4 Reasons Why Self-Funded Employers Should Choose A TPA Over An ASO


Mike Dendy, President of AMPS (Advanced Medical Pricing Solutions)

By Mike Dendy

I have been in the healthcare business as a benefits consultant for 25 years.  10 of those years were spent as a TPA owner/manager with the last 10 as CEO of a cost management company reviewing the work of ASOs, TPAs, and PPOs.  I can say without reservation that employers with self funded (ERISA) healthcare plans should choose a quality TPA over an ASO carrier for the following four reasons.

  1. Cost:   The administrative service fee of the average ASO provider is approximately $30 PE/PM (often times higher) while the admin fee for a quality TPA is typically $15 PE/PM (often times lower).  For every 1,000 employees on a healthcare plan that alone is a savings of $180,000 annually.  However, the savings run much deeper.  Most ASO plans have small print fees that most employers ignore.  For instance, ASOs typically auto-adjudicate claims at very high levels which means they pay them without any diligence.  On occasion and at their discretion they go back and audit their own work and retract money from providers (both docs and hospitals).  When the average ASO vendor does so, they typically keep between 35% and 50% of the recovered amounts.  Think about that for a minute, they knowingly overpay on bills, they then sometimes go back and find their own payment errors and then they charge additional fees to an employer for doing so.   Look closely at your ASO contract and you will see several ways ASO operating agreements cost you much more than you may think.  With TPAs an employer and their broker consultant can control both the plan document and how and when fees are paid to the administrator.
  2. The fallacy of PPO savings:   ASOs charge more for admin services because they offer employers access to their proprietary networks which they loudly suggest provide savings to the employer significantly greater than the additional fees they charge for admin.  This is false in almost every instance and in fact PPOs typically cost employers great amounts of money.  The national average payment for hospital services paid via an ASO carrier’s PPO network is a little over 250% of Medicare.  The payment level is typically much greater on claims that pierce the PPO managed care outlier level which is typically set at $100,000.  So, while in very competitive markets, the proprietary PPO networks owned by the carriers will provide savings levels that benchmark to Medicare in the 170% or less range, almost all of those savings are abated when the outlier level is reached and the DRG or fixed rate basis is replaced by minimal discount off of billed charge rates.  Further, in many cases the PPOs owned by ASO’s have contract clauses that allow them to pay more than a facility’s actual billed charges.  So, your company could get a bill for $10,000 from a facility and your ASO-PPO team might pay $11,000  due to their specific contract arrangement.  A quality TPA will review all larger billings for accuracy and reasonableness which ASOs almost never do.  More importantly, a TPA will challenge fraud, waste, and abusive overcharges and recover that money for an employer typically saving hundreds of thousands of dollars for an employer.
  3. Technology:   Most ASO carriers work off of grossly antiquated software platforms which make aggregating and retrieving data difficult.  Data can drive innovation and cost containment in healthcare and having easy access to that data is extremely important for employers and their consultants.  While many TPAs also have antiquated software there are a great number of TPAs with upgraded software systems that will greatly out perform the systems of the ASO providers.
  4. Health plan governance.  Most ASO providers operate entirely in their own best interests and as long as an employer wants their services badly enough to agree to their oft times absurd rules an employer has little choice but to acquiesce.  For example, many ASO carriers will not allow an employer to have claims paid by the ASO audited for accuracy or reasonableness of payment.  The ASO, incorrectly by the way, will claim that the data obtained on behalf of an ERISA sponsored plan “belongs” to them as the payer.  ERISA says the exact opposite and in fact states that it is the fiduciary responsibility of an employer to protect plan assets for the co-mingled money that make up a health plan.  How can an employer protect the assets of their healthplan if they don’t have the ability to confirm the accuracy of provider billings and the payments made by their administrator?  Every quality TPA in America will work closely with an employer and their consultants to flyspeck every aspect of their adjudication services and will provide all of the data collected relative to the employer’s own plan of benefits.

The ASO-PPO healthcare model has failed everyone except for the large healthcare concerns themselves.  The large healthplans have created alliances with providers that not only often require that an employer and their employees overpay for services but disallow an employer the right to the transparency necessary to see the ASOs faults and protect their own and their employees interests.

TPAs are not without fault and some operate in similar ways to the ASO providers.  The TPAs to avoid are those that believe their businesses are only viable because they have access to the proprietary networks owned by the aforementioned carriers and will favor those relationships over the relationship with an employer.  However, there are many high quality TPAs that put employers first and act like true service businesses providing all possible assistance to an employer and their employees.  Quality TPAs are an extension of an employers own management team and act in a way to maximize the value of that employers business.  Finding one will in almost every case save an employer sponsored plan tens of thousands of dollars in healthcare waste and over-payments as well as allowing them to meet their ERISA fiduciary obligations.