What's the Size of the Market TPAs Serve? 91% of Employers?
Some thoughts from SPBA President Fred Hunt - March 2003
SPBA is always quick to say that every number or statistic about benefits, costs, providers, discounts, insurance, etc. has a 1,000% built-in distortion factor because of vast differences in understanding and intent of vocabulary. Please repeat that reality-check mantra whenever thinking about statistics.
SPBA is often asked, "How large is the TPA market?" By constant cross-comparison of various sources of information and outside study reports, SPBA's answer is: "An estimated 66% of employees in non-federal employee benefit plans are in arrangements that are clients of some kind of TPA for some degree of service. Since there is no official definition of "TPA" or what extend of services constitutes "administered" by a TPA, SPBA attempts to be very honest by emphasizing "some" in two places of the estimate. Essentially, we view "TPA" and benefit plan "outsourcing" as synonymous functions
People often gasp that 66% seems too high. Well, it may be too low! In a 2003 Fidelity Employer Services study of the number of companies using benefits outsourcing, 30% say that their health plan is "fully" outsourced + an additional 61% say their health plan is "partially" outsourced. 9% said not sure/none.
Thus, this independent 2003 study says that 91% of companies with employee benefit plans use some kind of TPA outsourcing for some degree of service (30%+61).
The Fidelity Employer Services sounds like it did a careful job with vocabulary. If all 91% had said their health plan administration was "fully" outsourced to a TPA, I would worry. Why? SPBA-Member TPAs are famous for being very precise about the plan's ERISA fiduciary duties and other responsibilities. So, SPBA Member TPAs tend to frequently remind their clients by word or deed, "This remains your (client's) plan, and we are going to be working on this together when new laws, rules or decisions arise." So, I like to think that most of the 61% who said "partially" outsourced, and thus in a teamwork with the TPA, are the savvy clients of SPBA-Member TPAs who know that there is no such thing as legally "fully" outsourcing your ERISA employee benefit duties. The 61% also fits well with SPBA's estimate that about 52-55% of the covered non-Federal employees are in plans administered by TPA firms that are members of SPBA.
These new numbers, which count employers, show that the TPA market continues to grow strongly. Before, the covered-employee measure of the TPA market was boosted because so many large collectively-bargained plans use TPAs. However, the new study of employers, reflects that more small & medium size employers are using TPAs. SPBA has recognized this growth trend for a long time from internal feedback, but now, independent numbers document it. So, for broad-brush estimates, it now seems safer to interchange statistics about the percent of employees and the percent of employers.
In the pension arena: >>53% of employers with Defined Contribution (DC) plans say that their benefits functions are "fully" outsourced, and 33% say "partially", and 14% say "not sure or none at all".
>>In Defined Benefit (DB) pension plans, 22% say "fully" outsourced, 39% say "partially", and 39% say not sure or not at all. Note: Only about 25% of SPBA member firms are active in offering pension TPA services. While those SPBA firms tend to serve very large Multi-employer collectively-bargained plans, it is likely that the biggest providers of pension out-source/TPA functions reflected in the new study are insurers, banks, investment entities, and others who provide administration services because of their interest in the money-management function. SPBA-Member TPAs who do pensions have traditionally remained arms-length from investment services as part of their very careful caution about anything that might in any way seem like a risk of fiduciary breach by the plan.