The Final Profit-Building Frontier
Comprehensive Occupational Health Programs Key to Increasing Profits
In the minds of many employers, occupational medicine is all about treating work-related injuries and getting employees back to work as quickly and cost-effectively as possible. But in a growing number of South Carolina workplaces, employers are beginning to look beyond simply minimizing treatment costs toward more comprehensive occupational health programs aimed at increasing their companies’ profits.
“The companies we work with want us to provide appropriate medical care for employees injured on the job, always with an eye toward controlling costs,” says Dean C. Riegel, president and chief operating officer of Atlantic Occupational Health, Inc., based in North Charleston. “But there’s only so much you can do on the delivery side of health care. These days, it’s a natural follow-along to look to the other side of the ledger at risk management, evaluating exposures and putting in place programs to reduce them. Many of our customers are picking up on the benefits of preventive safety and wellness programs, and realizing that implementing them is the right thing to do for both their businesses and their employees.”
The Profits Connection
Aided by technology and sophisticated inventory and supply management methods, companies operate more efficiently than ever before.
To build profits and sustain them beyond the current quarter, managers are eager to find new ways to cut costs. Specialists in occupational medicine believe they can help.
“Companies have done a great job of improving their operating efficiencies, but they’re nowhere near where they could be in managing health care costs,” says physical therapist Mike Fedele, cofounder of Catawba Rehabilitation Services in Rock Hill. “It’s one of the last significant areas of opportunity for employers to improve their profit margins.”
“It can be hard to interest employers in preventive programs when they’re focused on strategies to produce immediate payoffs,” says Deb Campeau, director of employer relations for Trident Health System in Charleston. “But there are even bigger dollars that could be saved if employers put more emphasis on prevention.”
Leading the way for employers interested in the profit-building potential of occupational health programs are a number of full-service occupational medicine providers. Many insurance companies, hospitals and medical practices are ready to help as well.
For basic occupational health services such as mandatory physical exams, rehabilitation therapy and drug testing, South Carolinians turn to a variety of providers, including hospital emergency and physical therapy departments, acute care clinics, rehabilitation clinics, and primary care practices. More specialized occupational health providers—some independent and others with hospital or other affiliations—offer more comprehensive service lines, including workplace safety and health risk appraisals, environmental health evaluations, ergonomic assessments, and employee safety and wellness programs.
As a general rule, the more the provider knows about occupational medicine, the better. Besides being familiar with treating common workplace injuries—back strain, repetitive motion injuries, slips and falls, and exposure to toxic chemicals—occupational medicine specialists understand the importance to the employer of minimizing recovery time so employees can get back to work, or at least to modified or light duty, as quickly as possible.
“A family doctor or general practitioner is well-prepared to treat an injury, but the occupational medicine physician will also be very interested in getting the employee back to work because he or she knows the employer’s cost for lost productivity can be much more than the cost of medical treatment,” says Riegel. “That’s how we add value to the employer-provider relationship.”
Occupational medicine specialists visit employers’ workplaces so they can make better-informed assessments of an employee’s readiness to return to work. Familiarity with the workplace can also help doctors evaluate a potential employee’s ability to perform the essential functions of a job. Many employers make job offers contingent on the doctor’s pre-placement physical examination.
Occupational medicine specialists are also more familiar than general practitioners with the psychological issues commonly faced by injured employees. “Helping the employee deal with psychological baggage—`Am I going to work again? Will I go from making $20 an hour to $6 an hour? Can I still be a good spouse, a good parent?’—these are some of the most important issues in getting them well,” Fedele says.
Occupational medicine specialists are particularly skilled in keeping lines of communication open among all interested parties—employer, employee, doctors, therapists, hospitals and insurers. In addition to individual case management information, occupational medicine providers maintain databases to help providers tailor their services to the needs and preferences of the individual employer.
“Both our clinic and health system emergency rooms use employer protocol profiles to facilitate clear communication between medical providers and employers,” says Stephen Ratliff, executive director of Concentra Medical Centers, an affiliate of Trident Health System, in Charleston. Concentra is the largest provider of occupational health services in the country, with more than 200 clinics in 32 states. The local Concentra staff works closely with Trident Health System’s staff to coordinate services and share expertise as needed. “The profiles also alert us to the employer’s substance abuse policy, assuring timely and appropriate testing if called for,” he says.
Ongoing workplace safety programs can reduce job-related injuries, often dramatically. In helping an employer develop a safety program, an occupational medicine specialist can evaluate the workplace itself, along with the claims history for the facility.
“History repeats itself,” says Columbia-based lawyer Mark Arden of Chappell Smith & Arden. “If an accident has happened before, it’s likely to happen again if you don’t do anything to prevent it. You can forecast based on the claims history.”
Arden believes ongoing training is critical to maintaining safety. “If you don’t have a training program and some safety policies in place, you’re planning to fail,” says Arden. “Just because an employee can operate a back hoe, it doesn’t mean he can jump on a track hoe without training. Perpetual training is the key.”
Arden encourages employers to develop policies for operating in a crisis. “So many employers don’t have something as simple as a bad-weather policy,” he says. “Or they’ll mandate that all employees come in, even when it ices. They’ll say, `We’re not paid to wait. We’re paid to do,’ and they end up having a lot of people hurt.”
By analyzing the workplace, a skilled occupational medicine specialist can identify potential risks and recommend modifications to minimize them. Despite the widespread belief that safety improvements always require large cash outlays, Fedele says that with advice from an expert, most employers can improve workplace safety dramatically by making relatively simple changes.
For example, the concrete floors found in virtually all manufacturing plants put employees at risk for foot and knee injuries. Some employers invest in “anti-fatigue” mats to reduce the stress but, says Fedele, “The mats only work when you’re standing on them, and many jobs can’t be done without moving around.” As part of his assessment of one employer-client’s workplace, Fedele suggested padded shoe inserts as a low-cost solution to the problem of concrete floors. “Now, every worker has these anti-fatigue mats in their own shoes,” he says, “and the employer has effectively reduced the risk of cumulative trauma at a very low cost.”
Observing employees of varying heights working at identical work stations, Fedele suggested building wooden platforms so shorter employees could use the work stations as comfortably and safely as their taller coworkers. “We showed them how their maintenance staff could build these platforms—maybe 2 or 3 inches high—where shorter employees could stand at the work stations without having to raise their arms more than necessary. There were a lot of wooden pallets lying around, so they already had the materials. It was a matter of taking some measurements and getting the maintenance guys to build them—a really inexpensive solution.”
At a new manufacturing plant, Fedele noticed some of the hand tools had unusually small handles. “The employees were going to generate a lot of hand and wrist trauma using those tools,” says Fedele, “so we showed them how they could use some inexpensive padding materials to make the handles larger.”
Fedele says when he first started doing on-site evaluations, he felt embarrassed at making such simple, common-sense suggestions. As he evaluated more workplaces, however, he realized problems and solutions that seemed obvious to him were often overlooked by employers concerned with production and quality issues. “I realized they are experts at making the product they make,” Fedele says, “and we’re experts at foreseeing work-related risks and minimizing them.”
Promoting Healthier Lifestyle Choices
While occupational safety programs help prevent injuries on the job, employee wellness programs address more general lifestyle and health-related issues.
“The quickest and most significant results come when employees quit smoking, start exercising and lose weight,” Campeau says. “Those are some of the toughest things to change, but we’ve seen some wonderful things happen in workplaces where the employer supports wellness.”
Employee wellness programs vary widely in their form and content. “Some of the employers we work with just want to make information available,” Campeau says. “They might subscribe to our wellness newsletter, and that’s what they refer to as their wellness program.
“For other employers,” she continues, “we might put together a series of lunch-and-learn programs, using speakers from the health system to address topics of most concern to that particular workforce. Or we might send in a nutritionist to evaluate the food they’re serving in the cafeteria.
“There’s a tremendous range of how involved employers will get in wellness,” she continues. “Some are interested in creating a truly comprehensive program while others want much more limited involvement. We work with them wherever they want to start.”
For employers interested in building a complete, state-of-the-art wellness program, a full-service occupational health provider can step in and help develop a results-oriented program tailored to the employer’s exact needs.
Typically, the process begins with an assessment of employees’ health status, using confidential written employee surveys and health screenings. From the information gathered, and from the nature of the work employees typically perform, the occupational health provider can guide employers as they set wellness program priorities.
With priorities in place, the occupational health specialist then works with the employer to develop appropriate program strategies. An experienced specialist will recommend a variety of approaches, with effective incentives built in to encourage employee participation.
The occupational health provider will also include plans for future measures of effectiveness, such as follow-up screenings, employee surveys and medical claims analysis. Finally, the provider will recommend long-term strategies for keeping the program ongoing and relevant to the changing needs of the employer and employees.
The Bottom Line
The payoffs from investments in preventive occupational health programs can be dramatic, according to the Wellness Councils of America (WELCOA). Using data from more than a dozen employers, WELCOA reports one- to three-year returns ranging from $1.42 to $4.74 for each dollar invested in worksite wellness initiatives. Other benefits are improved productivity, reduced absenteeism, better health care cost containment, reduced employee turnover and better employee morale.
Still, many employers unfamiliar with the mounting number of preventive program success stories continue to underestimate their potential benefits. “A lot of employers don’t realize how much control they could gain over their occupational health costs,” Arden says.
Even employers familiar with the potential benefits of comprehensive occupational medicine programs can be reluctant to incur program costs in any given quarter. “They don’t want to budget for anything that doesn’t have to do directly with their product,” Fedele says.
Fedele says many of his employer-clients have to “hit bottom” before becoming receptive to investing in preventive approaches to occupational health. “Even the ones getting credit for being progressive now usually got that way because of all the mistakes they made in the past,” he says.
He believes that eventually all employers will be using preventive programs very aggressively to control costs and increase profits.
But for now, strategies to cut employee health care costs through comprehensive occupational health and wellness programs remain one of the most underutilized profit-builders. “This isn’t just a feel-good benefit,” stresses Ratliff. “Done well, it can impact an employer’s health care costs significantly.”
“Besides being popular with employees, comprehensive occupational health and wellness programs are just good business,” Campeau says. “The big message is: Occupational health programs are very good for the bottom line.”
The Right Fit
Careful Selection of a TPA Can Minimize Risk and Save Money
Most self-insured employers decide to fund their own employee health insurance plans to trim benefits costs and improve cash flow. And in the complex, heavily regulated employee benefits business, the risks and responsibilities assumed by self-insured employers can be minimized by a competent claims administrator.
Very few employers handle their own claims administration. Approximately two-thirds of the nation’s employees and their dependents are in plans using some form of third party administration, according to Frederick D. Hunt, Jr., president of the national Society of Professional Benefit Administrators (SPBA). The percentage of all employers handling their own claims administration declined from 13 percent in 1997 to 8 percent in 1998, according to the Mercer/Foster Higgins National Survey of Employer-Sponsored Health Plans 1998.
An employer’s careful selection of a third party administrator (TPA) can not only save money on benefits but also minimize the risks of self-insuring. “Self funding is a wonderful way to go for many employers, but you have to look beyond the obvious details and pay attention to a much bigger picture,” says David Huntington, executive vice president and COO of Planned Administrators, Inc., a wholly-owned subsidiary of Blue Cross Blue Shield South Carolina that administers claims for self-insured employers. “If you don’t, your choice of TPA can cause some real problems.”
Who’s Administering Claims?
Although the term third party administrator or TPA is most often used to refer to independently owned and operated firms, it can really refer to any outside service provider hired by an employer to help administer a self-insured benefits plan.
The type of TPA a company selects is really dependent on the philosophy and structure of the company. For example, some employers prefer an administrator that can cover multiple sites throughout the country, while some prefer an administrator that has an office within driving distance.
“A company’s corporate philosophy has much to do with their decision,” says Vic Paschal, senior vice president for SCMA Financial Services, Inc., an insurance subsidiary for the South Carolina Medical Association. “I’ve known companies that wanted to hand the employee the benefits check to show their caring. Others want to deal with a nationally known insurance carrier. It’s up to each company and how they’re structured.”
Many large companies with multiple sites choose to contract with insurance carriers for administrative services only (ASO). The Mercer data show that the percentage of large, self-insured employers utilizing insurance companies or Blue Cross Blue Shield in this way has increased from 43 percent in 1997 to 48 percent in 1998.
“Most of our South Carolina business has been sold at the national level in other parts of the country,” says Lana Tenbrink, general manager for Aetna U.S. Healthcare’s North Carolina and South Carolina operations.
Tenbrink explains that employers with multiple locations often value the consistency that a national insurance carrier offers. “Our national customers know their benefits administration will be the same from state to state,” she says.
“If claims are being handled well, the TPA’s location is not significant,” maintains Patrick A. Gallagher, a senior consultant for Milkman & Robertson, an actuarial and consulting firm. “But on the medical management side, understanding local practice patterns is an advantage.” This knowledge of the community is often found in the independent local or regional TPAs.
“It’s not a necessity, but it’s a nice luxury to have the TPA firm down the street,” says Hunt. “There are going to be times when it’s nice to sit down face-to-face.”
Smaller employers—who have less leverage in negotiating with the large insurers—often use TPAs because a TPA can give the employers more flexibility in their benefits plans. A TPA can customize options for the employer and bring in a number of different vendors for services such as utilization review and stop-loss insurance. It is important to remember, however, that as employers customize this process, they should not lose sight of the labor market for which they are competitors. Thus, benefits should be comparable to the benefits of similarly sized companies.
Independent TPAs do not only handle claims for small companies. Many work with larger, multi-site companies. According to the Mercer data, 45 percent of large, self-insured firms (500+ employees) used independent TPAs in 1998.
Robert Dickey, president of BPS, Inc., and Benefit Planning Services, a TPA and associated insurance agency in Spartanburg, explains the emergence of the more flexible, independent TPAs by comparing it to the computer industry. “In the ‘60s, you bought the product IBM wanted to sell—a mainframe—until Gates and those other guys got in their garages and started building PCs,” he says. “The TPAs got started when we heard the cries of the employers who wanted something besides the product the insurance industry wanted to sell. The insurance companies put us in business, and now independent TPAs are predominant.”
Independent TPAs can come in all sizes. While bigger is not necessarily better, Dickey says size is an issue when an employer is comparing levels of personal service and TPAs’ abilities to make capital investments in essential computer systems and personnel. “Ideally, you need someone small enough to meet your needs for personalized service and large enough to keep you in compliance with government regulations,” he says, explaining that in his view, the optimum size for an independent TPA is 15 to 75 employees who administer 15,000 to 50,000 employee lives. “If the TPA is much larger than that, it loses some of its advantages over large insurance companies.”
Another option for employers choosing a claims administrator is to have their claims administered by a provider organization with whom they contract directly. However, “We don’t have a lot of provider organizations selling administrative services in South Carolina,” Paschal says.
Regardless of what type of TPA is administering a company’s claims, the role of the TPA has changed over the years. “Until a few years ago, about all you had to do to be a good TPA was offer low fees and quick turnaround and be reasonably accurate,” Dickey says. “Now, paying claims is only a small part of what we do.”
Today, claims administrators provide an array of services such as plan design, preparation of health plan identification cards and appropriate enrollment forms, maintenance of membership eligibility, claims review and processing, stop-loss insurance, negotiation of plans or due diligence, report generation and provider profiling. They also make sure that if there are any changes in federal laws that affect the plan, the employer is notified and in compliance.
Staying in Compliance
The ability of TPAs to assist employers with the ever-changing federal laws and regulations is one of their most important functions. “Every year, there are more than a thousand new laws, regulations and court cases from about 300 government offices applying to employers,” Hunt says. “Only about a third of those get adequate press coverage—even in trade journals—and the government provides official guidance on how to comply with just one percent. That leaves 99 percent of compliance based on unwritten and undecided factors.
“Most of these laws are written to punish employers, even for innocent or unknowing oversights,” Hunt continues. “The employer has tremendous liability there. So besides administering the plan, a good TPA will guide employers through the regulatory jungle. I can’t even begin to say how important it is for the TPA to keep track of all that.”
According to Huntington, to be able to provide the kind of protection an employer needs, the TPA should have experience in a wide range of benefits areas such as medical case management services, provider network access and reimbursement discounts, management information reporting capabilities, relationships with stop-loss carriers, financial stability, errors and omissions insurance coverage and understanding of arcane contract provisions. A TPA with this kind of experience is usually not the least expensive TPA.
“Even a small error or oversight in any one of these areas can potentially result in huge dollar losses for the employer—many times the amount they might save by simply going with the TPA offering the lowest cost per employee,” Huntington explains.
Interestingly, however, the independent TPAs can be the most helpful with these issues. “We have found that individual TPAs tend to provide more personalized government compliance assistance to clients than insurance companies providing administrative services do,” Hunt explains.
Even though TPAs can assist in guiding employers through the regulatory jungle, it is ultimately the employer’s responsibility to be in compliance with government regulations. To make sure the TPA is protecting the company and addressing all the compliance issues and contract details, the employer should become educated about government reporting requirements. The Department of Labor’s Office of Small Business Programs has a toll-free line—(888) 9-SBREFA—that serves as a central contact point for compliance information and advice. However, employee benefits are regulated by many different government agencies, so employers should also consult with attorneys specializing in employee benefits and tax law for guidance on compliance issues.
Armed with an overview of regulatory requirements, Hunt suggests asking the TPA, “Where do you get your government compliance information, and how do you act on it?” Also, ask how many staff members are involved in staying abreast of government compliance issues, and ask about their qualifications and ongoing training. Interview staff members to determine if they appear knowledgeable about compliance issues. Any vague or inconclusive answers should serve as a red flag.
For employers who lack the time to school themselves sufficiently on compliance basics, the best choice is to hire help. “So many employers don’t have any experts in these matters on their staff,” Huntington says. “They may need an independent party—for example, a broker or consultant—who will determine if the TPA is doing a good job for their clients.” As with TPA firms, he suggests making sure the broker or consultant carries errors and omissions insurance.
It is also important to look for a broker who is independent and has no financial interest in a particular TPA, recommends Denis A. Brosnan, Jr., an employee benefits lawyer with Rogers Townsend & Thomas, PC, in Columbia. “The broker you are trusting to choose your TPA may have a conflict of interest if he has a financial stake in a particular TPA,” he explains.
Saving Employers Money
Another important function of the TPA is to save an employer money. Sometimes it is more cost-effective for an employer to contract directly with providers. However, some TPAs have an existing infrastructure and discounts they can deliver to the employer because they are already working with select networks, according to Mick Diede, a consultant with Milkman & Robertson. “If you’re shopping for a provider network as well as a TPA, investigate the reimbursement discounts the TPA can offer compared to the discounts you can negotiate directly with the provider,” he says.
To better compare costs, find out what the fee is for each separate service bought from the TPA. This may require that the TPA break the services down differently than it normally would. For example, some TPAs include network access in their base rate, while others list it as a separate fee. “Some TPAs haven’t done as much work in unbundling as others,” Diede notes.
Insurance carriers may charge higher administrative fees to access their provider networks, but on the flip side, they may have the leverage that enables them to gain better discounts from providers. “We have access to the Blue Cross Blue Shield network and the provider fee discounts already in place for our parent company’s managed care products,” Huntington says. “Many of the stop-loss carriers also give us discounts for having access to that network, so we can often broker stop-loss coverage for clients at a lower rate than they can get on their own.”
However, be aware that self-insured employers are not always getting the same discounted hospital and physician rates that they would if they were utilizing a fully-insured product. This is because one of the methods large insurance carriers use to negotiate lower reimbursement rates for their fully-insured HMO business is to agree to have their self-insured accounts reimburse providers at a higher rate. To guard against this, employers can ask for documentation that the insurance company uses the same provider fee schedules for both types of business. If the carrier is reluctant to share this information, employers can ask local providers if there are different fee schedules in place for a given carrier’s fully-insured versus self-insured lines of business.
“Remember that when the Department of Labor (or a court) enforces ERISA fiduciary responsibility, it judges whether each transaction was most prudent for the plan,” Hunt says. “Showing that the plan or TPA shopped around among vendors and PPO networks is one sign the department considers to prove prudence. Self-dealing is the name the Department of Labor gives when a TPA or any vendor to the plan sets up tie-in or sweetheart deals.”
Medical and Information Management
Most providers say they have trimmed health care costs to the bone, with little or no margin left for further fee reductions. With major HMOs leading the way, the industry is now looking at medical management approaches to maintain or improve quality of care while lowering costs even more. TPAs, too, are getting involved in medical management. They do not make medical management decisions, but simply exercise the power or decisions delegated by the employer.
“We now have to embrace managed care,” says Dickey, explaining that BPS outsources case management to five case management firms. “A good case manager for spinals may not be the best for mental and substance abuse, so we use various companies, depending on the diagnosis.”
Beyond controlling costs by managing individual cases, TPAs give employers ready access to the broader information required to make informed decisions about their benefits plans. Claims reports can tell employers how their health care dollars are being spent and where changes in plan design need to be made. “The reporting that many of the national self-insured groups are asking for now is much more sophisticated than in the past,” says Tenbrink.
This type of medical and information management is an area where the size and sophistication of the TPA can make a difference. “Within the industry, management information reporting varies by TPA, from those that are strictly claims payers to full-service organizations like ours,” Tenbrink explains. Often, the self-insured clients of large insurance carriers have access to the same management techniques the insurance carrier uses to control costs and maintain quality in its own managed care products. Smaller firms may not have the infrastructure or software to generate the types of reports employers need.
“Increasingly, employers are looking toward data warehouses, not just to store information but to integrate and analyze it,” observes Galagher, who notes that some TPAs offer data warehousing services.
Selecting a Claims Administrator for the Long Term
Once an employer has decided whether an independent TPA or an insurance company is more suited for the company’s administrative and informational needs, the next step is choosing a competent TPA. And paring down the list of more than 200 licensed TPAs in South Carolina to a manageable size is no small feat.
State licensure does not guarantee a TPA’s quality. While most of the larger TPAs understand the federal requirements for self-insured employers, the firms are largely unregulated at either the federal or state level. “If you send the state of South Carolina $100 and tell them you’ve never been bankrupt, you can be sitting there with little more than a Texas Instrument calculator and say you’re a TPA,” says Dickey, who laughingly admits he’s exaggerating to make his point that a state license is not an indicator of a TPA’s service quality or financial strength.
The requirements of state licensure are that the TPA must establish a $75,000 surety bond, pledge a $75,000 CD, get a letter of credit from a South Carolina bank or get a corporate guarantee from a client. TPAs also must submit annual financial statements, a biographical affidavit on each officer and director, and a list of clients and copies of all client contracts. The annual licensing fee is $100.
Even though it requires licensure, the state does not regulate TPAs’ operations. Under the Employee Retirement Income Security Act (ERISA), the federal government’s Department of Labor has jurisdiction over self-insured group health plans and the work TPAs do for plans, while state insurance commissions oversee fully insured plans. “If the TPA is serving only the self-insured market, it doesn’t fall under our regulatory responsibility,” says Willie Seawright, licensing coordinator for the South Carolina Department of Insurance.
It is noteworthy that many of the TPAs licensed in South Carolina do little, if any, business in the state. That is because South Carolina, like many states, requires TPAs to be licensed if any of their covered employees or dependents are residents. “Even if one warm body shows up, most states want you to register there,” Hunt says.
If an employer is looking for a local or regional option, the TPA field can be narrowed by reducing the list to the approximately 30 organizations based in South Carolina, perhaps adding in those in contiguous states.
After narrowing the field to a manageable few, the employer’s next step is requesting proposals from TPAs. For some employers, preparing and submitting requests for proposals (RFPs) is a formal process involving reams of paperwork. Other employers may make a few phone calls, discuss service needs and ask for competitive bids from several TPAs. Once the proposals come back, self-insured employers can begin to focus their search for the right TPA on the few most likely candidates.
In the past, TPAs vied for employers’ business based mainly on price, claims turnaround times and telephone wait times. These factors are still important, but having the fastest processing performance ratings does not necessarily indicate the highest quality of service. “TPAs that pay claims too rapidly are not scrutinizing those claims,” Dickey maintains. “The employer might pay a lower administrative fee, but their number of claims go up. I refer to administrative fees as the small end of the bat.”
More important than speed are claims payment accuracy ratings according to the plan document. “The Department of Labor is really tough on self-funded plans when it comes to accuracy,” Dickey says, “so in terms of risk, the employer is better off choosing accuracy over speed or pricing.”
Once the employer has compared TPAs based on service issues, “the choice becomes more a personal thing—a philosophical issue,” says Paschal. This is when the employer should arrange a site visit to the TPAs still under consideration.
“The best education is to walk through a TPA office,” Hunt says. The site visit also gives an employer the opportunity to interview TPA management and staff members personally. “The relationship between the employer and the TPA is so close and personal, this should be a real heart-to-heart interview. There should be good chemistry and a whole lot of trust.”
Chemistry is extremely important because an employer should make decisions about TPAs based on the prospects of a long-term relationship instead of the idea that the employer can simply switch if the TPA is not performing up to standard. The reason for a long-term relationship? First of all, it is expensive to change vendors. Huntington estimates that printing new benefits booklets and providing new plan identification cards for employees costs between $2,500 to $10,000 depending on the number of employees in the plan. And that could be the least of an employer’s concerns.
The second—and possibly most important—reason is that frequent jumps from one TPA to another make the employer more vulnerable to risks associated with the transition between vendors and stop-loss insurance carriers. A stop-loss contract may prevent the employer from switching TPAs without the stop-loss carrier’s consent, thereby providing the carrier with an avenue to refuse reimbursement under the contract, according to Brosnan.
In addition, the lag between the date a claim is incurred and the date the claim is paid means nearly all claims paid at the beginning of a plan year are for services rendered the previous year. But if the employer terminates one TPA on the last day of the year and hires a new one effective on the plan anniversary date, the employer can lose the benefit of the former TPA’s network discounts on all services provided, but not paid for, by year’s end. And that discount figure can represent as much as 20 to 25 percent of provider fees, according to Huntington. “There’s a good chance you won’t get the discount unless you pay the outgoing TPA to process those run-out claims,” he says. “In addition, there is the real possibility of claims falling outside the coverage terms of both the old and new stop-loss contract.”
With careful consideration up front of all questions, self-insured employers can greatly improve the likelihood of a lasting partnership with their TPA. “One of the hardest things for employers, agents and brokers to understand is the importance of choosing wisely and then sticking with the TPA or stop-loss carrier,” says Huntington. “If an account will stay with a TPA or carrier long enough for some loyalty to build up in the relationship, then they’re much more likely to be there for the employer when problems come up.”
Sidebar: Year 2000 and Beyond
Because self-insured employers accept fiduciary responsibility for their health plans and may share the responsibility with a third party administrator (TPA), employers are responsible for making sure Year 2000 compliance issues have been resolved both in-house and by service providers. The U.S. Department of Labor’s Pension and Welfare Benefits Administration (PWBA) advises employers to establish and implement “a prudent procedure” for making sure all computers used in administering their benefits plans including computers used by TPAs are Y2K-compliant.
PWBA also cites Year 2000 compliance as “another factor to be considered by plan fiduciaries when selecting service providers.” The Department of Labor has posted sample questions to guide plan in evaluating Y2K readiness for both in-house and service providers’ computer systems at www.dol.gov/dol/pwba.
Most large insurance carriers, their TPA subsidiaries and the larger independent TPAs invested considerable time and money early on to resolve Y2K issues, but for some under-capitalized TPAs, the burden of Y2K compliance may be too much. “Y2K is really hurting the small TPAs,” says Robert Dickey, president of BPS, Inc., and Benefit Planning Services, a TPA and associated insurance agency in Spartanburg. He adds that his firm has already committed more than $2 million “to comply with the government and stay in the game.”
Even if the TPA successfully resolves Year 2000 compliance issues, more capital-intensive requirements appear to be on the way from the federal government. As part of a push toward “the paperless office,” the Department of Labor has been working on plans to require electronic filing of all claims. For TPAs not yet fully automated, the investments in the computer systems needed for electronic claims filing may be beyond their means.
“We already handle everything from IRS filings to provider filing of claims electronically, mainly because of the cost efficiency,” says David Huntington, executive vice president and COO of Planned Administrators, Inc., a wholly-owned subsidiary of Blue Cross and Blue Shield of South Carolina that administers claims for self-insured employers. “TPAs of any size have to be able to do electronic claims if they’re going to remain competitive and meet government requirements.”
Sidebar: Checklist for Employers: Questions to Ask a Prospective TPA
- How many years of experience have you had in the business?
- How many employees are on your staff?
- How many self-insured employers do you serve?
- What size are the majority of your employer groups?
- Is your company financially stable and secure?
- Are you bonded?
- Do you carry errors and omissions insurance? (Ask what the limits are and whether the TPA has had any claims against the errors and omissions insurance.)
- Ask the TPA to define their quality claims management process; for example, ask about financial accuracy, procedural accuracy, call answer times and call abandonment rates.
- What is your turnaround time? What percentage of your claims are paid electronically without human intervention? (Normal turnaround time for claims adjudication is anywhere from five to 10 working days.)
- Where do you get your compliance information?
- How do you keep up with changing rules and regulations?
- Who provides your software?
- How current are your computer systems?
- Are you fully prepared for Y2K? Can you document your preparation?
- Will you be ready for EDI (Electronic Data Interchange)?
- What are your medical and management information reporting capabilities? (For example, can the TPA report monthly exposure versus claims paid to date, or by diagnosis code or type of service?)
- What services does your base rate include?
- What services are billed using separate fees?
- What provider networks do you use?
- How do you reprice claims? (Try to find a TPA that processes claims online for the network they want to use. If a TPA has to manually reprice claims, it becomes a challenge to pay claims in a timely manner.)
- How do you handle provider discounts? (All discounts should be passed along to the plan.)
- What are the results of your most recent independent performance audit, such as SAS 70 (an external audit that determines their systems’ ability to function as specified)?
- How do you qualify and train claims examiners?
- What specific information do you look for in examining claims?
- How do you verify a provider’s claim is legitimate and properly priced?
- Do you have any mechanism in place for detecting fraud?
- How do you train customer service employees and measure their performance?
- How long will my employees and their providers have to wait on the telephone during peak usage times? (Ask the TPA to provide these statistics.)
- How do you resolve claims disputes with providers, employers and their employees?
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