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J P Pattanaik
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The Third Party Administrators (TPAs) are important stakeholders in health insurance industry. Since their arrival around the new millennium, TPAs’ contribution to the growth of the industry cannot be ignored. Being a touch point for consumers and clients- insurance companies and hospitals, TPAs have served to over millions of customers. In recent times, the industry is witnessing a shift. Most insurance companies are moving to in-house claims administration model thereby impacting the opportunities of TPAs. TPAs have been challenged to explore new avenues for sustenance.
Health insurance sector in India
Health insurance sector is one of the rapidly growing industries in India. At present, the insurance coverage is about 15 per cent of total population through different forms of health insurance. Most of the public funding is for preventive, promotive and primary care programmes while private expenditure is largely for curative care. High financial burden due to health related expenses is a major cause of debt among the lower middle class and poor families. The fact that cost of healthcare expenses is growing at a rapid pace, the importance of health insurance as a financial risk management tool is bound to grow. According to industry estimates, the sector will continue to witness double digit growths.
The arrival of TPAs
The year 2001 witnessed the rise of the TPAs in health insurance industry. TPAs are regulated by Insurance Regulatory and Development Authority (IRDA) and mandated to provide administrative services. The claims servicing and other administrative activities are outsourced to the TPAs, at a remuneration of four to six per cent of the premium collected. As on date, there are about 30 TPAs in operation. Cashless medical service became a reality with the arrival of TPAs.
It was expected that the introduction of TPA will ultimately benefit the consumers. The objective of introducing TPAs was to improve overall customer services, and also bring about a reduction in the claims ratio by greater pro-active involvement in the area of claims administration. However, introduction of TPAs as a stakeholder in health insurance business brought in its own complexities into the health ecosystem.
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Primary functions of a TPA
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Functions of TPAs
TPAs perform a varied range of functions. Creating an efficient network of hospitals and facilitating cashless medical service to customers are some of the primary functions. TPAs being in the centre of provider and payer relationship, their role are very critical for smooth operation of health insurance business. Some of the key functions of a TPA are as follows:
- Customer enrolment: Enrolment involves enrolling the policy holder and dependents, assigning of unique identifiers, defining the benefits and coverage criteria.
- Provider network management: This involves activities such as identification of providers for empaneling, verifying the credentials, negotiating and contracting for service tariff.
- Preauthorisation and claims management: This involves the process of authorisation for cashless facility and the entire claims cycle right from claims submission until the right amount is reimbursed to the provider.
- Fraud control: Planning necessary measures and controls for prevention of misuse of health plans and making sure the right amount is paid to the right person for the right ailments as per the contract.
- Data analysis and reporting: TPAs prepare various standard and non-standard reports for their internal consumption and external use such as reporting to insurance companies and regulatory authorities.
The unhappy triangle
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The Unhappy Triangle
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TPA’s role as an important stakeholder seemed to be a good choice first few years. However, over last couple of years, TPAs have been blamed for the issues faced. The expectation that TPAs would bring transparency into the system is kind of fading very fast.
TPAs have been at the receiving end for the issues like increased claims ratio, increased customer complaints, poor service quality, fraud etc. The TPAs have existed as part of an ‘unhappy triangle.’
The paradigm shift
During the early days, most insurance companies had engaged one or more TPAs for claims administration. TPAs are paid for the services provided, usually a fixed percentage of the premium collected. The fee varies from four to six per cent based on the individual negotiations. However, few companies like Bajaj Allianz have been processing the claims on its own for years now. The stand-alone health insurance companies such as Max Bupa and Star Health Insurance have their own in-house claims administration units. The public sector insurers have set up a JV TPA for in-house claims administration. The consumers believe that an insurance company with in-house claims administration unit is an USP along with the policy features.
The current trend of moving towards in-house claims administration practices by the health insurance companies is going to impact the existing TPAs in terms of opportunities. The JV TPA by public insurers going to take away most of the current volume from the TPAs as the public insurers make up to 60 per cent market share. Already a few private insurance companies have their own in-house claims administration cells and others are in the process of such initiatives. TPAs are left with a smaller market share to compete with. So is it the end of the road for TPAs?
TPAs are here to stay!
It is evident that the business opportunities for the TPAs are going to be reduced in near future. Unless TPAs revisit current business model and focus for new avenues, their continued sustenance would be difficult. The current market forces would force gradual extinction of the TPAs or with time they are bound to be acquired by some of the major insurance companies. However, TPAs due to their immense expertise have the ability to sail through the current phase of turbulence. They can still maintain their identity in the industry.
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New avenues for TPAs
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Avenues for exploration
Given the demands of the hour, TPAs have to rethink over the current business models they are engaged in. TPAs can leverage their expertise in the industry and look out for related diversification. Some of the areas which TPAs can explore are as follows:
- JV with insurance companies: With the promise that the health insurance industry offers, more and more insurance companies will enter the health insurance market. Even the proposed plan of increasing the FDI cap up to 49 per cent will attract more foreign players to the Indian market. The existing TPAs have an opportunity to float joint ventures with the new players especially because of lack of experience in Indian healthcare industry. TPAs can add value to the insurance companies at the same time can maintain their own identity.
- Claims administration practices for PSUs: India has several PSUs who manage the funding as well as the entire administration of health insurance offered to the employees and their dependents. It is a lesser known fact that these organisations spent enough time and money, yet are inefficient in terms of administration. TPAs can look out such PSUs for business opportunities and help them with the claims administration for fee. This cost would be much lesser if compared the overall opportunity cost. PSUs can be relieved from such activities can redirect their employees to the core area of functions. A win-win situation for both!
- More proactive role in plan design: Health insurance sector as portfolio has not been profitable. The overall industry has registered a claims ratio 100 per cent or more for past several years. It means the premium amount collected paid in terms of claims pay outs. Contributions from other sectors have helped the insurance companies to sustain health insurance business in spite of heavy losses. One of the contributing causes is inappropriate underwriting practices. TPAs being aware that how each penny collected being spent can play a more proactive role in plan design and pricing. So far TPAs have not ventured into this zone. Certainly, TPAs have an opportunity for exploration.
- Proactive role in medical management: Though there have been several initiatives for standardised clinical guidelines across the hospital, there is still a huge variation for its implementation. Today insurance companies are of the opinion for performance-based payment. TPAs can help hospitals in showcasing the benefits of implementing best clinical practices. TPAs can also play a role of utilisation reviewer for cost analysis and overall healthcare outcome.
- TPA as Credentialing Verification Organization (CVO): In India we do not have rigorous credentialing practices like some of the countries in the West like the US. A CVO provides professional services for verification of the authentication and maintaining the quality of healthcare services. With more and more foreign players venturing into the health insurance space, demand for such organisations will grow in future. TPAs have the potential to convert themselves or carve out a unit for such services.
- Opportunities within existing business segments: Though many insurance companies are moving away from their engagement with TPAs, there will be quite a new insurance companies who would still associate with TPAs. Insurance companies will incur additional costs related to administration which may impact their profit margins. The outsourcing of administration comes with a price; however, it reduces the hassles for insurance companies and helps in staying focused in other core activities. TPAs have to find new methods to reduce cost incurred and stay healthy in terms of profitability. It has been estimated that investment in automation of manual interventions in the areas of claims administration can bring down the overall cost by 30-40 per cent. A little invest in mobility solutions like mobile-based preauthorisation and claims processing solutions can further bring down the cost related to infrastructure and human resources. TPAs can continue with the current engagement model – the very reason for existence and make the best of the opportunities available to them.
Conclusions
In spite of industry challenges, the contribution of the TPAs for the growth of the industry has been immense. With changing times, the market dynamics will have impact of one’s continued sustenance. TPAs have to study and analyse the current industry signals and revisit the organisational strategies. Continuous innovation in business models, revitalisation of current strategies with a focus on future industry needs can bring in plenty of new opportunities.
References:
1. ‘Staying in Safe Hands’ http://ehealth.eletsonline.com/2013/07/staying-in-safe-hands/
2. ‘Conflict between insurers, TPAs and healthcare providers leaving Andheri consumers in financial turmoil’ http://articles.economictimes.indiatimes.com/2012-12-06/news/35647632_1_tpas-medical-insurance-health-insurance
3. ‘TPAs in Trouble’ http://www.moneymantra.co.in/detailsPage.php?id=209&title=Insurance
4. ‘Tackling Teething TPA Problems’. http://healthcare.financialexpress.com/200902/strategy01.shtml
5. ‘Future of TPAs in India. Is it the End of the Road for TPAs? http://www.medimanage.com/health-insurance-experts-blog/post/2010/03/25/What-is-the-future-of-TPAs-Is-it-the-end-of-the-road-in-India.aspx
Disclaimer
Ideas and opinions shared in this article are personal viewpoints of the author and have no bearing or impact on the official policy or position of Optum Global Solutions.