The task of selecting a claim processor for a self-funded health care plan has gone from an art, to a science, to a game in the approximately 35 years since self-funding's first experiments in the early 1960s.

By reviewing three documents that every good third party administrator (TPA) should have, science can be put back into the process. This should remove much of the guesswork, create a more objective evaluation and deliver a more intelligent selection.

These documents are:

• Audited financial statements;
• Claim audit report;
• SAS-70 report on internal controls.

Before discussing the use of these documents, it is appropriate to take a brief look back to the early days of TPA selection, and gain an understanding of how the present system evolved.

THE ARTFUL SELECTION

In the 1960s and early 1970s, self funding was in its infancy. In those days, most experts believed that it took a minimum of 1,000 participants to make a self-funded plan viable. Insurance companies, always eager to find wisdom, repeated this message as a mantra while the pioneers in the self-funding industry went about the task of stealing their clients.

There were only a handful of TPAs back then, and industry standards had not been developed. Benefit consultants didn't know much about self-funding 25 years ago (a condition that hasn't improved much over the years), and they frequently made Recommendations based on low cost or total dollars of savings, after a review of proposal data received.

TPA SELECTION AS A SCIENCE

By the middle 1970s, self-funding had been generally accepted as a viable alternative for health care plans. The state of Missouri had failed to win its lawsuit to declare them illegal, and the "common wisdom" boys had lowered their minimum to about 5OO participants.

The 1970s was also the dawning of the age of the spreadsheet, This was clearly an improvement over any previous method of evaluating proposals. There were even a few consultants who were assigning points to answers in an attempt to increase the scientific nature of the evaluation process. (Clearly, these consultants

had earned an MBA and wanted to apply their knowledge. It wasn't until the late 1970s, however, that the combination of spreadsheets, acronyms, and buzzwords would elevate benefit consulting to its zenith.)

The scientific method also tended to result in the selection of the TPA with the lowest cost, because price typically was assigned a lot more points than things like financial stability, claim payment accuracy and system controls.

PROPOSAL RESPONSES AS

A GAME By about 1985, self-funding had become the method of choice for health care plans covering 200 or more participants, Through the use of high deductible policies, self-funding even began to be used by companies with less than 25 employees.

Consultants had begun to read the answers to their questionnaires and Request For Proposal (RFP} material. Some even began to perceive a difference between TPAs based on factors other than price.

This caused a remarkable evolution in the process of responding to RFP questionnaires. TPAs began to develop a data bank of questionnaire responses. 

Through the process of feedback from consultants, plus trial and error, many TPAs developed stock answers designed to impress the consultant/reader even if the answer didn't exactly match the question. Because the stock responses were prepared before the question had been asked, the need for accuracy and truthfulness was frequently overlooked. For example, in answering a question regarding claim 
processing time, one TPA responded that claims were paid within two working days. While this sounded great, the facts were that it took nearly three weeks to process a claim, but only two days to actually write the check and put it in the mail.