Date: November 2007
To: Clients of SPBA Members, Brokers & Friends
From: Fred Hunt – SPBA President
If you are seeing this, you probably deserve the congratulations at the end. I was recently asked about reports of a decline in health administrative costs. It is the opposite of the constant evidence I see. However, I think the opposite findings are each "right", and I think you need to be aware.
I always warn that every number or statistic relating to insurance, benefits, health, TPAs, etc. etc. has a 1,000% built-in distortion factor. It is not that anyone is lying. It is simply that even the most basic vocabulary terms have vastly different meanings in usage. In this case, what is the definition of "administration" of a health benefit plan?? Yes, for a very simplistic definition of "administration", the cost can be pushed down. There are computer firms who zoom through data and call that "administration". There are off-shore entities willing to do what they call "mundane duties of administration" for a fraction of the cost of US workers. So, yes, in a very na•ve definition, health "administration" can be said to have gone down.
HOWEVER, SPBA's TPA firms take a much more comprehensive definition of "administration". To us, "administration" begins with helping or reviewing plan design factors, employee/employer cost-sharing formulas & funding structure, and, of course, the gigantic ongoing government compliance with the ever-growing alphabet of applicable laws, regulations, rulings & interpretations (counted in the thousands).
I often ask cut-rate entities what is the primary goal of the firm's service. Their answer is "cut costs" (as judged on a short-term basis Éignoring later legal problems). On the other hand, SPBA TPAs take a very long-range view, since TPAs often serve a client for many years. So, SPBA TPAs mention things like being sure that the employer and the workers have the best-fitting plan, and keeping the client from inadvertently going to jail or fined for some unknowing oversight. In other words, highly personalized service and interaction is at the very heart of what SPBA, as the national association of Third Party Administration firms, defines as "administration".
The pace of government requirements grows and grows, so the costs for both plan administrators and clients need to reflect that government compliance workload. If not, employers should be worried. The SPBA office gets about 200 questions per week from member TPAs to brainstorm on real-world situations, often on government compliance. So, we know that TPA firms often inherit, in new clients, serious problems (sometimes potential jail time for the employer or crippling fines), because the previous entity doing "administration" did only some simplistic version. So, when I am asked about my greatest worry for employee benefits, my answer is that I fear that plans or brokers will choose the cheap route, which will create horror stories when the legal ramifications catch up, and then Congress or public opinion will demand "reform", which adds yet more expensive red tape.
SPBA and its members make no claim of giving legal opinions or "legal advice". However, since SPBA has the largest and broadest experience in the benefits community (a national perspective of every size & format of employment & types of plans), SPBA members and the government rule-makers have a unique mutual-help relationship. The government regulators float ideas and share their underlying thinking about issues. Meanwhile, SPBA members get to anonymously raise real-world client situations with the policy makers to both educate the policy-makers, and get advice on what the government would consider proper compliance in such situations. It works, and helps SPBA TPA clients avoid problems in the long run.
So, as I said at the start, if you are reading this, you are probably a client or broker who uses an SPBA TPA, and you know the value. So take a moment to pat yourself on the back.