How Third Party Administrators Work in Health Insurance: Everything You Need to Know
In today’s healthcare landscape, navigating employee health benefits can be complex, costly, and time-consuming. For many employers, especially in California, the answer lies in working with a Third Party Administrator (TPA).
But what exactly is a TPA? How do they work in health insurance? And why are more companies choosing this route in 2025?
This blog breaks it all down — clearly and honestly — so you can make informed decisions about your health benefit strategies.
What Is a Third Party Administrator in Health Insurance?
A Third Party Administrator is a company that handles the administrative functions of health insurance plans on behalf of employers, unions, or other organizations. They do not provide insurance themselves or take on financial risk — instead, they manage day-to-day operations such as:
Processing claims
Managing employee enrollment
Ensuring compliance with regulations like ACA and HIPAA
Providing support to members
Coordinating with stop-loss insurers and provider networks
In essence, a TPA acts as the operations partner behind a self-funded health plan.
How Does a TPA Work in Practice?
A TPA typically works with employers who choose to offer self-funded health insurance instead of purchasing a traditional, fully insured plan from a large carrier. Here’s how it generally works:
Plan Design and Setup
The employer collaborates with the TPA to build a custom benefits plan tailored to their workforce. This may include medical, dental, vision, and other coverage options. The employer sets aside funds to pay for employee claims.
Enrollment and Eligibility
The TPA manages employee enrollment and tracks who’s eligible for which benefits. They often provide an online portal to make this process easier.
Claims Administration
When an employee seeks medical care, the provider submits a claim to the TPA. The TPA evaluates it based on plan rules and determines whether and how much to pay.
Ongoing Reporting and Support
The TPA provides regular reporting to the employer about claims, costs, and utilization. Employees can also reach out to the TPA with questions about their benefits or claims.
Why Employers Choose a TPA for Health Insurance
The traditional insurance model doesn’t work for everyone — and that’s where TPAs come in. Here are a few reasons employers make the switch:
1. Cost Savings and Transparency
With self-funding and TPA administration, employers pay only for actual claims incurred. This offers greater control over costs and insight into how money is spent.
2. Plan Customization
Unlike rigid insurance plans, TPAs allow employers to build benefits around their unique workforce needs. That includes choosing networks, setting coverage levels, and adjusting plan terms over time.
3. Regulatory Compliance Support
Health insurance regulations are always evolving. TPAs help ensure employers stay compliant with federal and state rules.
4. Faster Claims Processing
Many TPAs offer more efficient claims handling than large insurers — reducing administrative delays and improving employee satisfaction.
5. Better Employee Support
TPAs often provide dedicated service teams, helping employees get the answers and assistance they need without long wait times or confusing phone trees.
Is a Third Party Administrator the Right Fit for Your Business?
While not every company is suited for a self-funded model with a TPA, it can be a great fit for:
Employers with 50 or more employees
Companies looking for more control over healthcare costs
Businesses that want to tailor their benefits offerings
Organizations with a healthy, predictable employee population
California-based businesses that need support navigating complex regulations
Many growing companies are now recognizing the value of partnering with a TPA — not only to manage costs but to deliver better care and coverage for their teams.
Real-World Example: Why Companies Partner with Bedrock TPA
Bedrock TPA, a California-based third party administrator, has become a trusted partner for businesses seeking smarter, more flexible health plans.
What makes Bedrock TPA stand out is its focus on employer needs — combining deep regulatory knowledge, advanced claims processing technology, and a commitment to responsive support. They work closely with employers, brokers, and stop-loss providers to ensure every plan is designed for both savings and satisfaction.
Whether you're exploring self-funding for the first time or want a more transparent, human-centered health plan experience, Bedrock TPA offers the kind of partnership that delivers long-term value.
Common Myths About TPAs
Let’s clear up a few misunderstandings:
Myth 1: TPAs are only for large companies
In reality, many small and mid-sized businesses benefit from the flexibility and savings TPAs can offer.
Myth 2: TPAs are insurance companies
No. TPAs manage the plan but don’t underwrite or fund it. The employer takes on the financial risk, often backed by stop-loss insurance.
Myth 3: TPAs make things more complicated
A good TPA simplifies benefits management by handling the hard parts: compliance, claims, and member service.
The Future of TPAs in Health Insurance
As health care costs rise and employees expect more personalized benefits, TPAs are playing a bigger role than ever. Key trends shaping the industry include:
Integration with technology platforms and HR systems
Increased use of data analytics for cost control
Flexible plan models, including hybrid and level-funded options
Growth in TPA usage among smaller employers
With these developments, TPAs are becoming strategic partners rather than just third-party vendors — helping employers rethink how they deliver care and control costs.
FAQs About Third Party Administrator Health Insurance
What does a third party administrator do in health insurance?
A TPA handles the administrative side of a health plan, including claims processing, member support, and compliance — all on behalf of the employer.
How is a TPA different from an insurance carrier?
Insurance carriers take on financial risk and sell policies. TPAs don’t sell insurance; they manage it. The employer funds the plan, and the TPA administers it.
Do I need a TPA if I already have a broker?
Yes. A broker helps design and select plans, but a TPA is responsible for running the plan. They serve different roles and often work together.
Are TPAs regulated?
Yes. TPAs must comply with various state and federal regulations, and reputable ones stay current on all compliance issues.
Is Bedrock TPA licensed and experienced?
Absolutely. Bedrock TPA has years of experience managing health plans for California employers and is known for its transparency, responsiveness, and results-driven approach.
Final Thoughts
Health insurance shouldn’t be a burden — and with the right third party administrator, it doesn’t have to be.
Whether you’re a small business trying to rein in healthcare costs or a larger organization looking for more flexibility, working with a TPA can give you the tools and insight to build a plan that truly fits your team.
As employers across California are discovering, companies like Bedrock TPA can turn your health plan into a strategic advantage — not just an expense.
Ready to explore smarter, more affordable employee health benefits?
Connect with Bedrock TPA today to learn how a customized solution can work for your business.