Employers seeking performance guarantees
Increasingly, employers are asking for performance guarantees when working out deals with their workers’ compensation third-party administrators (TPAs), according to a recent report from Towers Perrin consulting firm in Weatogue, CT.
In a survey of contracts with 18 major TPAs, Towers Perrin found that about 10% have some form of pay-for-performance guarantees about 25% are based on bottom-line results, and 75% are based on whether the TPA follows a specified claims handling process.
The use of performance guarantees is rising sharply, the consultants say, with one TPA reporting that it now has such guarantees in 30% of its contracts but had none at all two years ago. One popular method is called the balanced scorecard approach, which involves the blending of bottom-line results, benchmarking values, and the claims handling process.
The overall goal of performance guarantees is to give the TPA a direct financial incentive in keeping workers’ comp costs low. If the workers’ comp costs rise too high ostensibly because of poor management by the TPA the TPA loses some of the fees due for its services. t
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