I’ve got an offer you can’t refuse! Free TPA administration plus I’ll pay you for the privilege!
By Bill Rusteberg
“Everything we touch turns to gold!” says the TPA. “That’s how we are able offer such low administration fees. We look real good on a spreadsheet!
This practice is common within the industry. It is so well practiced that at times TPA fees appear to be free. In one case the TPA’s fee was a negative $70.82!
“We do not pay Blue Cross to administer our plan at all” says the Edinburg Independent School District.
In another case a TPA won a “competitive” Request for Proposal competition with the low bid of a $9 administration fee. Little did the county know the TPA earns 35% of the PPO discount from a local PHO. Additional fees, hidden on the claim side of the ledger, effectively bring the TPA’s administration fee to whopping +$100 pepm. They were the highest bid and should have never been awarded the business.
A recent Q4 2024 Earnings Call Transcript reinforces the importance TPA revenue sources:
“When we look at our competitors out there, on average, they’re driving about 20% of their TPA revenue through prescriptions and rebates there. And our percentage, while we don’t specifically disclose it, is has currently been way under the industry average……….And so just by improving the program and getting it out there, we expect a large jump in our revenue. And those programs tend to be very high margin as well, which, again, will be a significant driver of our profitability by the end of 2025.”
In another case the TPA was earning 9.6% of all PPO discounts. This fee was hidden on the claim side of the ledger, giving the appearance of a zero cost administration fee. The TPA gained the business in a competitive Request for Proposal process, hoodwinking the district into believing they had the best and lowest bid. They didn’t.
There is only one TPA we are aware of that does not earn any other income other than their $35 pepm administration fee although there may be others out there.
TPA’s are not the only ones that have the Midas Touch. Insurance brokers and “consultants” do too. I’ve often asked audiences “Would you like to know how I can make $250,000 on a 400 life case and you would never know it?”
The new Federal disclosure requirements don’t apply to non-ERISA groups. Cities, counties, school districts continue to fall prey to these legacy practices. Many ERISA groups do too since most Plan Sponsors disregard their fiduciary duties. They don’t ask, and TPAs, brokers and “consultants” don’t tell.
Next time you swipe your Rx card at the pharmacy you should wonder who’s getting paid. The next time you receive your EOB showing the enormous discount you earned from your PPO network you should remember this case.
Beware of fixed costs disguised as claim dollars. Disclosed fees may be just the tip of the iceberg. What you don’t see could sink your ship.
