For years, benefits brokers and employers have evaluated third-party administrators (TPAs) based on traditional factors like administrative fees, network discounts, provider disruption analyses, and claims processing metrics. These factors matter, but in reality, they represent only a fraction of what can ultimately impact healthcare costs.
Today, healthcare spending is increasingly concentrated in high-dollar claims, like oncology treatments and rare diseases. Many employers now face individual claims exceeding $500,000 or even $1 million. This means that clinical management, data integration, and strategic oversight are more important than ever before.
The question is no longer whether a TPA can process claims. Or if a network discount is a few points better or worse. It’s whether the organization is structured, staffed, and incentivized to truly impact healthcare costs.
When evaluating a TPA, brokers and employers should also focus on these three areas: transparency, clinical effectiveness, and long-term alignment.
One of the most overlooked aspects of TPA evaluation is understanding how the organization generates revenue—beyond its administrative fee.
Many TPAs offer competitive per employee per month (PEPM) pricing while generating additional revenue through shared savings and out-of-network claim programs that are difficult to track. These programs can create value, but it’s important to understand the cost and whether the financial incentives align with reducing total healthcare spend.
For example: Consider an out-of-network co-surgeon claim that began with nearly $285,000 in billed charges and was ultimately reduced to approximately $8,300. The negotiation generated almost $277,000 in savings. Under a traditional 25% shared savings arrangement, approximately $69,000 would have been paid to the TPA or vendor. Employers should consider not only whether this compensation amount is deserving based on the work required but if it also creates incentives that compete with in-network steerage.
Transparency should extend beyond misaligned revenue to focuses like data ownership, reporting, and operational infrastructure. Brokers and employers should understand what data access is available, whether key systems are operated in-house or outsourced, and how medical, pharmacy, and stop loss information are connected.
Transparency matters, and the best TPAs can clearly explain their:
Nearly every TPA promotes clinical management capabilities, so it’s important to determine whether they can demonstrate measurable results. This matters because catastrophic claims are continuing to increase in frequency and severity. In many cases, effective clinical intervention can have a greater financial impact than incremental network savings.
For example: A member undergoing immunodeficiency treatment is receiving IV infusion therapy in a hospital setting. This case generated projected costs of approximately $540,000. A TPA leveraging proactive care management, clinical review, and treatment steerage reduced total plan costs to approximately $108,000, generating more than $432,000 in savings.
Those savings were not created through claim repricing or contract negotiations. They were the result of influencing treatment decisions before costs were incurred.
Unfortunately, many TPAs rely on multiple vendors or point solutions to manage specialty programs like infusions and oncology. While point solutions can provide value, fragmentation often creates data silos, duplication, and delays. The result can be employers paying for programs they don’t need and struggling to understand the outcomes.
The most effective TPAs use a coordinated strategy that integrates:
Brokers and employers should not simply ask whether programs exist. They should ask whether those programs are producing measurable outcomes.
Self-funding is a long-term strategy, so selecting a TPA should be approached the same way.
Many brokers and employers spend significant time evaluating administrative fees and network access but relatively little time understanding who owns the TPA and where the organization is headed.
Carrier-owned TPAs, private equity-backed administrators, hospital-affiliated organizations, and independent TPAs all operate under different business models and incentives. None are inherently better or worse, but each creates priorities that can influence the long-term partnership.
As healthcare costs continue to rise and catastrophic claims become more common, TPAs must continually invest in technology, clinical resources, and claims expertise. Brokers and employers should understand whether their partner is focused on long-term client outcomes or preparing for the next acquisition, transaction, or strategic shift.
A strong TPA should be able to clearly articulate its:
High-dollar claims increasingly determine health plan performance. Administrative fees and network discounts still matter, but they are no longer enough to differentiate one TPA from another.
As you navigate which TPA is best for you, the most important question you can ask is: Which organization is best equipped and most aligned to help us manage healthcare costs over the next decade?
Because the best TPA is not necessarily the one with the lowest administrative fee. It’s the one whose structure and long-term strategy are most closely aligned with the employer’s goals.
To learn how Healthgram’s integrated platform and transparent approach can protect your health plan for the long term, connect with a Healthgram representative today.
Since 1977, Healthgram has helped self-funded employers simplify healthcare through plan administration, wellness programs, and clinical care. All built to lower employer-sponsored healthcare costs without cutting corners. The Healthgram Insights blog covers trends and insights in employer-sponsored healthcare.
