A True Story
The TPA was a well known carrier. Their administration fee was market competitive at $34 pepm. But they were earning much more than that.
Years ago when working with a 700 life Texas based employer I informed the carrier we were going to bid out the PBM side of the program. The carrier owns a PBM.
The carrier rep. was not happy and tried her best to dissuade us. She sent an email (which I still have) stating something to the effect “We have good news. We have been able to get better pricing for your client and based on that we expect they will save +$600,000 next year. But it’s conditioned upon staying with us.”
We moved PBMs, did not change the formulary, and saved $1.8 million that year. That’s a $1.8 million savings on a 700 employee group or +$200 pepm.
The carrier was earning more off the drug program then they were off the rest of the plan.
Why pay a TPA a $34 administration fee when you can get it for free? A large Texas school district says “We do not pay Blue Cross to administer our plan at all!” So why should you?
