Self-funded health plans appeal to mid- and large-sized employers since they offer opportunities to reduce employee benefits spending. However, without careful management—including oversight of third-party administrators (TPAs) and PBM audits for pharmacy benefits—these plans carry significant financial risks. This is where claim audit firms become invaluable for assessing plan effectiveness. With cost containment a continuing priority for self-funded plans, ensuring claims are paid correctly is vital. Additionally, confirming that plan guidelines are followed is critical, and audits can help catch errors.

An accurate medical claim audit is a critical strategic move to ensure a self-funded plan operates effectively, and many companies today follow audits with continuous monitoring. The audits and monitoring also help management fulfill fiduciary responsibilities for the plan. Reviewing medical provider billing and related claim payments always uncovers mistakes. It also brings opportunities to recover overpayments and correct systemic problems to prevent similar errors in the future. Because issues can arise frequently, the value of continuous monitoring is becoming more accepted.

Careful management is crucial for self-funded medical plans, as sponsoring companies bear the financial risk. Oversight of TPAs through audits and monitoring is required to help reduce errors in the claims processing operations. It's common to find error rates between 2% and 6%, depending on the plan and TPA. Give medical costs today, and those percentages are high enough to amount to substantial numbers in most cases. TPAs also tend to focus primarily on regulatory and compliance issues, so it falls to the plan sponsor to keep close tabs on the error rate.

Agreements between self-funded medical plans and their TPAs include performance standards that guarantee a minimum level of performance, often with provisions addressing subpar performance. But unless a plan audits and monitors independently, it's challenging to know whether the standards are being met. It is not uncommon for a TPA to self-report performance at 100 percent, while an independent audit shows it at 96 percent or less. Because even a small percentage of mistakes can add up to hundreds of thousands of dollars, it's always wise to verify any self-reporting from TPAs.