The designation “third-party health insurance” does not refer to a third health insurance company or policy, but instead refers to the health insurance company that pays for medical care covered under a policy, according to the U.S. Bureau of Labor Statistics. Third-party health insurance also is referred to as “third party payer” and “third-party payments.” The arrangement usually involves one insurance company. However, health insurance coverage can involve two insurance companies, such as occurs with retired people who have government-issued insurance and private insurance. Federal and state government laws regulate the use of third party administrators and the processing of primary and secondary insurance payments.
Three Parties
The first party is the person who is legally responsible for paying the medical bills or, if not the same, the patient who is insured under the policy. The second party is the health care provider, such as a clinic, nursing home, hospital or doctor. The third-party, which is the health insurance provider, pays medical bills on behalf of the first party. The third-party insurer, which is uninvolved and outside of the relationship between the first and second parties, provides insurance coverage under a policy that details the terms of coverage, such as reimbursement amounts. Third-party, as defined by the American Health Information Management Association, does not refer to the position of the insurer in coverage of the insured, such as primary or secondary.
Third Party Administrators
The third party administrator, which is not the third-party insurer or the policyholder, processes insurance claims and payments and manages other aspects of the health insurance plan, including recordkeeping. The Society of Professional Benefit Administrators notes that state laws require licensing and registration for individuals and companies that work as third party administrators. Education and certification programs provide the knowledge that third party administrators need to manage health insurance plans. The third party administrator, or TPA, manages the health insurance program, interprets the policy and pays claims using funds from the third part insurer. The TPA ensures that the employer, the health insurance plan and the processing of claims complies with state and federal laws.
Health care providers bill for services by submitting claims to the third-party payer. The third-party, or health insurance company, pays the claim as directed by the health insurance policy or contract or as required by government regulations. Third-party payers negotiate and contract to use different fee reimbursement methods. An example is the fee-for-service method which pays predetermined fees for each service based on a fee schedule of average or minimum payments. Insurance companies operate different types of managed care organizations, such as the health maintenance organization, or HMO, and the preferred provider organization, or PPO. Third-party insurance companies that provide managed care implement programs, such as patient education and quality assessment, to control the costs, quality of services and outcomes of care.
Primary and Secondary Payers
Third-party payers must follow laws and regulations for payment of claims when a patient is covered under more than one insurance policy. A third-party insurer needs information about other insurance coverage to determine how to process claims. For instance, federal regulations require that Medicaid is the “payer of last resort” when a patient is covered by other third-party carriers or by Medicare. The other insurance carriers must pay their portions of the bill before Medicaid will process the claim. Third-party insurers also must report on the Medicaid claim any payments received on medical claims from other insurance providers. Third-party insurers also identify primary and secondary insurance carriers to process claims. An example is a patient who receives primary coverage through his employer and secondary coverage through his wife’s health insurance from her employer. A secondary carrier pays its portion of the bill after the primary carrier pays its portion. The third-party insurer may be a primary or secondary carrier
