Inside Big Health Insurers' Side Hustle
September 23, 2021
Photo courtesy of Sandy Peters
America’s largest health insurance companies moonlight as obscure middlemen, managing billions in health care spending for many of the country’s biggest employers. What could go wrong?
Listen to the full episode below, read the transcript, or scroll down for more information.
The Basics: Who Are Third-Party Administrators (TPAs)?
Nearly all large U.S. employers that offer workers health insurance do so through what’s known as self-insuring or self-funding, effectively acting as their own health insurer and directly bearing the financial risk of covering employees’ health care. Large employers favor this approach because it can save money, provide more control over benefit design and exempt them from most state insurance regulations.
While these large employers are willing to accept the financial risk of running their own health plans, most have little interest or expertise in the day-to-day work required to administer health plans. So employers outsource those responsibilities, such as processing medical claims and managing provider networks, to intermediaries known as third-party administrators (TPAs).
There are many companies offering these administrative services, but the bulk of big employers rely on just a handful of America’s largest health insurance companies to meet their TPA needs. “The large insurance companies like Aetna, Cigna, UnitedHealthcare … all love to act as a third-party administrator. It’s safer than being in the insurance business,” said Ken Janda, a 40-year insurance industry veteran and an adjunct professor at the University of Houston College of Medicine.
Exact revenue numbers are not publicly available, but Tradeoffs’ own estimates using quarterly 10-Q financial statements and typical industry fees suggest Aetna, Cigna and UnitedHealthcare combined to make more than $20 billion in 2020 on TPA services (also known as “administrative services only” or ASO contracts).
For these big insurers, their TPA contracts cover more lives than any other single type of coverage they offer — including Medicare, Medicaid and traditional commercial insurance plans.
It's Complicated: The Relationship Between Employers and TPAs
Employers can reap several benefits from outsourcing the administration of their health plans to insurance companies. Unlike employers, insurers already have expertise in managing benefits, processing claims and putting together provider networks. However, there are some risks and challenges that come with entrusting billions of dollars and millions of people’s health benefits to outside companies.
While some employers have no qualms with their current TPA arrangements, others have raised concerns. Potential tools for minimizing the risks and challenges of relying so heavily on third-party entities include:
This episode is part of a series on health care prices supported in part by West Health.
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Research and Reporting on Self-Funded Employer Plans and Third-Party Administrators:
Opportunities for State Employee Health Plans to Drive Improvements in Affordability (Sabrina Corlette, Maanasa Kona and Megan Houston; Georgetown Center on Health Insurance Reforms; 6/2021)
Group Health Plans Report (U.S. Department of Labor, 1/2021)
2020 Employer Health Benefits Survey (KFF, 10/8/2020)
What Happens When a Health Plan Has No Limits? An Acupuncturist Earns $677 a Session. (Marshall Allen, ProPublica, 12/19/2019)
We Asked Prosecutors if Health Insurance Companies Care About Fraud. They Laughed at Us. (Marshall Allen, ProPublica, 9/10/2019)
The Big Five Health Insurers’ Membership And Revenue Trends: Implications For Public Policy (Cathy Schoen and Sara R. Collins, Health Affairs, 12/4/2017)
Christin Deacon, JD, Senior Vice President, 4C Health Solutions; former Assistant Director, Division of Pension & Benefits, New Jersey Department of Treasury
Brian Hufford, JD, Partner, Zuckerman Spaeder LLP
Ken Janda, JD, Founder, Wild Blue Health Solutions; Adjunct Professor, University of Houston College of Medicine
Sandy Peters, retiree
The Tradeoffs theme song was composed by Ty Citerman, with additional music this episode by Blue Dot Sessions.
This episode was reported and produced by Leslie Walker, edited by Cate Cahan and mixed by Andrew Parrella.
Additional thanks to:
Marilyn Bartlett, Erin Fuse Brown, Amy Monahan, Suzanne Delbanco, Julianne McGarry, Mark Flores, Julie Stone, Chris Whaley, Jeff Levin-Scherz, Sabrina Corlette, Nell Peyser, Martin Daniel, Daniel Bird, Chris Skisak, Dawn Cornelis, Stephen Carrabba, Paul Wann, the Tradeoffs Advisory Board and our stellar staff!