Advantages of partnership: Stop-loss carriers and third-party administrators can add substantial value to employer clients when they work together. (Underwriting Insight: Life/Health).

Over the past few years, the ranks of stop-loss carriers and third-party administrators have thinned in the face of a maturing insurance market and consolidation. With fewer, but larger and stronger, health-plan administrators and stop-loss carriers competing for the self-funded employer's health business, strategic partnerships between the two may offer competitive advantages in the battle to find and retain clients. TPAs should consider forming partnerships with key stop-loss carriers to develop integrated products and services that meet their clients' needs more efficiently.

Stop-loss carriers and administrators have always looked for an edge in the continuing battle to gain new business and to increase market shares. So it's natural they might assume that a collaboration to provide added value might net them more clients. However, to make such arrangements work, the carrier and the TPA must view each other as a real partner--not as the loss leader of the relationship.

A comprehensive partnership must go well beyond just screening carriers to make sure there are no unpleasant surprises. It may include electronic links to speed claim reimbursements to the TPA's clients, agreement with the stop-loss carrier to accept the administrator's claim decisions and close ties between the carrier's and the administrator's medical, case management, underwriting and sales staffs.

An administrator developing a partnership must realize that for the stop-loss carrier to agree to relax or forgo its traditional administrative and contractual restrictions, the TPA must have strong controls and audit programs in place and be willing to share details of those programs with the carrier. Plus, there must be some benefit to the carrier beyond just the opportunity to write an occasional new policy.

Such benefits may include:

* providing enhanced claim and other data to the stop-loss carrier;

* allowing access to the administrator's case management and medical staff for more detailed information on serious claim situations;

* developing efficient claim-recovery mechanisms for subrogation or overpayment situations;

* setting a reasonable limit on the number of carriers that the TPA includes in its arrangement so that each underwriter has an opportunity to develop a fair amount of business; and

* conducting periodic audits by the carrier with the ability to influence the TPA's administrative processes.

In return for greater sales and profit opportunities that an enhanced relationship gives the stop-loss carrier, the carrier may agree to:

* give the administrator's sales and service personnel direct access to its underwriters;

* simplify claims and other administrative processes and significantly reduce its data requirements;

* assign dedicated senior-level staff to the administrator's business;

* work as an ad hoc member of the administrator's sales team providing technical support and on-the-spot adjustments to its proposals; and

* develop unique products and underwriting approaches for the TPA's business. Benefits could include concessions that would be unavailable on a case-by-case basis.

The details of a partnership must be contained in a written agreement that sets out the rights and responsibilities of the partners. Defining the arrangement beforehand ensures there is no confusion about the terms and allows the parties to avoid surprises that can occur in the more casual relationships that have been typical in the stop-loss industry. A well-structured, fair partnership offers an edge on competitors who are operating in a business-as-usual mode, and the partners' joint clients receive higher valued, integrated products.

Stop-loss vendor resources are another advantage of preferred relationships. A well-planned market search by the TPA can also bolster the ability to offer other products to the client. These can include access to national networks for general care or specialty services, such as transplants, through the stop-loss vendor. These value-added services can create quality and financial advantages for the employer.

All in all, when a well constructed preferred stop-loss arrangement is offered by a TPA, employer groups should carefully evaluate the qualitative value in items, such as those listed above, before making their purchasing decision. Often, clients place too much emphasis on price in their stop-loss buying decisions and ignore substantial value-added factors.

Gary Cain, a Best's Review columnist, is senior vice president, group life and health, at the Principal Financial Group, Des Moines, Iowa. He can be reached at [e-mail].