The invoice shows one number, and it is rarely the whole number
Ask a self-funded employer what its third-party administrator costs and you will get a per-employee-per-month figure. That number is real. It is also, at many administrators, a minority of what the relationship earns.
This is not a claim that administrators are dishonest. Most of these revenue lines are disclosed somewhere, legal, industry standard, and defensible when you ask about them directly. The problem is structural rather than moral: they are spread across pharmacy contracts, network agreements, vendor addenda, and banking arrangements, so no single document shows the total. The CFO signing the agreement sees the administrative fee. The total lands somewhere else.
Below is every meaningful way an administrator can earn money from a self-funded plan, what each one looks like from your side, and the specific question that surfaces it. Take it into any finalist meeting. It works on any administrator, including us.
1. The administrative fee
What it is. A per-employee or per-member charge for running the plan: claims processing, eligibility, customer service, reporting, compliance filings.
This is the honest line. It is disclosed, it is on the invoice, and it does not change based on what your plan spends. An administrator that earns here and nowhere else has an economic interest in your plan being cheap to run and in you renewing, which is roughly the alignment you want.
Ask: what is the fee, what is included, and what triggers a charge outside it?
2. Pharmacy spread pricing
What it is. The pharmacy benefit manager bills your plan more than it reimburses the pharmacy and keeps the difference. On a generic prescription the pharmacy might be paid one amount and the plan billed a meaningfully larger one.
Spread is the largest and least visible revenue line in most benefit arrangements, because a pharmacy claim has two prices and you only ever see one of them. It scales with drug spend, which is the fastest growing part of nearly every plan.
How to spot it. Ask whether your PBM contract is pass-through or traditional. If the contract guarantees a discount off AWP rather than passing through the actual pharmacy reimbursement, spread is in there.
Ask: does the plan pay exactly what the pharmacy was reimbursed, and will you show me both numbers on the same claim?
3. Retained rebates
What it is. Manufacturer rebates negotiated on the plan's utilization, retained in whole or in part by the PBM or the administrator rather than returned to the plan.
Rebate arrangements are often described with the word "share," which sounds like transparency and is not the same as pass-through. A hundred percent rebate guarantee can still exclude administrative fees taken off the top, or define rebate narrowly enough to exclude several categories of manufacturer payment.
Ask: what percentage of all manufacturer revenue reaches the plan, and what payment types are excluded from the definition of rebate?
4. Network access fees
What it is. A per-member charge for routing claims through a rented network, sometimes paid to the network and sometimes rebated back to the administrator that placed the business.
This one hides well because it is often quoted as part of a bundled rate. It is also the line most likely to create a quiet conflict, because an administrator receiving a network rebate has a reason to prefer that network over one that prices better for you.
Ask: do you receive any compensation, rebate, or override from the network, and does it change by network?
5. Cost-containment contingency fees
What it is. A percentage of "savings" identified after payment, typically by a claims-audit or overpayment-recovery vendor. Common rates run between a quarter and a third of whatever is recovered.
This one deserves particular attention because the incentive runs backwards. A contingency vendor earns nothing when a claim is priced correctly the first time and earns well when it is not. An arrangement that pays a share of recoveries is an arrangement that quietly prefers errors to exist.
It is also the most expensive way to be right. Recovery returns a fraction of the overpayment, pays a commission on that fraction, and spends provider goodwill to get it. Catching the same error before payment keeps the entire dollar and costs nothing extra.
Subrogation is the honest exception, and worth separating out. Recovering from a liable third party, an auto insurer or a workers' compensation carrier, is not the same as auditing your administrator's own mistakes. That work genuinely requires a specialist firm, often a licensed one, and those firms work on contingency because the recovery may not happen at all. A contingency there is reasonable. What is worth asking is whether your administrator marks that contingency up before passing it to you, and whether it also charges to recover errors it made itself.
Ask: what percentage of claims are corrected before payment, and what did your recovery vendor find last year? The second number measures what the first one missed. On subrogation, ask what the firm's rate is and whether the administrator adds anything on top of it.
6. Out-of-network repricing markup
What it is. When an out-of-network claim is repriced downward, some arrangements let the administrator or its pricing vendor keep a percentage of the reduction.
Same structure as the line above, applied to a different claim type. The lower the repriced amount, the larger the fee, which sounds aligned until you notice that aggressive repricing is what produces balance bills for your members. The member absorbs the friction and someone else earns on it.
Ask: is any part of the out-of-network reduction retained as a fee, and who handles the member's balance bill when the provider objects?
7. Per-transaction surcharges
What it is. Charges per claim, per ID card, per enrollment change, per report, per EDI file, per check, per wire. Individually small, and almost always in an addendum rather than the fee schedule you negotiated.
These are usually disclosed in a literal sense and rarely modeled. The right test is not whether they exist but whether anyone told you what they would total at your claim volume.
Ask: list every charge that is not in the per-employee fee, and show me last year's total for a group my size.
8. Float on claim funds
What it is. Many arrangements have the employer pre-fund a claims account that the administrator draws against. Between funding and payment, that balance earns interest, and in most agreements it earns it for the administrator.
At current rates, on a plan holding a meaningful claims reserve, float is not a rounding error. It is also almost never discussed, because it does not look like a fee.
Ask: who earns interest on plan funds between funding and payment, and can the account be structured so the plan keeps it?
9. Undisclosed vendor commissions
What it is. Overrides and commissions paid to the administrator by stop-loss carriers, utilization management vendors, reference-based pricing partners, telehealth vendors, or point solutions it recommends.
This is the line that most often surprises plan sponsors, because a recommendation that carries a commission does not look different from one that does not. The Consolidated Appropriations Act now requires compensation disclosure for many of these arrangements, which helps, but the disclosure only helps if you read it and ask what is missing.
Ask: for a written schedule of all compensation received from any third party in connection with our plan, including stop-loss placement.
The math that matters
Read the nine lines back and notice the pattern.
The administrative fee is fixed. Every other line grows when your plan spends more, or when claims are wrong, or when care is more expensive.
That is not an accusation about any individual administrator. It is a description of how the industry is paid, and it explains something that otherwise looks strange: how a plan can have a competent, responsive, well-liked administrator and still bleed money for years. Competence and alignment are different things. An administrator can do good work on every claim you ask about while earning most of its revenue from lines you never see.
The question is not whether your administrator is honest. It is whether being honest costs them anything.
How to audit your own arrangement
You can do most of this in an afternoon.
- Pull every document. The administrative services agreement, the PBM contract, the network agreement, the stop-loss placement, and every addendum. The total is never in one file.
- Send the nine questions in writing before the finalist meeting or before renewal. Written answers behave differently from spoken ones.
- Request the CAA compensation disclosure and read it against the list. What is absent matters as much as what is present.
- Ask for one pharmacy claim with both prices: what the plan was billed and what the pharmacy was reimbursed. A pass-through arrangement produces that instantly. A traditional one produces a conversation.
- Reprice a real claims file. Everything above tells you how money can leave. Only a line-by-line comparison on your own claims tells you how much actually did.
An administrator that welcomes all five is telling you something. So is one that does not.
Where SmartTPA lands
We earn on line one and nothing else.
No spread, because pharmacy runs through an independent pass-through PBM that bills your plan directly and never routes through our books. Rebates are reported and belong to the plan. No network access rebate retained. No contingency fee on recoveries, because the edits run before payment where the whole dollar is still on the table. On subrogation, where a specialist firm is genuinely required, you see that firm's rate and it passes through to the plan at cost; we take none of it, and we charge nothing to recover our own payment errors. No out-of-network repricing markup. No per-transaction surcharges. No float, because your funding stays with you until claims are paid. No commission from any partner we contract, and CAA-compliant disclosure on every engagement.
That is a commitment about our economics rather than our character, which is the only kind worth putting on a website. It is also checkable: send us a claims file and we will reprice every line and show you what the same claims would have cost. If the difference does not justify the disruption of switching, we will say so in writing.
Then go ask the same nine questions of whoever runs your plan today. Whatever you decide about us, you will end the exercise knowing something you did not know this morning.