Benefits of Third Party Administrators (TPA's) in Health Insurance Sector

The Insurance industry in India has experienced a sea change since emergence of private participation. Health insurance is a mechanism to finance the health care needs of the people. To manage the problems arising out of increasing health care costs, the health insurance industry had assumed a new dimension of professionalism with TPA. The core service of a TPA is to ensure better services to policyholders. Their basic function is to act as an intermediary between the insurer and the insured and facilitate cash less service at the time of hospitalization.

Introduction of TPA benefits both the insured and the insurer in the healthcare industry. While the insured benefits from the 24 x 7 service, the insurer is benefited by reduction in administration cost.

Policy holders welcome introduction of TPA since they receive enhanced facilities at same cost. Once the policy has been issued:

All the records are passed on to the TPA and all the correspondence of the insured remains with the TPA.
TPA issues identity cards with unique identification numbers to policy holders and handles all issues related to their claim settlements.
TPA runs a 24-hour toll-free number, which can be accessed from anywhere in the country.
They have full-time medical practitioners under their employment who take decision whether the ailment is covered under the policy or not.

From the perspective of the insurance companies, the TPA benefits them by:

Bringing down their claim ratio by reducing false claims as well as standardizing treatment cost.
Playing a role in availing data for actuarial calculations, because they are the recipients of morbidity data that are linked with individual characteristics such as age.

One of the disadvantages of cashless facility is that it increases the capacity of insured to incur higher costs at the time of illness, and therefore there is a tendency to inflate the cost of treatment. This has been limited to a certain extent with the presence of co-payments in which 10 percent of the expenses are paid by insured and 90 percent are paid by the insurance company.

The reason why insurance premiums may go up in near future would be the inability of TPAs to make enough profits, owing to the low percentage of commission.

The Insurance Regulatory and Development Authority of India (IRDA) and the ministry of health should jointly ensure that the TPA plays an active role in community health insurance schemes as well as the universal health scheme. The need for cashless facilities for communities is more significant than corporate or ordinary households, but there is as yet only a limited use of TPA in such schemes.

Today the insurance industry across globe is facing challenges of dwindling premium receipts and rising operating costs. Increased cost per member/policy holder and higher loss ratios has resulted in making it extremely important for the insurance carriers and the third party administrators to look for cost-containment options to improve the diminishing bottom-line and operational efficiencies.

Benefits of TPA to the insurance world include: