Health Affairs: TPAs (Third Party Administrators) Are a Hidden Driver of Health Care Costs

Every dollar lost to TPA business schemes is a dollar that could have gone toward employee wages, better benefits, or simply making health care more affordable for those who need it most.

Most Americans with job-based health coverage are in “self-funded” plans, but here’s the catch: employers usually hire outside firms called third-party administrators (TPAs) to run those plans. And while these TPAs present themselves as neutral claims processors, a new Health Affairs article, authored by Karen Handorf, Christine H. Monahan and Kennah Watts, reveals something different.

These companies—often owned by the same giants that dominate the health insurance industry—are quietly pocketing massive profits, steering patients to higher-cost services, and obstructing transparency. And because they operate behind the scenes, few employers or employees fully understand how much control TPAs have over health care spending—or how little oversight they face.

TPAs: Spread Pricing, Hidden Fees, and Conflicts of Interest

Often, TPAs are companies owned by large insurers like UnitedHealth and Cigna that manage health plans on behalf of employers. As I noted above, Americans with job-based health insurance are in “self-funded” plans. That means their employers are actually their insurers. The employers typically cover the lion’s share of the premiums and contract with TPAs to manage their employees’ health care benefits. But those TPAs, the article shows, are doing a lot more than processing claims — they’re quietly driving up costs and making it nearly impossible for employers to track how their money is being spent.

Litigation and recent investigations allege that TPAs are imposing hidden fees, engaging in spread pricing on medical claims, and writing contracts that keep employers in the dark. They often control bank accounts holding employer funds, pay claims based on undisclosed rates, and even steer patients to affiliated providers they own — then sometimes charge more for that care.

Nefarious “Negotiated” Rates

Thanks to recent transparency rules, employers are now seeing something alarming: TPAs don’t always pay providers the “negotiated” rates they claim to offer. In fact, they sometimes pay more than what a provider billed. Why? Because TPAs may promise hospitals minimum annual payments and then tap employers' money to make good on those promises. All under the false promise that they’re saving employers money.

Employers Are Losing Control—and Employees and Health Care Providers Are Getting Fleeced

Employers are legally responsible under a 1974 federal law called the Employee Retirement Income Security Act (ERISA) for overseeing their health plans, but TPAs often withhold the very data and contract terms employers need to fulfill those duties.

When it comes to out-of-network claims, employers and workers are now at the mercy of vague “repricing” programs. These schemes can allow TPAs and their partners to pocket up to 50% of the so-called “savings”—even if the provider ends up being grossly underpaid and bills the patient for the balance.

An Important Reminder

For too long, third-party administrators have operated in the shadows—extracting profits while claiming to serve employers and their workers. But as this Health Affairs article makes clear, the opacity is no accident. It’s a business model.

If lawmakers are serious about lowering health care costs and holding Wall Street-controlled, corporate actors accountable, they must bring TPAs into the light. That means enforcing transparency rules, closing legal loopholes and giving employers the tools they need to demand fair play.