Merritt Personal Lines Manual: Chapter 2 Third-Party Administrators
A third-party administrator is a firm which provides administrative services for the insured's employer or other associations having group insurance policies. The third-party administrator acts as a liaison between the insurance company and the insured's employer in matters such as certifying eligibility, preparing reports required by the state and processing claims.
The use of third-party administrators became common in the 1990s, as a result of larger employers self-funding health benefits.
Small employers (usually defined as those with fewer than 20 to 25 employees) have been especially hard hit by increases in health care insurance premiums. Because many group plans are experience rated, small employers see an immediate premium increase whenever claims are particularly high. If the average age of the participants is particularly high or if claims experience is high or if there has been even one long or catastrophic illness in a small employer plan, it can have a devastating effect, making health insurance unaffordable for the whole group.
Recent surveys by the Health Insurance Association of America (HIAA) indicate a substantial decline in the number of small firms that are able to offer health coverage to their employees.
Several states have acted to ensure that health insurance coverages are available at a reasonable cost and under reasonable conditions for small employers. Among the new requirements:
- standard benefit plans that must be offered to small employers;
- maximum waiting periods for pre-existing conditions;
- the insurance company may not exclude particular individuals or medical conditions from coverage;
- insurance companies may only cancel small employer plans for nonpayment of premium, fraud, misrepresentation or noncompliance with plan provisions.
