A Texas TPA uses an ingenious method to drive up their compensation levels. This strategy hinges on the ignorance of plan sponsors who know no better, particularly rural political subdivisions.
“Ladies and gentlemen: the story you are about to hear is true. Only the names have been changed to protect the innocent.” – Detective Joe Friday
In almost every public request for proposals, this TPA is the most competitive offer on a typical spreadsheet. Fixed costs are the lowest and their aggregate stop loss factors are competitive.
How do they do this? They make up their low (less than $10 pepm) administration fee by adding a $7.50 (or more) per claim processing fee. This is not shown on their proposal spreadsheet but is barely mentioned in small print within the proposal “Conditions” pages. In order to turbo charge this per claim processing fee (check cashing fee) they systematically unbundle one claim into multiple claims.
In addition to this scheme, the TPA inflates the aggregate factors by $12.50. Then, upon delivery of the stop loss contract the aggregate factors are reduced by the same amount and the $12.50 difference now appears as a pepm “Aggregate Factor Management Fee.” The $12.50 aggregate claim liability that may never happen is now a fixed cost that will be charged and paid from now to eternity.
These schemes effectively raise their admin fee from less thant $10 pepm to close to $100 pepm.
In one instance relayed in confidence to us by Emiiy (not her real name) whose firm provides business advice to medical professionals, this TPA has taken their fees up a notch in partnership with a rental PPO network. “Bill, they are screwing the county and the county commissioners don’t know it! The TPA is skimming 30% of the discount off the top and disguising it on the claim side of the ledger.”
These ingenious add-on fees in effect make this TPA the highest bidder in every situation. Knowing how to work a spreadsheet to one’s advantage coupled with a strong dose of dishonesty works to good effect on lobotomized plan sponsors.
Meanwhile back in Commissioners Court during the Citizens To Be Heard segment, the County Judge, an attorney by trade, was asked “Did you read the contract?”
“OF COURSE I READ THE CONTRACT! retorted the Judge.
“Then why did you sign it? You went with the highest bidder!”
From A RiskManager.us Client – This is disgusting. The problem is how does a county judge, who isn’t an accountant, and probably doesn’t know the ins and outs of how this stuff works, supposed to know when he’s getting screwed? The real problem is in the benefits department, all of whom should know all this stuff. That’s where the incompetence resides. Just like the Federal Government, it’s time for a housecleaning!!
