What to look for in a CDH TPA

Plan Documents are Not a Courtesy, They are a requirement

How to Pick a Good TPA


Written by:  Ric Joyner

As an agent or broker, have you scrutinized your client’s pre-tax benefit plan documents?  Often brokers mention their current CDH Third Party Administrator (TPA) sends their client the required plan documents, and the documents are inaccurate.  Nobody likes to play attorney, and it is important that you find a TPA that has worry free compliance built into their fees.

In 1986, I dove into pre-tax benefit administration and the market had little resources, even at the IRS, to gather answers to basic questions. I forged ahead and made section 125 administration my career focus. To be frank, after all these years, I still see a lack of comprehension about all forms of Consumer Driven Health Plans (CDHP); and excuse my bluntness, but brokers and CPAs can churn out some real doozies. Those brokers that are careful about their answers are the best. Brokers that shoot from hip with answers and expect us to pick up the pieces of their credibility are the worst. But before you take offense and skip this entire article, my passion is to educate brokers and their clients on how to pick the right TPA.

I recently spoke with a broker who noticed mistakes in his clients plan documents.  He complained to the TPA and they irritatingly responded, “We provide documents as a sort of courtesy.”  Compliance is not a courtesy, and here are just a few tips to ensure that the TPA you are using takes correct plan administration seriously:

1.        Compliance paired with balance-Some TPAs approach compliance from a conservative stance. This means they interpret the law strictly. Employee Benefits Institute of America (EBIA) is an excellent example of the conservative approach. Because of the amount of people that use their resources, it is common for EBIA to present the least risk adverse scenario in their material. Another approach is lenient (aggressive) with the regulations. The key is balance.  For example, I know a TPA who has an audit guarantee they promote, but doesn’t ask for any claim documentation for their debit cards or mailed/faxed claims. TPA review is required to meet the insurance principle in IRS Section 125-2! Interesting fact, their audit guarantee only pays the last six months of their fees! This TPA’s sales people also will tell the client and the broker that “the individual is responsible for the claim not the employer”. Individual responsibility is true for HSAs because it is designed to be an individual and portable account.  Section 125 FSA and HRAs are employer sponsored plans. The employer attests to the fact they are the plan sponsor and are hiring a TPA to do the administration. So don’t be fooled by these two sales pitches. Most TPAs have E&O insurance that ranges in policy size from $1-5 million of coverage. This translates to more than the cheating TPAs miniscule guarantee! Guess who the IRS turns to when this TPA is caught?  Your client.  If any of you are using a TPA with these sketchy standards, run for the hills.  The IRS does audit, in fact, I received a letter in 1998 from the IRS thanking me for helping train their agents on what to look for in Premium Only Plans. Other TPAs clients were audited over the last few years due to lenient debit card practices and no one wants an audit from the IRS. Why? Because the IRS’s philosophy is that if the employer will cheat on debit cards they will cheat in other areas. Once the employer is audited you are next. The only people who profit in this situation are lawyers. Find a TPA that operates with integrity.

2.       Consistent service throughout the year-January 1st is a high volume time for most plans. Your TPA should demonstrate to you that they understand and know how to manage workflow. This is called the “theory of constraints”. The voice of the customer says; “give me the same service throughout the year”. At eflex we know how to manage work volume with our Lean Six Sigma training. We post our service metrics on our homepage. In other words, we prove our service.

3.       Fast and accurate claim payments-If claims are processed and paid quickly employees and HR will get excited. In fact, lack of participation due to slow and inaccurate claims procesed  means lower tax savings for everyone. When claims are paid within 3 days (in the employees hands) the phones stop ringing. We have studied the effects of paying claims on varying payment cycles and regardless of what is promised for the payment timing, employees begin to call and inquire about the status of their check after 3 days and escalate every day thereafter. Ringing phones are not good. They go from us to HR to you. Ringing phones waste your time and ours. Fast payments equal satisfied employees. Our average claim and paid processing time is ½ a day!

4.       Top-notch software system-Is it homegrown?  Not bad it if is, but HG software ages, so what resources does the TPA use for maintenance?  I know a TPA that almost lost their head programmer in the middle of a large project! Another question to ask is whether or not their software system is client-server based or web-based (SaaS)? Both are good options, however web-based is best because the SaaS provider is protecting your client’s data at a remote location. Lastly, it is important to check into the TPAs disaster recovery plan regardless of the software.  Ask for a copy.  If a disaster plan isn’t produced this the sign post for you to bail.

5.        Knowledgeable staff-If the TPA doesn’t have a highly trained and experienced staff, who will you turn when the client has questions?  The TPA of choice will have years of compliance expertise, and attorney’s available for counsel whenever complicated questions or new regulations arise. Eflex hired an educator that has a Masters in online education that produces our training tools for all staff. All staff is trained on how to pay claims from the CEO down to the scanning clerk. We are proactive in our training.

Compliance is not a courtesy, and screening your TPA will help you and your clients avoid the pitfalls of sloppy administration. Working with an administrator who produces  service consistency all year that is fast and accurate in claim review and payments, who also has top-notch software system, knowledgeable compliance staff and has integrity. Look for these qualities and your clients will love you for it!

Ric Joyner, CEO, MBA, CEBS, GBA, CFCI is co-founder of eflexgroup.com and ecobra.com. He speaks regularly for SHRM, NAHU, NAPBA and a host of other entities. He can be reached at rj@eflexgroup.com.