With an increasing number of companies outsourcing claim handling to third-party administrators (TPAs), and with the market for TPA services becoming more and more competitive, it may be time to consider the role of actuaries in helping TPAs provide quality service, deliver promised outcomes, and afford a sustained competitive advantage.
Actuaries offer a number of skills that can be critical to the success of the TPA business.
TPA Challenges Overcome with Actuaries
TPAs face a myriad of strategic and tactical near-term challenges. Consolidation in the industry, the influx of venture capital with pressures for growth and earnings, greatere financial disclosure and transparancy requirements, market-driven changes in product pricing, medical cost inflation, and reforms in state workers’ compensation laws are all affecting the profits of TPAs. In an increasingly technology-driven business, actuaries can lend their expertise in overcoming these and other challenges.
Not only the TPA, but also the clients, brokers, and carriers with whom a TPA works will benefit from the contributions that actuaries can provide.
Because a self-funded plan is a mini-insurer, it is not at all surprising that actuaries are directly or indirectly involved in such plans in these ways:
- Providing benefit content studies
- Recommending participant contributions, COBRA premiums, or funding contributions
- Computing claim reserves by either traditional or AICPA SOP No. 92-6 standards
- Doing state-required certifications (MEWAs, FL, and IA governmental entities, e.g.)
- Managed care-related studies (Capitation, and indemnity v. HMO employer contributions for parity purposes, e.g.)
- Estimating impact of anti-selection where high/low plans are involved
- Establishing underwriting rules where a go or no go decision is to be made on plan adoption, renewal, open enrollment, e.g.
- Computing reserves needed to meet AICPA FAS No. 106 (retired life reserves) or FAS No. 112 (post-termination reserves)
Monte Carlo techniques are useful in checking the reasonableness of stop-loss quotes, particularly where several benefit options are involved.