A Third Party Administrator (TPA) is an organization that processes insurance claims or certain aspects of employee benefit plans for other organizations. Using a TPA is a way to outsource claims processing, which traditionally has been handled either by the organization providing the benefits or the insurance company.

Employers that self-insures their benefits (i.e., underwrites the risk) often outsource to a TPA. Some insurance companies use a TPA to manage claims processing, provider networks, utilization review, or membership functions. While some third-party administrators may operate as units of insurance companies, they are often independent.

Using a TPA can be a smart business decision whether you want expertise in particular areas or avoid the infrastructure costs of building an in-house capability.

Third party administrators also handle many aspects of other employee benefit plans such as the processing of retirement plans and flexible spending accounts. Many employee benefit plans have highly technical aspects and complex administration, which makes using the specialized services of a TPA more cost effective than doing the same processing in house.

After making the decision to use a TPA, spend the time to choose the one that has the resources to meet your needs, and that matches your service expectations. After all, the TPA will become the face of your company for claims, which means how they handle them and interact with your employees will be a reflection on your organization.