Insurance Regulatory Development Authority of India (IRDAI) approves certain intermediary organisations which liaise between the insured and the insurer for faster and hassle-free settlement of claims. These licensed intermediary organisations/agencies/companies are called Third Party Administrators or TPA, who provide assistance for claims of health insurance and also sort out other issues on the insurer’s behalf. TPAs were introduced by the IRDAI in 2001.
Functions of Third Party Administrators
- The main function of TPAs is to act as a bridge between the insurer and the policyholder and to process the settlements and claims.
- ID cards are issued by the outsourced agencies or TPAs for the policyholders to avail any cashless benefits at the hospitals
- When the policyholder informs the TPA about a claim, he is directed to a hospital that has a tie-up with the TPA. The policyholder is free to pick a hospital of his choice, but in that case, his claim will be settled as reimbursement and he will not be entitled to a cashless health insurance benefit.
- An authorisation letter is issued to the hospital by the TPA, as a result of which, the case is tracked by the hospital and the bills are directly sent to the TPA on being discharged by the hospital.
- All the necessary documents for claims to be considered, together with all the bills are sent to the insurer by the TPA.
Why are Third Party Administrators Important to Insurance Companies?
Settling of Health Insurance claims without any complication is the main reason why Third Party Administrators are given importance by the insurance companies. The other reasons why TPAs are important to the insurance companies are:
- TPAs function as a licensed organisation to ensure faster and seamless settlement of claims. This includes:
- Intimations are being accepted from the customers regarding the claims.
- Cashless claims approvals being expedited.
- Claims disbursal facilitated.
- TPAs also act as coordinators of the full process of getting hospitalised to getting discharged from the hospital without any hassle for the policyholder.
- They also ensure proper investigation and management of the case in a foolproof manner.
- Network providers, Collection of Premium, enrolment of the customer is also taken care of by the TPAs on behalf of the insurance companies.
- Some value-added services like Consultation of the specialist, availability of beds, ambulance services, toll–free helplines for 24 hours, health facilities, supplies of medicines, programmes for well-being, lifestyle management, etc are also managed by the Third-Party Administrators.
- Maintenance of databases also happens to be one of the major functions of the TPAs.
Areas of Improvement for Third-party Administrators
TPAs can incorporate some changes in their basic functioning as per the industry requirements. They are:
- Improve the standard of procedures and due diligence
- Increased standard of service delivery
- A new system of management
- Cost or expenditure to be minimised
- Increase of knowledge based on Health care services
- More inclusions/ coverage of Health Insurance
- Effectively move forward towards lower health insurance premiums
- Protocols to be developed for streamlining of investigations and to avoid unwarranted delays
The true worth and efficiency of Third-party Administrators are yet to be analysed in totality as the gap between the ground reality and the aims of TPAs is still quite evident.
Model of Revenue Generation for Third-party Administrators
The extent of success of the TPAs depends on the Revenue Generation model. Fees or commission on Premium, which is standardised by the IRDAI constitutes the major chunk of revenue for the TPAs. Claim administration, data management, medical management, benefits management and provider network management constitute the other sources of revenue generation for TPAs.
Challenges of the Third-party Administrators
The Third-party Administrators lack adequate information as they are not the Health Insurance providers, themselves. There is an asymmetry of information about TPAs.
The customers, at times, are disillusioned by the TPAs and the agents and are most often not able to make out the difference. There is a lack of knowledge about the scope and possibilities of the services that the TPAs would provide among policyholders.
The basic challenges of a TPA are:
- TPAs being the outsourced intermediaries, lack much say in the claim settlement process
- Weak networking is a challenge of the TPAs
- Strong standardisation in terms of billing is missing in TPAs
- Hospitals do not report the actual figures. There is gross under-reporting
- A strong nexus between insurance companies and corporate hospitals exists. This implies that there is a high claim ratio for corporate insurance as against the low claim ratio for individual insurance
- No specific guidelines are set by the IRDA for the effective appraisal of TPAs. Thus, the performance of the TPAs is judged by IRDA based on the financial performance of the TPAs and not by the quality of service provided by them
- Substantial evidence is not available with the hospitals to prove that their patient turnover is increased by the TPAs
- Adequate knowledge about the empanelled hospitals and cashless services is lacking among policyholders
- Lack of proper in house infrastructure for the TPAs
- In spite of choosing the services through a TPA in order to get a fast and smooth settlement of claims, there is an inadvertent delay in the processing of claims on the part of the TPA
- Additional charges are reported by many hospitals in coordination with the TPAs on account of providing better service quality for them
The TPAs exist only to expedite the claims and work as a liaison between the insurer and the insured. However, these challenges faced by the TPA on a regular basis makes smooth operation difficult for them.
Functional Third Party Administrators in India
The most common TPAs in India are:
- Family Health Plan TPA Ltd.
- Medi Assist India TPA Pvt. Ltd.
- Heritage Health TPA Pvt. Ltd.
- United Healthcare Parekh TPA Pvt. Ltd.
- Raksha TPA Pvt. Ltd.
- E Meditek TPA Services Ltd.
- Ericson TPA Healthcare Pvt. Ltd.
- Vidal Health TPA Pvt. Ltd.
- Vipul Med Corp TPA Pvt. Ltd.
- Dedicated Healthcare Services TPA (India) Pvt. Ltd.
The new-age companies, especially the Stand Alone Health Insurance or SAHI companies do not have a Third Party Administrator or a TPA for their claims and servicing. They manage the entire operation in-house and do not outsource it to a TPA. Traditionally only the public sector companies needed a TPA but quite a few private-sector health insurance companies also use the expertise of the TPA agencies to expedite their work, especially if their claim volumes are high. TPAs act as a strong support system for the insurance companies as they happen to handle major responsibilities on behalf of the insurers and are an integral part of the health insurance industry.