Appointing an Administrator

ERISA demands the implementation of a quality-driven administrator. The Department of Labour (DOL) has interpreted the failure to implement an efficient administrative system for the sake of cost as a breach of fiduciary duty.

Every self-insurer will face the choice of whether to either outsource the administration to a Third Party Administrator, enter into an Administrative Services Only arrangement with an Insurance Company or perform its own administration. There are pros and cons for each but ultimately the decision depends on a self-insurers long-term objectives, its size (existing expertise) and its access to outside service providers such as Third Party Administrators and costs.

2.1. Long -Term Objectives

If the company views employee benefits as an area in which it wishes to retain as much control as possible in order to achieve the most employee satisfaction, then ultimately many companies will seek to perform their own administration.

2.2. Size and Expertise

The size of a company as well as its level of expertise will be an important issue in deciding whether to self-administer a plan. Self-administration not only requires developing in-house expertise but also ensuring that systems are capable of administering the program. Stop-loss insurers will need to be convinced that the administrator is working to retain costs and this may not always be the case when self-administering.

2.3. Access to Outside Service Providers

A self-insurer that chooses to hire an outside administrator will need to ensure that a local Third Party administrator is available to administer the plan. When selecting a Third Party Administrator the following need to be considered:

• Its ability to administer the program efficiently.
• Its contacts with other service providers such as stop-loss carriers and managed care organisations.
• Its ability to control costs and provide an efficient service to claimants.
• Its financial strength to ensure that it is solvent and stable.

2.4. Costs

If a company is not willing to allocate internal resources to implementing IT systems, training programs and staffing then using the services of an outside TPA or an ASO arrangement becomes more attractive.