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What Is a Third-Party Administrator? And Should I Have One?

Third Party AdministratorThird Party Administrator
min read
August 21, 2023

As a business owner, there are certain tasks that you’re more than willing to handle yourself. 

But, when it comes to things like managing your employees’ retirement plans or dealing with insurance claims? Well, those are responsibilities you’d rather get off your plate and delegate to somebody else. 

That’s where a third-party administrator comes in. 

What Is a Third-Party Administrator (TPA)?

A third-party administrator is a business that works under contract to provide administrative services on behalf of another company. They can range in size from small businesses to large companies.

Third-party administrators will often handle things like claims administration and claims processing, risk management, retirement plan administration, 401ks, or everyday human resources department problems. However, they’re most frequently responsible for handling medical and insurance claims while remaining in compliance with federal regulations.

Since they act as a third-party between companies and customers, they are known as third-party administrators. However, you might also hear them referred to as an “administrative services only” (ASO) entity.

What Do Third-Party Administrators Do?

Third-party administrators can help with many mundane administrative functions, like claims administration, employee benefits management, and other daily administrative operations. 

TPAs most frequently work in the area of insurance claims, acting as claims adjusters on behalf of commercial insurance companies and overseeing the claims process from beginning to end, typically in conjunction with the insurance company’s staff. 

A small third-party administrator may only provide services for one type of insurance, like workers’ compensation insurance. These TPAs could handle auditing workers’ compensation policies and minimizing risk through loss prevention.

Working with a TPA in the insurance industry can help companies expedite claims, evaluate data and analytics, and provide risk management. TPAs may handle general liability claims or take a look at professional liabilities. 

While TPAs most commonly focus on insurance and claim processing, they offer other services as well. For example, an investment company may hire a third-party administrator to handle employee benefit plans or to create a plan to recruit skilled workers and encourage the retention of important employees

Needless to say, there are quite a few services, and the types of programs outsourced to third-party administrators have grown. In fact, 80 percent of large companies fully or partially outsource some of the more complex aspects of employee benefits, including 401ks, COBRA, and flexible spending account administration.

To put this simply, third-party administrators can handle many types of work, including the following:

Administrative Work



What Are The Benefits of a Third-Party Administrator (TPA)?

Companies can pick and choose what tasks are outsourced to a third-party administrator, and how many tasks are delegated will depend on what the company can afford. Start-ups and small companies often choose to keep their own services in-house, but midsize or large companies may benefit from handing off specific responsibilities to a third-party administrator. 

For instance, if your company is self-insuring a healthcare plan, all of the administration tasks for that health insurance become your responsibility as the employer. The regulations of managing a self-funded healthcare plan can be overwhelming and cause a lot of headaches. 

For that reason, working with an outside expert is often a better choice, as it offers the following advantages: 

What To Look For When Hiring a TPA

Before signing a contract with a third-party administrator, you should know exactly what services the TPA offers to ensure it’s a match for what you’re looking for. But what other things should you consider? Here’s a quick list of criteria to keep in mind: 

Considering all of these different elements will help you find the third-party administrator that’s the best fit for your business. 

Do You Have to Have A Third-Party Administrator?

Working with a third-party administrator is by no means required. However, outsourcing some of your administrative work can help you achieve your goals for your business by placing some of these important and oftentimes complex tasks in the hands of experts.

Business owners have enough to worry about and working with a TPA can provide much-needed peace of mind—plus extra time to grow and run your business.

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