An exceptional third-party administrator (TPA) provides optimal system support for its claims representatives, communicates clearly to you and your organization and is flexible to your needs.
But what else do risk managers look for in a TPA? Karl Zimmel, manager for Risk Management Services at UNS Energy Corp. in Tucson, Ariz., expands.
The TPA industry is a very challenging business primarily because it is largely driven by a large labor force that can vary significantly from one office to the next. Given the human element of the service, there will always be some level of issues to resolve if the program has much size covering more than one state with more than a thousand claims per year.
My current program is strictly in one state with less than 100 claims, so it was fairly easy to pick what we believed to be the best claims office in our state and it runs smoothly. Larger programs are more challenging partly because there is more staff involved on the employer side. If there is a significant amount of employer staff involved who don't have the full knowledge of how a TPA program should be run, then it is imperative to educate them and set the expectations. Program issues can be exacerbated by divisions or subsidiaries directing their frustration from the allocation of claims expense at the claims adjuster.
In short, there are many moving parts on both the employer and TPA side of a program that takes a significant amount of coordination. I concluded long ago that our company efforts are better served working out issues with the current TPA and internal staff, rather than bouncing from one TPA to another.
I have nine tips when selecting a workers' comp TPA:
1. No. 1 Priority–Containing an Adjuster's Caseload
I have been a claims adjuster, so I understand how being overloaded with too many claims can make a very good adjuster look bad.
Risk managers have to take some accountability for the model we influenced, which tends to focus on beating down the cost of claims handling. When we do that, it requires the TPA caseload per adjuster to increase for the TPA economic model to work. Keep in mind that the TPA service fee typically is 4% to 6%, maybe 10% on the high side. Therefore, focus more on the 90% to 95% of expense—the losses.
When I was [employed] at a large conglomerate we were able to set up a cost-plus program in which we bought all the expenses plus a profit margin. Our adjusters loved us because they had the lowest caseload. Their colleagues were envious of the low caseloads, which made it easy to recruit top talent to our team. As a smaller company, where I work now, we share an adjuster with several other adjusters. Therefore, it is more important to have even tighter in-house management of claims. That's easier said than done since a smaller company probably has less in-house resources. If that is the case, then I suggest outsourcing that function to your broker who has claims experts.
2. Deep Reference Checking
This comes early rather than at the end of the process in order to evaluate the best candidates. First I talk to many colleagues about the overall program capabilities, then I drill down to discussions about the offices that that will be prominent in our program right down to the adjuster level.
3. Systems
It is important to demo the TPA system to determine how user friendly it is and whether it has the functionality desired. Evaluate whether system automation contributes to a more efficient claims adjusting program.
4. Supervisors Without a Caseload
You want to make sure supervisors are overseeing the work of claims adjusters rather than handling files.
5. Medical Management
With medical inflation, the medical cost component is becoming a greater portion of the total claim cost every year, which is currently about 60% of claim expense on average. It is hard to generalize a one-size-fits-all medical management program. This area merits a lot of probing and input from claims consultants and brokers.
It works best to have the medical management integrated into the claims program either with TPA medical management staff, or a system integration with a standalone company. That is why at least one major medical management company decided it needed to purchase a TPA so it could become integrated with the TPA framework. There are some very good standalone medical management companies, but it takes a lot of effort to coordinate the independent services. The downside to integrated medical management is that it is easier for these costs to be buried within the cost of the claim. That's the client needs to periodically review medical management reports.
6. Account Executive Evaluation
The larger the program, the greater the impact by the TPA account executive. They have a thankless job of being in the middle of the client and staff within their own organization.
7. Annual Face-to-face Claims Reviews
This is a basic need for a well-run program and TPAs are typically very accommodating. Because my current employer has less than 100 pending claims at any point in time, two annual claims reviews is sufficient. If there are several hundred pending claims, let alone thousands, then quarterly claims reviews should be considered.
8. Number of Claims Offices Required
The number of claims offices and adjusters depends upon the structure of the client's claims management staff. If there is just one centralized claims manager at the client, then less is more. However, if you ask the TPA to handle several states out of one office, ensure that it has adjusters with the appropriate experience.
On the other hand, if you are a very large employer geographically dispersed with decentralized claims management, then more claims offices probably works better. Many employers are in the middle with a hand full of operations in different states with limited in house claims management. In that case, consider more of a regional claims handling approach.
9. Benchmarking
Benchmarking is the one service that has been enhanced the most over my career. Some of the larger TPAs have built very good analytics teams. They have a huge database, so they are in a good position to benchmark your claims data. The importance of this largely depends upon the culture of your company. If you have a very metric driven culture this can be very important.
For more on what risk managers look for in a TPA, read a risk manager Q&A in the April issue of National Underwriter P&C.
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