To Bundle or Not to Bundle? – That is the Question

In choosing your loss-sensitive insurance products, you could face a classic decision — should I select a bundled or unbundled claims option? Both approaches can provide early intervention in claims, medical management and better return-to-work outcomes, but each has distinct differences in how an employer is engaged in the program.

“Unbundling allows the employer to set exact guidelines with their chosen third-party administrator (TPA), develop measurable performance standards and keep a watchful eye on the people managing those claims,” said Tanya Parker, Senior Account Manager – Client Engagement at Safety National. “Additionally, it reduces the charges or fees that an employer pays with “runoff” claims if they were to change insurers.”

Understanding the Difference

In a “bundled” approach, the insurer provides coverage, claims handling and loss control services, and the premium includes claims administration costs. In an “unbundled” approach, the carrier provides the coverage while the TPA, unaffiliated with the carrier, handles the claims management. The premium excludes claims administration costs, and the insured contracts with and pays the TPA directly.

The “unbundled” approach is generally offered with large deductible policies where the employer indemnifies the carrier for an initial layer through an indemnification agreement. The concepts of unbundling and large deductible go hand-in-hand because a key goal of both is the close management of claim outcomes in hopes of lowering insurance premiums and, ultimately, the total cost of risk.

The Benefits of Unbundling

Unbundling can provide greater flexibility in the program structure, such as vendor selection and authority levels. Bundled carriers are not always flexible in allowing a choice of defense counsel, surveillance vendor or managed care provider. The employer can select the best vendor for each service in an unbundled program. It also allows an employer to participate in the claims administration process with a carrier advocating for them in claims outcomes. This option allows the flexibility to change carriers without disrupting claims handling or change TPAs without disrupting coverage.

Having a TPA for all claims management provides a focused approach since that is their core business. They dedicate resources to system enhancements, training and achieving results that retain business. They will focus on all claims as opposed to the perception that a bundled carrier’s claims team will be more focused on claims impacting their exposure. The TPA can also provide customized reports that a bundled carrier may not be able or willing to provide.

Additional benefits of unbundling include:

• Transparency of costs – In an unbundled program, it’s easier for employers to identify how much money they are spending on their providers versus having these ambiguously hidden in their claims costs.
• Technology – Most TPAs are investing significant resources into their technology and developing programs and applications to be used by the injured worker and employer.
• Tax Benefits – When claims handling fees are built into the insurance program, the claims-handling portion of the premium is taxed like insurance premiums