Simply Put. Who are TPAs?

An upcoming IPO from a Third Party Administrator (TPA) provides a trigger for an interesting conversation between colleagues, Prashant and Anwar.

Anwar: All behold, the next wave of IPOs is coming, and this wave will have a large offering from the insurance industry as well, including from a TPA.

Prashant: Hold on, I remember seeing the word ‘TPA‘ when our office insurance was renewed this year. But I know very little about it.

Anwar: Basically, TPAs are health benefit administrators acting as an intermediary between three parties. One, the insurers/government; two, the insured members/beneficiaries of public health schemes; and three, a network of hospitals that policyholders can access. TPAs handle insurance bookkeeping for corporate group policies as well.

Prashant: Sounds like they have a wide mandate.

Anwar: The insurer shares the policyholder’s data with the TPA and the policyholder is provided with an identity card. The card is used for cashless claim — when the insurer settles the bill with the hospital after getting pre-authorisation; or a reimbursement claim — when the policyholder first settles the bill with the hospital and later claims reimbursement from the insurer.

TPAs administer all the paperwork in this process. At the insurer’s end, TPAs ensure seamless claims processing for the insurer and the insured member and manage their cash-less hospital network. At the hospital-end, they handle pre-authorisation requests, claims dashboard and payment reconciliation. The TPA cannot directly handle payments or reject claims.

Prashant: I guess TPAs handle customer interaction too?

Anwar: TPAs operate call centres and handle regular communications with insured members. Remember, an insured member’s satisfaction is a critical measure for a TPA’s clients (insurers) renewing their contracts with them. An insurer can employ multiple TPAs as well, making the industry a highly competitive one.

Prashant: So TPAs are doing most of the heavy lifting?

Anwar: That’s not true. TPAs process the claims on an insurer’s behalf while the insurer takes care of the actual business of carrying the risk and arriving at the appropriate premium rates. Even the marketing and sales activity must be carried out by the insurer.

Prashant: Who oversees the large number of transactions enabled by TPAs?

Anwar: Just like insurers, TPAs are regulated by IRDAI. Other than services mandated by regulations, TPAs cannot engage in other activities. The contracts signed between network hospitals, TPAs and insurers are governed by these regulations specifying minimum turnaround time for service and remuneration payable.

Prashant: What about data safety?

Anwar: Today, TPA data aspects are governed by the Information Technology Act. But, the proposed Personal Data Protection Bill is expected to supersede this Act.