TPA (Third Party Administrator) — Role, Selection & Performance
A Third Party Administrator services health policies on an insurer's behalf. This lesson explains what a TPA does and does not do, who stays answerable for a claim, the rule on TPA remuneration and the service timelines.
What a TPA is
A Third Party Administrator (TPA) is a company registered with IRDAI that an insurer may engage to service health insurance. Its work is operational: handling cashless pre-authorisation requests, processing claims, coordinating with hospitals and answering policyholder queries.
Using a TPA is the insurer's choice. An insurer can engage one or do the same work in-house, and the policyholder's rights under the policy are the same either way.
What a TPA does not do
A TPA does not carry the insurance risk and does not price it. Premium rates are set by the insurer itself. The insurance contract is between the policyholder and the insurer, and the TPA is not a party to it.
So the insurer stays responsible for the outcome. If a TPA's error leads to a claim being wrongly rejected, the insurer that issued the policy remains answerable to the policyholder. Under the 2024 Master Circular, no claim can be repudiated without the approval of the insurer's Product Management Committee or Claims Review Committee.
The rule on remuneration
A TPA is paid by the insurer, not by the policyholder, and the fee is a matter of contract between the two. The Master Circular on Health Insurance Business of 29 May 2024 places one firm limit on that contract: the TPA's remuneration cannot be linked to the claim ratio or to reducing claims.
The reason is easy to see. If an administrator earned more by paying less, it would have an interest in turning down or cutting claims. The rule removes that incentive.
Service standards
The cashless timelines apply whether the insurer handles the request itself or through a TPA. A request for cashless authorisation has to be decided within one hour of receipt. Final authorisation at discharge has to be given within three hours. Older material quotes longer periods.
Rules at a glance
Illustration: a rejection traced back
Ramesh is admitted to a network hospital. The TPA engaged by his insurer handles the cashless request and, through a data-entry mistake, records his policy as lapsed; the request is turned down.
Ramesh's contract is with the insurer, so his complaint lies against the insurer, which cannot answer that the mistake was the TPA's. How the insurer and the TPA settle the matter between themselves is governed by their own agreement and does not affect what Ramesh is owed under the policy.
Key points
- A TPA is an IRDAI-registered company that services health policies on an insurer's behalf.
- Its functions are cashless pre-authorisation, claim processing, hospital coordination and policyholder servicing.
- An insurer may use a TPA or handle servicing in-house.
- Setting premium rates is not a TPA function; the insurer does that.
- The insurer remains answerable for claim decisions; repudiation needs approval of its Product Management Committee or Claims Review Committee.
- A TPA's remuneration cannot be linked to the claim ratio or to reducing claims.
- Cashless decision within one hour; final discharge authorisation within three hours.
Common misunderstandings
- A TPA is not the insurer: it administers claims on the insurer's behalf, and the insurer carries the risk and the responsibility.
- The policyholder does not pay the TPA: its fee comes from the insurer under their contract.
- A TPA cannot be rewarded for keeping claims low: remuneration linked to claim ratio or claim reduction is barred.
- The one-hour and three-hour limits do not lapse when a TPA is used: they are the insurer's standards either way.
Questions people ask
Does every health insurer use a TPA?
No. An insurer may engage a TPA or do the servicing in-house.
Who decides the premium?
The insurer. Pricing is not part of a TPA's role.
Can a TPA finally repudiate a claim on its own?
No claim can be repudiated without the approval of the insurer's Product Management Committee or Claims Review Committee.
What this lesson relies on
- IRDAI Master Circular on Health Insurance Business (29 May 2024) — TPAs, claims and cashless timelines
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.