What does a third-party administrator (TPA) do for self-funded health plans?

A TPA administers a self-funded health plan on behalf of the employer. Core TPA functions include: claims processing and payment, eligibility and enrollment management, network access (PPO or reference-based pricing), member ID cards and customer service, COBRA administration, utilization management, and regulatory reporting. The TPA is the operational backbone of a self-funded plan — the employer assumes financial risk, but the TPA handles day-to-day administration.

How is a TPA different from an insurance carrier?

An insurance carrier assumes financial risk for claims and charges a premium that includes profit and risk margin. A TPA only administers the plan — it processes claims and provides services for a fee, but the employer bears the financial risk. TPAs are typically 30–50% less expensive than fully insured carriers for the same administrative services because there is no risk premium or carrier profit margin embedded in the cost.

What should employers look for when selecting a TPA?

Key TPA selection criteria include: claims processing accuracy and speed (target: 95%+ accuracy, 10-day turnaround), network access and discounts, technology platform (member portal, reporting, data analytics), customer service quality, ERISA compliance support, stop-loss carrier relationships, and fee transparency. Request references from employers of similar size and industry. Avoid TPAs that are owned by or have exclusive relationships with a single stop-loss carrier.

What are typical TPA fees for self-funded health plans?

TPA fees typically range from $15–$40 per employee per month (PEPM), depending on plan size, services included, and network access. Larger employers (500+ employees) typically pay $15–$25 PEPM; smaller employers pay $25–$40 PEPM. Some TPAs charge additional fees for specific services (COBRA administration, dependent eligibility audits, utilization management). Always request an all-in fee quote to compare TPAs on a total cost basis.

How often should employers review their TPA relationship?

Conduct a formal TPA performance review annually, evaluating claims accuracy, turnaround time, customer service metrics, and cost trends. Issue a TPA RFP every 3–5 years to ensure competitive pricing and service quality. Switching TPAs is disruptive (typically 6–9 months to implement), so the bar for switching should be high — but staying with an underperforming TPA costs more in the long run.

Administration

Third-Party Administrators (TPAs) for Self-Funded Plans

Your TPA is the operational engine of your self-funded plan. They process claims, manage your network, handle utilization management, and serve your members. Choosing the wrong TPA is the most common reason self-funded plans underperform.

What a TPA does

Claims processing: Adjudicates and pays medical claims according to your plan document. This is the core function — accuracy and speed matter.

Network access: Provides access to a provider network (often leased from a major carrier like Aetna, BCBS, or Cigna) with negotiated rates.

Utilization management: Prior authorization, concurrent review, and case management to ensure appropriate care and avoid unnecessary costs.

Member services: Member ID cards, EOBs, customer service, and appeals handling.

Reporting and analytics: Claims data reporting — the transparency advantage that makes self-funding worth it.

Compliance support: ERISA compliance, ACA reporting, COBRA administration, and plan document maintenance.

TPA vs. ASO: what's the difference?

An Administrative Services Only (ASO) arrangement is when you use a major insurance carrier (Aetna, BCBS, UnitedHealthcare, Cigna) as your administrator rather than an independent TPA. The carrier provides claims processing and network access, but you bear the financial risk — just like with an independent TPA.

Independent TPAs often provide better transparency, more flexible plan design, and more employer-friendly contract terms than ASO arrangements. However, ASO arrangements may offer better network access in certain markets. The right choice depends on your priorities.