Everybody loves to hate them. What does the future hold for TPAs?

Raj Pradhan

Around 5% of your premium goes to third party administrators (TPAs) appointed by insurance companies. There are companies like Bajaj Allianz, ICICI Lombard, Max Bupa and Future Generali that do not use TPAs; they rely on their own claims department. It is operationally challenging but may be cheaper than using TPAs. After all, New India Assurance paid its TPAs a whopping Rs68 crore for the year 2009-10. The four public sector insurers are planning to phase out the existing TPAs and are coming together to set up one TPA service. It is expected that 50%-75% of the health insurance premium of the four insurers would be transferred to the new (TPA) entity by the third year of its operations and 75%-100% of their health insurance premium would be transferred to it by the fifth year. But all this is subject to performance.

Mahavir Chopra, head, e-business, at Medimanage Insurance Broking Pvt Ltd, says, “Before TPAs came on the scene, there was too much of bureaucracy in insurance companies to settle claims. The introduction of TPAs was to outsource the processing of health claims to medical professionals and bring in professionalism and a neutral approach. TPAs were also mandated to control claims by having contracts with hospitals. A neutral professional who understands healthcare and health insurance is much more relevant today. There is a need to encourage TPAs to transform themselves into claim administrators, from their current role as only claims processors.”

Due to the lack of a clear mandate from insurance companies, TPAs in India are not viewed as healthcare administrators but mere claim payment agencies. Unlike in the West, TPAs in India lack negotiation power with hospitals. Moreover, there is no regulator for hospitals and rates for medical procedures are driven by mismatch of demand and supply of quality healthcare. Some TPAs lack knowledge, infrastructure and skills as there are no entry barriers for setting up a TPA company and getting a licence.

According to M Ramadoss, chairman and managing director, New India Assurance, “TPAs were given business with the thought that they will offer better service. After 10 years, we do not think it’s true. There have been grievances about TPAs.” Oriental Insurance is offering 5% discount on premium for policyholders who don’t want TPA services for Happy Family Floater policy. You also forgo the cashless feature. Moreover, the claim settlement by reimbursement may need visits to branch/division offices due to the lack of an intermediary like a TPA to help settle the claim.

Fali Poncha, an insurance industry veteran and executive chairman of IRICS Broking Services, points out that, “The health maintenance organisation (HMO) model failed in the US. And, yet, TPAs were introduced in India. They may not be reasonably fair to you. You may be paying for their services, but they get business from insurers. They can reject the claim even if there is a small grey area. In that case, the insurer is reluctant to overrule the TPA. The system should not continue, unless there are clear directives on how to operate; and TPAs should offer better services.”

On the other hand, TPAs are supposed to be the only specialised ‘medical link’ between the insurance companies and the hospitals. It takes a lot to understand healthcare and process claims. The model where the risk underwriter itself pays for the risk may be somewhat imperfect. The unbiased nature of processing claims also brings in some credibility to claims settlement. It’s also operationally difficult for all insurance companies to set up in-house claims department.

Bharti AXA General Insurance is an enthusiastic supporter of the TPA system. According to Dr Amarnath Ananthanarayanan, chief executive officer and managing director, Bharti AXA General, “We think of TPAs as our extended arm. We make a promise of service to customers and do service-level agreements with TPAs to ensure that the promised service is delivered. India has been successfully doing business process outsourcing (BPO) for global companies based on service-level agreements. Insurers need to have the maturity to handle TPAs. With more insurers coming into the market, it may not even be feasible for each insurer to work independently with a hospital superintendent. Hospitals would have to provide extra rooms just to keep all the personnel (from both insurer and TPA) on the hospital premises.”

Mr Chopra elaborates: “Insurance companies now believe that regulating claims is a core part of the health insurance business. They can control costs better, when the accountability of controlling claims moves inside the company, compared to being outsourced to a smaller company outside. Insurance companies pay 5% of the premium to TPAs as administration fee. The costs of maintaining an internal claims team may be much higher. How many insurance companies are able to compensate the high costs of maintaining their own claims administration with better financial and fraud control would be worth observing in the coming years. TPAs operate as an outsourced processing agency and, hence, their costs are supposed to be spread over more claims since they deal with multiple insurance companies.”

The way for TPAs to grow is to actually get into medicare management by implementing clinical procedures and codes at network hospitals. Selection of a hospital network should be based on the quality of healthcare. Like the ‘gatekeeper model’ in the West, TPAs should be empowered to take responsibility of healthcare beyond negotiation of rates. They should be in a position to recommend a healthcare provider to the customer. Only when TPAs can influence patients’ decisions, would their negotiating capacity improve. TPAs will have to provide much more service to justify getting 5% of the premium. Evaluating the TPA will be an important determinant in the choice of the health insurance company.