers are working with things like health insurance plans, dental and vision plans, long term disability insurance, critical illness coverage, and the like.
A typical broker offers guidance on all the available options. Brokers help employers figure out which one to choose. They have a responsibility to look out for their clients’ best interests as they work with carriers.
In terms of benefits administration, the insurance broker’s role is limited. A broker can work through a general agency, like BenefitMall, to provide basic services that might include an online platform for enrollment and management purposes. Through an online platform, a broker could facilitate annual open enrollment, individual account management, and employee education.
The TPA’s Role
Where the insurance broker focuses mainly on procuring employee benefits, the TPA focuses mainly on administering them. A TPA might be able to help an employer obtain benefits in some limited capacity, but TPAs are not licensed insurance brokers. Therefore, they do not sell insurance.
A TPA can handle:
- Claims Administration – Administering claims is arguably the most common TPA task. Hand-in-hand with claims administration is managing provider networks.
- Enrollment – Enrollment is one of the areas in which TPAs and insurance brokers overlap.
- Compliance & Reporting – Maintaining compliance with federal and state laws can be challenging. Likewise for reporting. Companies rely on their TPAs for both.
- Cost Containment – A TPA typically helps employers maintain costs. Keeping costs in check can include everything from negotiating rates to searching out new provider networks.
- Technology – The complicated nature of modern employee benefits dictates the use of digital technologies to streamline administration. TPAs bring that technology to the table so that employers don’t have to worry about it.
For all intents and purposes, a TPA can completely take over an employer’s benefits plan for administrative purposes. Company ownership does not need to worry about a thing. In the absence of a TPA, an employer typically needs to manage benefits in combination with the services provided by an insurance broker.
Different Types of Brokers and TPAs
In closing, it is worth noting that there are different types of brokers and TPAs. In the broker arena, you have brokers that focus mainly on analyzing and selling insurance plans. Then there are those BenefitMall refers to as full-service brokers. These are brokers that offer extra services up to the limits of the law.
In the TPA arena, there are full service, specialty, and administrative services only (ASO) providers. A full service TPA manages everything from start to finish. A specialty TPA specializes in something specific, like COBRA for example. An ASO provider offers only basic claims processing and payment services.
In the employee benefits space, insurance brokers and TPAs overlap in a few areas. But for the most part, they are distinctly different in what they do. Employers can choose to work with one or the other, or they can do everything themselves.