What is a Third-Party Payor (TPP), and How Does it Work?

The world of insurance and employee benefits can be very confusing, especially when you’re trying to understand how it all works behind the scenes.  Because it’s so confusing, many companies are now buying their employee benefits through third-party administrators (TPAs) or third-party payors (TPPs) - we're a TPP.

In this blog, we’ll explain what a third-party payor is, how it compares to other methods of insurance providers, and why they can be a good option for companies that aren’t experts in employee benefits.

What's the Difference Between a TPA vs. a TPP?

While researching different employee benefits plans and providers, you may have come across the term Third-Party Administrator (TPA); which is more commonplace than a Third-Party Payor (TPP). They both have a lot of similarities, but there is one key difference.

• TPPs adjudicate AND pay claims so employees and dependents have only one company to submit health and dental claims, get reimbursed, and customer support. 
• TPAs do not adjudicate and pay claims and typically leave that duty up to the insurance carrier they are buying the insurance from. 

While it may not seem like a significant difference, from an employee's perspective, the process of submitting claims and being reimbursed is less efficient with a TPA and can take longer (for some employees, waiting numerous days or weeks to get reimbursed can impact budget).

Since TPPs receive, adjudicate and pay claims all within one company and platform, if/when there are any claims problems, TPPs can respond and resolve issues faster making the overall user experience more efficient. 

What exactly is a Third-Party Payor (TPP)? 

• A third-party payor is a company (like Simply Benefits) that provides employee benefits management, operational services/processing AND handles claims administration, settlement, adjudication, and reimbursement (which is the the main difference from a TPA).
• TPP's are less common than TPAs because TPPs require more resources dedicated to claims adjudication.
• The key distinction of a TPP from an insurance company is that they don’t hold any insurance risk. TPPs buy the insurance from larger insurance companies called underwriters that provide the coverage to clients.
• Simply works with multiple insurers to underwrite the benefits coverage provided which provides more benefits options and competitive pricing. 

Why Work with a TPP vs Direct with an Insurer?

TPPs were created to fill the gap in the insurance world. When an increasing number of employers started offering complex plans that contained different classes and divisions, they needed more administrative support and resources to manage the growing complexity. TPPs were born to help employers with benefit plan administration.

As mentioned earlier, the main difference between TPPs and traditional insurers is that insurers hold all the risk and TPPs don’t hold any risk but offer administrative services and payout claims only.

Most TPPs work with multiple underwriters to find employers the best price with oftentimes better coverage than if an employer works with one insurer for all benefits. 

How Does It Work with a TPP?

Here’s an example of a typical 5-step scenario working with Simply Benefits:

1. Plan Design - The benefits advisor works with their employer client to discover their needs and then design their employee benefits plan. Then, the Advisor provides the plan design to Simply Benefits (and likely other insurers) to quote. With Simply Benefits, online and offline plan design options are possible.
2. Quoting - Simply Benefits then works with our underwriter(s) to finalize the price on the provided plan design and then forwards the pricing proposal to the Advisor. 
3. Proposal Presentation - The Advisor presents the pricing proposal to their employer client and discusses the best options. The Advisor then communicates the employer client's decision to the insurance companies.
4. Onboarding - If the employer chooses Simply Benefits, then their company will be added to our system (or happens automatically if the plan design is completed online). We handle the setup in our platform, assist Administrators and employees with enrollment.
5. Claim Submission - Once the set-up is complete (oftentimes within days with Simply Benefits), Employees (and their dependents) submit their health and dental claims digitally to us via their desktop computer or our app (Apple and Google Play). Simply Benefits then adjudicates their claims and reimburses typically within 48 hours. The process is so easy for the members!

Advantages of a TPP

There are many advantages, but here are some of the most significant ones that will make the lives of employers and employees easier: 

• Administrative Duties are Looked after - One of the main benefits of using a TPP is that administrative duties are managed by the TPP. The employer won‘t have to worry about paying claims or looking after insurance details. For many businesses, this makes sense because they don’t have the time or resources to take care of all the claim details. This not only saves time but also saves money because employers won’t have to pay someone for these administrative duties. 

Since TPPs are usually smaller than big insurance companies, they can also provide employer plan admins with reports and documentation that is typically not sent through an insurer (e.g. taxable benefits report). These resources can greatly help employers with internal banking and accounting tasks. 

• Easy to use Digital Platform and Customer Service - TPPs typically have technology that streamlines the process. For example, Simply Benefits provides flexibility and all necessary administration in an easy-to-use platform. Additionally, since TPPs are usually much smaller than their insurance counterpart, they are able to provide more personalized service and offer support systems to help with fast and efficient onboarding and enrollment. 

• Best Price and Plan - Because TPPs shop around for different underwriters, you can be sure that you get a comprehensive benefits program that is unique to each organization - at the right price. Traditional insurers typically offer set plan designs with limited flexibility to tailor a plan to an employer's unique organization. Working with a TPP/TPA, and a knowledgeable benefits advisor, helps employers provide a plan to employees that is tailored and works within a company's budget. The combination of a TPPs good pricing and flexible plan designs provides an excellent advantage vs. directly through an insurance provider. 

• One-Stop-Shop - TPPs look and act like an insurer but, from the employee's perspective, they just have one provider to contact which makes it easy for employees to get support. With TPAs, extended health and dental claims are adjudicated and paid by another insurer which can be confusing for the employee (who should I call?). But with a TPP, the employer's benefits plan could have multiple insurers underwriting some/all of their benefits but the employee doesn't need to worry about that. The TPP is the primary point of contact.

Advisors Essential Part of Process

A core part of Simply Benefits’ solution is that we partner with employee benefits advisors as opposed to doing direct businesses with companies. This makes us different compared to other TPAs/TPPs that remove advisors from the process. We even refer leads to our advisor partners.

We understand that advisors bring a lot of value to the employee benefits business because they are highly skilled and knowledgeable. This means that companies will get a more personalized experience working with an advisor and won’t have to worry about having to settle for a cookie-cutter plan that doesn’t fit with your organization. 

Watch our CEO Jeff Cox speak to the value of advisors:

How Do Advisors Fit into the Process?

A Benefits Advisor (aka Consultant or Broker) helps employers navigate the complexities of benefits and design to deliver a plan that attracts and retains top talent.

Advisors educate employers on plan design and funding options for each unique business and provides valuable knowledge about effective taxation for both employers and employees, how to avoid skyrocketing premiums, how to minimize potential liabilities and negotiate with insurers to find the right carrier at the price price.

After you’ve purchased your employee benefits, advisors provide ongoing support and at plan renewal each year. Read How Simply Benefits is Putting Advisors First.

If you're an employer interested in buying employee benefits and don't have an Advisor or are looking for a change, contact us and we'll facilitate an introduction to one of our Advisor partners.

Final Thoughts

Purchasing employee benefits through a TPP will ensure that you’ll be in good hands and won’t have to worry about the nitty-gritty details. Employees like that they have one company to call and employers like the reduced administration. Hopefully, this blog taught you something about the behind the scenes of the employee benefits world and gave you insight into how Simply Benefits works. 

Other Helpful Resources

You may also like:

• How Employee Group Life Insurance Works
• How to Effectively Communicate Your Employee Benefits Plan
• How Employee Benefits Work When a Plan Starts or Transfers Mid-Year

About Simply Benefits

Simply Benefits is a Third Party Payor (TPP) that provides Employee Health Benefits 100% digitally through our Canadian Advisor partners. Our all-in-one digital solution provides three portals that enable Benefits Advisors to digitally manage all client plans online, Employers to efficiently administer employee coverage, and Employees to view, update and use their benefits 24/7 via desktop or smartphone app.

We help ENGAGE Employees Anytime, Anywhere, SIMPLIFY the Benefits Experience and EVOLVE an Advisors’ Benefits Business.

Connect with us at simplybenefits.ca or on LinkedIn, Twitter, Facebook, Instagram and YouTube.

Employee Benefits Made Simple.