6 December 2014 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.

Industry expansion seen, business models debatedby Bruce Shutan

TPAsRide Coattails

Affordable Care Act

the

© Self-Insurers’ Publishing Corp. All rights reserved. The Self-Insurer | December 2014 7

There’s a consensus among TPAs that the past two years have “never been better for self-funding,

and as a result, it’s never been better for those who are involved in self-funding,” observes Steve Rasnick, president of Self-Insured Plans, LLC, whose business has doubled in size during that timeframe.

He credits the Affordable Care Act (ACA) with being a catalyst of “great administrative opportunities for TPAs.” One such example is the creation of accountable care organizations or ACOs, which he calls a byproduct of cost-saving strategies under Medicare.

Chip Sernyak, the northeast regional president at CoreSource, is also bullish about continued growth in the TPA space. “We are seeing an increased interest in self-funding as a result of the Affordable Care Act, particularly in the smaller end of the spectrum where we normally work,” he says. Beyond that, he points to new opportunities involving back-room processing for other carriers and health insurance exchanges, as well as a possible role in the shifting government-sector market of sponsored health care.

CoreSource has been growing at a rate of 8% to15% over the past four years, Sernyak reports. He attributes the steady growth to a combination of contraction in the TPA marketplace and care-management investments made in solutions to reducing an employer’s health care spend.

Tremendous growth opportunities include newer provider reimbursement methodologies, population health management and consultative service offerings, adds Ron Dewsnup, president and general manager of Allegiance Benefit Plan Management, which is owned by Cigna.

“The key is being able to provide flexibility and service – the hallmarks

of a good TPA – with the capabilities of data analytics, transparency, and specialized provider networks and contracting,” he explains.

Services clearly are trickling down market at a time when self-insured employers can use as many helping hands as possible. Dave Parker, SVP at Aetna-owned Meritain Health, notes a significant amount of interest during the past two years in self-funding or captives among groups of 25 to 200 employees.

But despite being the beneficiary of ACA growth, the industry’s image may be subject to debate. “There still is a phobia or concern when you mention TPA,” Parker observes. Noting that “it’s been a long time since we’ve seen major TPA indicted or criminal issues occurring,” he believes this fear is largely unfounded but also adds that not all TPAs are created equal.

Competing Business Models

Indeed, industry insiders have been debating for years the merits and pitfalls of hiring insurance carrier-owned TPAs vs. independent TPAs. The former tout their size and scale, as well as provider network ownership and discounts, Rasnick notes. While acknowledging that carriers do negotiate better discounts in some regions of the country, he cautions that they often involve narrow networks that limit patient choice.

Adds Sernyak: There needs to be a firewall between carrier-owned TPAs and their parent company to avoid any perceived conflicts of interest within their service channels. Concern about the ACA’s minimum loss ratio has certainly created a new awareness among carriers about the advantages of being in the ASO business, Rasnick says.

Dewsnup sees a competitive leg up for self-funded clients that have

access to a TPA parent’s provider network, sales connections and financial resources to help create and manage growth as long as the TPA can maintain its value proposition of independence, flexibility and service. “One concern is that insurance companies have a tendency over time to try to recreate the TPA in their image,” he says, the danger being a loss of flexibility and becoming an appendage of the insurance company.

His larger point is it’s important for these TPAs to un-bundle services if that’s what the client wants. “An example that my boss likes to use is the TPA is an airport, and an insurance company is an airline,” he says. “I’m in an industry that has a special value proposition. If we concentrate on what the client wants, then there’s room and there is appropriateness for both models.”

Perhaps no one is more qualified to weigh the differences between these two models than Parker, who spent most of his 25-plus year career working on the independent TPA side and was skeptical of transitioning to the carrier-owed side of the business in June 2011.

“I would have said to you prior to the acquisition that the independent TPA route was the only way to go, and now I would completely tell you the opposite is the case,” he says. Parker lauds Aetna’s corporate culture and significant level of sophistication, as well as access to the carrier’s expansive provider network and discounts.

But perhaps of equal or greater importance is Aetna’s insistence on maintaining the flexibility and pricing from Meritain’s independent years. “We have flexibility, which not all ASO carriers offer,” he says, calling the arrangement the best of both worlds. “We will allow an unbundled service, whereas not every carrier will allow

that to occur.”

8 December 2014 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.

Noting independent TPA involvement in population health management, Rasnick says they’re perfectly positioned to provide an administrative mechanism for helping reward physicians and hospitals based on health outcomes rather than a traditional fee-for-service basis.

He says another issue to consider is that they work more closely with providers as part of a changing business model through which they have more of a vested interest in keeping patients healthy. Indie TPAs have a better understanding of “how to spend other people’s money, whereas carriers have a difficult time in an ASO environment realizing that they’re not spending their own money,” Rasnick explains.

When competing with carrier-owned TPAs, CoreSource emphasizes increased levels of flexibility in giving options to client, including working with multiple tier-one carrier network partners such as Aetna and Cigna that provide a greater level of credibility. If one component of the administration isn’t working (i.e., risk management, stop loss or network), the TPA has an ability to switch it out independently.

Another point Sernyak raises is that carrier-owned TPAs often focus on expanding network membership at the expense of other factors, particularly as they are trying to develop their value for Wall Street. As a mutual-owned company, CoreSource doesn’t need to concern itself with shareholder value. “Our business is solely the service to our clients,” he says.

A Consultative RoleThe TPA marketplace is changing rapidly, with the secret to success no longer

measured by how quickly and accurately health care claims are paid. Today’s

climate is “much more complicated” and requires key differentiators that often involve a more consultative approach that stresses employee wellness, Rasnick says.

“That’s where the role between the consultant and TPA begins to turn a little bit grey as opposed to black and white,” he says. “We want to see that every participant receives the right treatment at the right time from the right physician who’s doing the right thing. And without all four of those legs on that chair, it’s going to fall over.”

In short, Rasnick says the aim is to identify care gaps and keep patients healthier, which, in turn, reduces an employer’s costs and increases satisfaction. He believes independent are better positioned than carrier-based ASO programs to accomplish these objectives because they’re historically more focused on population health.

A key component is if broker and consultant partners provide the right information and resources to fully implement winning strategies on behalf of their clients, Sernyak says. “The more that we have been able to invest to be able to help their strategies be effective has been a differentiator between us and a market that has commoditized,” he explains.

One example is the 2010 acquisition of HealthFitness Corporation, one of the nation’s largest health and wellness companies, by CoreSource’s parent company, Trustmark Mutual Holding Company. The move has since targeted mid-market employers.

Most of AmeriBen’s opportunities come through fairly sophisticated broker consulting channels that respect TPAs taking a more collaborative approach over the past five years, though the focus is on customer

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service rather than a consultative role, according to Jon Aubrey, the TPA’s EVP. The firm also tends to work with networks that most TPAs eschew or offer on a limited basis and isn’t beholden to a particular provider network, “so we’ve been able to carve out some unique network relationships because of the size of client that we work with,” he reports.

Since TPAs enjoy extraordinary access to health plan data and a keen understanding of how to use that information, Dewsnup believes many forward-thinking consultants and advisers are partnering with TPAs to present the information and analytics to their employer clients. “In a couple of cases,” he says, “we’re actually combining our reports into a single package, and then presenting them jointly to the client in the meeting.”

Other Measures of Success

Whether providing consultations or focusing on administration, TPAs are under increasing pressure to deliver results. Checking client references are an “extremely important” metric for self-insured employers when shopping for a TPA or deciding to switch carriers, according to Rasnick – particularly former customers in a climate where business is turning over all the time. “You’re going to get the most accurate service opinions from people who have terminated who no longer have a vested interest in staying,” he says.

It’s also critical to “partner with an agent who really understands self-funding,” Rasnick suggests. He says key issues that arise include ensuring that stop-loss contracts pass muster from both a financial and risk-tolerance perspective.

Sernyak believes an ability to honor client promises or commitment is the

secret to continued growth in the TPA market. In his role as a regional officer, he’s able to avoid the “much taller vertical to work through” and higher levels of authority and approval needed among carrier-owned TPAs when fulfilling client commitments. And as a result, he’s better able to tap into a full tool box of key resources to help control an employer’s health care spend and implement strategies over a period of time.

It’s also worth paying close attention to roads less traveled. Unlike a number of TPAs, for example, Meritain has avoided reference based pricing or Medicare-like rates primarily because of concerns about provider balanced billing, challenges to membership and lack of client interest in these strategies.

One area shunned thus far by Aubrey’s larger clientele (whose average group size is about 1,700 employees) is a defined contribution under private health insurance exchanges, which he describes as “a glorified self-service online enrollment tool.”

And while some TPAs emphasize growth through acquisitions, AmeriBen’s model favors organic or controlled growth. “We end up declining as many RFPs as we quote on just because we’ve made commitments to our customers that we won’t grow so much that we’ll negatively impact existing clients,” Aubrey explains. “A lot of employers are fearful of the TPA acquisition because it means changing claims platform and usually a degradation in service.” n

Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefi ts industry for more than 25 years.