Third-Party Administrator (TPA)
An firm administering claims, enrollment, and recordkeeping for self-funded and insured plans, licensed and bonded under state law.
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Practice This Concept
A firm that performs administrative services for an insurer — such as processing claims, billing, and enrollment — but is not itself the insurer is called a:
Third-party administrator — A third-party administrator (TPA) is an organization that administers insurance business for an insurer or self-funded plan — handling functions such as premium billing, enrollment, claim processing, and recordkeeping — while the insurer retains the insurance risk and the policy obligations to the insured. The TPA is a "third party" because it is separate from both the insurer and the insured and acts under a contract with the insurer or plan sponsor. TPAs are regulated in California because they exercise significant authority over policyholder funds and claims handling, and the definition and duties of TPAs are set out in the Insurance Code.
National insurance concept
Which statement correctly distinguishes a fully insured group health plan from a self-insured (self-funded) plan?
In a fully insured plan the insurer assumes the risk of claims, while in a self-insured plan the employer assumes that risk and may purchase stop-loss coverage — In a fully insured group plan, the employer pays premiums to a licensed insurer, and the insurer assumes the risk of paying claims. In a self-insured (self-funded) plan, the employer assumes the claims risk directly and commonly buys stop-loss insurance to cap catastrophic exposure, often hiring a third-party administrator to run the plan. Because the employer bears the risk, self-funded plans are generally governed by ERISA rather than by state insurance regulation. This risk-bearing difference is the central distinction between the two funding arrangements.
National insurance concept
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