The “Mantra” helping TPAs to thrive even during the pandemic

Third-Party Administrators are playing a pivotal role during times of economic stress by helping employers, companies, and households manage health & retirement plans as a cushion against losses.

However, they have been exposed to many practical & regulatory challenges set out by Covid-19 in this highly competitive industry where the Top 10 TPAs in the U.S command only 3-5% of a $271 billion market with 135,061 number of businesses. Several challenges such as changing workforce requirements, excessive claims workload, shrinking revenues, high administration costs etc have the capability to be managed by offshore virtual teams. These virtual teams can help TPAs navigate Covid implications smoothly, as these outsourcing providers have the expertise in working remotely for their clients, hence taking charge in such situation would be no different for them.

Many TPAs are already keeping pace with the challenging implications by leveraging outsourcing solutions. These innovative outsourcing solutions has helped TPAs to improve margins, drive differentiation, address operational challenges, optimization of existing resources, and ensure client retention. In the longer term, virtual offshoring solutions can help TPAs adjust to changing risks and move up the value chain to manage critical tasks.

Going forward, those TPAs who have partnered with well-established offshore virtual providers like SandMartin may not only deliver a more progressive value proposition to clients but also secure the relevance of the overall industry, especially considering the current environment.

When comparing administrative costs to other countries, the United States spends five times more per capita on average than other wealthy countries. Therefore, associating with outsourcing providers in countries like India, can save huge on their administrative costs as well.

Here are some of the key drivers why TPAs should consider outsourcing in this crunch time and make headway to the ‘Leading Position’:

  • Compliance testing for 401K plans

During Compliance Testing, a lot of census data has to be handled by companies sponsoring 401k employees. Plan service providers have to make sure all resources in the census are eligible for the 401k process and the data is compliant with the rules and regulations defined by the US government and IRS. Just like Form 5500 filing process, Compliance Testing is also a seasonal activity. It adds to the workload of TPAs, who have a limited set of administrators handling their core operations. They also cannot afford to hire extra hands especially during this time of financial crunch. Therefore associating with the right outsourcing partner like SandMartin can help you get a virtual support team of qualified professionals at fraction of their costs with hands on experience of relevant software & skills.

  • Claims Workload

Covid-19 has resulted in drastic upheaval of the number of health claims being processed by third party administrators. Processing excess claims workload with reduced & remote working staff have been an onerous task. For example, by early May 2020, one large third-party claims administrator had already received 275,000 COVID-19-related claims worldwide and anticipated that number to reach 400,000 in the coming months. Meanwhile, it is estimated that general insurance losses from the pandemic may total up to USD 80 billion. Therefore, TPAs should consider outsourcing their workload of claims processing to an offshore team which will minimize the work pressure while providing better value proposition to their clients.

  • Workforce Crisis

Third Party Administrators in US are grappling with the workforce crisis in terms of reduction in staff, staff working remotely or being laid off temporarily because of covid-19. To address the uncertain and changing workforce requirements, many TPAs are partnering with established outsourcing firms to gain a virtual support team without taking the load of hiring & retaining staff in these uncertain times.

  • Revenue slowdown

According to a survey, TPAs have encountered a significant drop in y-o-y revenue growth, falling from 20% for 2017-2018 to 5-10% for 2018-2019 and this percentage has only increased in 2020 due to the impact of the COVID-19 crisis.  Outsourcing, on the other side, can help TPAs save up to 50% of their actual costs. It is critical for TPA firms to give the foremost priority to business continuity & liquidity functions of their businesses and saving upto 50% can bring a huge difference in enhancing the financial position their firms.

Many forward-thinking, adaptable TPAs that are equipped with an outsourced benefits administration work will find themselves in a better financial position in a unique short-term landscape with reduced competition.

  • Competitive market

One of the key challenge TPAs are facing is to differentiate themselves from industry competition. Currently, the Top 10 TPAs in the U.S command only 3-5% of a $271 billion market with 135,061 number of businesses, and some of the largest TPAs functioning on single-digit operating margins. To keep pace with the increased competition, they need to consider innovative strategic decisions like offshoring and position themselves for success amidst recessionary pressures because of the greater value they would be able to provide for their clients.

How to Get Started

SandMartin has over 20 years of experience in assisting several small to large-sized US TPA firms to thrive and reach their maximum potential. To get started, contact our cafeteria and retirement plan administration outsourcing experts at info@sandmartin.com and get an intro call scheduled.

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