What Are TPA Contracts and Why Do They Matter?
When an employer chooses a Third-Party Administrator (TPA) to manage their self-funded health plan, the administrative contract defines the legal and financial relationship between the parties. The two most common TPA agreements are the Administrative Services Agreement (ASA) and the Master Services Agreement (MSA).
Understanding these self-funded health plan contracts is crucial because they determine:
- Who carries financial risk
- How administrative fees are billed
- Your plan design flexibility
- Cost transparency and audit rights
Ready to review your current TPA contract? Contact Memberly today or call us at (631) 905-6555 for a complimentary contract analysis.
What Is an Administrative Services Agreement (ASA)?
An ASA contract is the standard agreement used by TPAs when they provide claims administration services only. This is the most transparent TPA contract structure for self-funded employers.
Key Features of ASA Contracts
Claims Administration Only
- Outlines TPA duties including claim adjudication, eligibility management, EOB generation, and reporting
- Clear separation of administrative services from other vendors
PEPM Fee Structure
- Employer pays a predictable per-employee-per-month (PEPM) administrative fee
- Transparent pricing with itemized billing
Employer Holds Financial Risk
- Employer directly funds medical claims as they are incurred
- Full control over claims funding and cash flow
Independent Stop-Loss Shopping
- Employer can shop and contract stop-loss insurance independently
- Freedom to negotiate competitive stop-loss rates
- Ability to compare multiple stop-loss carriers
Who Should Use an ASA?
ASA contracts are best suited for:
- Employers who want maximum flexibility in vendor selection
- Companies comfortable managing separate relationships for stop-loss, PBM, and network access
- Organizations seeking complete cost transparency
- Businesses with 100+ employees who have benefits expertise in-house
What Is a Master Services Agreement (MSA)?
An MSA contract is broader in scope and typically used when the TPA provides bundled services or acts as a comprehensive program manager for your self-funded plan.
Key Features of MSA Contracts
Bundled TPA Services
- Includes claims administration plus network access, stop-loss sourcing, PBM integration, care management, and comprehensive reporting
- Single-vendor convenience
Schedule of Rates
- The MSA contains a schedule that establishes the employer’s funding obligations for the plan year
- Includes stop-loss premium, network access fees, and administrative fees in one document
Level-Funded Health Plan Model
- TPA calculates monthly maximum claim funding based on aggregate factors
- Provides employers with “premium-like” fixed monthly costs
- Predictable budgeting similar to fully-insured plans
Single Point of Contact
- Employer pays one consolidated bill for administration, stop-loss, and network access
- Simplified accounting and vendor management
Who Should Use an MSA?
MSA contracts are common for:
- Smaller employer groups (50-100 employees)
- Companies preferring predictable monthly budgets
- Organizations wanting a turnkey self-funded solution
- Businesses without dedicated benefits administration staff
Wondering which contract type fits your company? Schedule a consultation or call (631) 905-6555 to speak with a self-funding expert today.
TPA Contract Comparison: ASA vs MSA Financial Models
| Aspect | ASA Contract | MSA Contract |
|---|---|---|
| Claims Funding | Paid as incurred (variable monthly) | Often set as a capped monthly amount (level-funded) |
| Stop-Loss Insurance | Employer shops independently | TPA sources and locks rates in schedule |
| Budget Predictability | Variable based on actual claims | Predictable monthly funding (premium-like) |
| Vendor Flexibility | High – employer can change vendors annually | Lower – services are bundled under one contract |
| Financial Risk Transfer | Employer carries full claim risk | Risk capped at maximum claim liability |
| Contract Complexity | Simple, focused on admin services | Comprehensive, covers multiple services |
TPA Contract Transparency: Hidden Costs and Fee Disclosure
One of the most critical differences between ASA and MSA contracts is billing transparency. Understanding how fees are presented can save your company thousands of dollars annually.
Transparency Comparison Chart
| Billing Component | ASA Contract | MSA Contract |
|---|---|---|
| Admin Fees | Listed as clear PEPM line item | Often bundled into single “program fee” |
| Aggregate Factors / Claim Funding | Employer receives full aggregate factor schedule and can verify claims funding | Employer usually only sees single maximum monthly funding amount |
| Stop-Loss Premium | Itemized – employer can see carrier name, premium, and often commissions | Typically bundled – carrier and commission may not be disclosed |
| Vendor Fees (PBM, Networks, Repricing) | Usually passed through and itemized separately | Frequently included in bundled rate with no breakdown |
| Commissions & Overrides | Disclosed if billed directly | May be hidden within bundled PEPM rates |
Why Cost Transparency Matters for Self-Funded Employers
Lack of transparency in TPA contracts can make it difficult for employers to:
Validate Costs
- Confirm that stop-loss insurance rates are competitive
- Verify vendor fees align with market rates
- Identify markup or hidden commissions
Shop Services Independently
- Carve out PBM services if more cost-effective options exist
- Negotiate better repricing or network access rates
- Compare stop-loss carriers for better coverage
Audit Surplus Calculations
- Ensure any unused claim funds are calculated fairly
- Verify year-end surplus returns are accurate
- Understand how deficit situations are handled
Employer Action Item: If you operate under an MSA contract, request a detailed cost breakdown by component at least annually. This allows you to benchmark services and negotiate effectively at renewal.
Red Flags in TPA Contracts: What to Watch For
When reviewing ASA or MSA contracts, watch for these common issues:
- No Commission Disclosure – TPA won’t reveal stop-loss or PBM commissions
- Limited Audit Rights – Contract restricts your ability to review underlying carrier invoices
- Vague Surplus Language – Unclear terms about how year-end surplus is calculated and returned
- Auto-Renewal Clauses – Automatic renewal without adequate notice period (60-90 days minimum recommended)
- Bundled Fees Without Breakdown – Single fee with no itemization of services
- Performance Guarantees Missing – No SLAs (Service Level Agreements) for claims processing times
Need help identifying red flags in your TPA contract? Call Memberly at (631) 905-6555 or email dom.maggiore@memberlybenefits.com for expert contract review.
Memberly’s TPA Contract Recommendations
At Memberly, we advocate for transparency regardless of contract type. Here’s what we recommend every self-funded employer demand:
Essential Contract Terms
✓ Line-Item Invoicing Request separate line items for admin fees, stop-loss premium, aggregate claim funding, and all vendor fees
✓ Commission Disclosure Ask for full commission disclosure for stop-loss insurance and PBM arrangements
✓ Audit Rights Ensure your contract includes audit rights, allowing you to review underlying carrier and vendor invoices when needed
✓ Clear Surplus Terms Get explicit language about how surplus is calculated, when it’s returned, and any conditions that apply
✓ Adequate Termination Notice Maintain at least 90 days notice for termination to allow time for RFP and smooth transition
✓ Performance Guarantees Include SLAs for claims processing, customer service response times, and accuracy metrics
Questions to Ask Your TPA Before Signing
- What is your exact PEPM administrative fee, separate from all other charges?
- Which stop-loss carrier will you use, and what commission do you receive?
- Can I see the underlying stop-loss proposal and rate calculation?
- What are the separate fees for network access, repricing, and PBM services?
- How is year-end surplus calculated, and when is it returned?
- What audit rights do I have to review vendor invoices?
- What is your claims processing accuracy rate, and is it guaranteed?
Making the Switch: ASA to MSA (or Vice Versa)
Some employers start with an MSA for simplicity but later switch to an ASA for transparency and control. Others move from ASA to MSA as their company grows and they want administrative simplicity.
When to Consider Switching from MSA to ASA
- Your company has grown and now has benefits administration expertise
- You want more control over vendor selection
- You’ve identified significantly better rates by shopping services separately
- You need greater cost transparency for budgeting and forecasting
When to Consider Switching from ASA to MSA
- Managing multiple vendor relationships has become too complex
- You need more predictable monthly budgeting
- Your company lacks in-house benefits expertise
- You want a single point of contact for all plan administration
Planning a TPA contract switch? Visit memberlybenefits.com/self-funded-ppo-plans to schedule a comprehensive review. We’ll analyze your current contract, identify savings opportunities, and help you transition smoothly.
Frequently Asked Questions About TPA Contracts
What’s the average cost difference between ASA and MSA contracts?
The total cost depends on your group size and services needed. ASA contracts typically have lower administrative fees ($8-35 PEPM) but require you to contract other services separately. MSA bundled rates range from $35-60+ PEPM depending on included services. However, unbundling an MSA often reveals 15-25% savings potential when services are shopped independently.
Can I negotiate my TPA contract terms?
Yes! Most TPA contract terms are negotiable, including PEPM fees, commission structures, surplus terms, and termination notice periods. The best time to negotiate is before signing or 120+ days before renewal. Memberly specializes in TPA contract negotiation and can help you secure better terms. In some cases Memberly has reduced admin and network fees to less than $6 PEPM.
How often should I review my TPA contract?
Review your TPA contract thoroughly at least 3 to 6 months before renewal to allow time for RFP and transition if needed. Annual mini-reviews of actual costs versus contracted rates help identify billing errors or unexpected fee increases.
What happens to my claims data if I switch TPAs?
Your claims data belongs to you, not the TPA. When switching, your new TPA will request historical claims data (typically 24-36 months) from your current TPA. Ensure your contract includes clear data portability terms and that your TPA provides data in standard formats (EDI 837/835).
Do I need a benefits consultant to understand my TPA contract?
While not required, a benefits consultant or TPA specialist can identify hidden costs, negotiate better terms, and ensure your contract protects your interests. Memberly offers complimentary contract reviews to help employers understand exactly what they’re paying for.
What’s the difference between level-funded and self-funded under an MSA?
Level-funded plans (common with MSA contracts) are self-funded plans with predictable monthly payments that include claims funding, stop-loss premium, and admin fees. Traditional self-funded plans (common with ASA contracts) have variable monthly costs based on actual claims incurred. Both are self-funded from a legal and regulatory standpoint.
Take Control of Your TPA Relationship with Memberly
Don’t let complex TPA contracts and hidden fees drain your benefits budget. Whether you’re currently using an ASA or MSA agreement, Memberly can help you:
- Analyze your current TPA contract for hidden costs and unfavorable terms
- Review stop-loss rates to ensure competitive pricing
- Audit your funding schedule to verify accurate calculations
- Negotiate better terms at renewal or when switching TPAs
- Compare ASA vs MSA options to find the best fit for your organization
Ready to Get Started?
📞 Call us: (631) 905-6555
📧 Email us: dom.maggiore@memberlybenefits.com
🌐 Learn more: memberlybenefits.com/self-funded-ppo-plans
📅 Schedule a review: Book your complimentary consultation
Memberly Benefits – Transparent Self-Funded Health Plans for Smarter Employers
