Executive Summary: Claims Adjudication and Accuracy: How to Measure What Most Employers Never Check
LFP-05.03 — The Operational Reality#
Claims adjudication is the core processing function that converts provider bills into plan payments. Industry benchmarks target 97% to 99% financial accuracy. Many small TPAs fall below 95%. A 2% accuracy gap on a $500,000 claims fund is $10,000 in errors annually for a single 25-person group. Most employers never audit their TPA’s claims accuracy. They assume the numbers are correct because they have no way to check.
The adjudication process moves through eligibility matching, benefit determination, cost-sharing calculation, and repricing. Each stage carries distinct error types. Eligibility errors flow upstream from the master eligibility file: if the file is wrong, adjudication proceeds on a claim that should not have been processed. Benefit configuration errors are systematic: a deductible entered as $2,000 when the plan document says $2,500 produces incorrect adjudication for every claim until someone identifies and corrects the configuration. Accumulator errors mistrack deductibles and out-of-pocket maximums across the plan year, overcharging or undercharging members in ways that are difficult to detect without claim-by-claim review. Repricing errors apply the wrong contracted rate or use an incorrect Medicare conversion factor for reference-based pricing calculations. Duplicate payment errors pay the same service twice. Each error type requires different detection and correction strategies.
Financial accuracy is measured through audits comparing what was paid against what plan terms required. A TPA with 95% financial accuracy is leaking 5% of claims dollars: overpayments that are money lost, plus underpayments that produce provider disputes, member balance bills, and rework. Procedural accuracy, which measures correct adjudication across all dimensions regardless of whether the payment amount happens to be right, targets 95% or higher. A low auto-adjudication rate, below 85%, indicates either complex plan design the system cannot handle or inadequate configuration forcing manual review for claims that should process automatically. Denial rates that deviate significantly from industry norms warrant investigation in either direction: unusually low may indicate the TPA is paying claims that should be denied, unusually high may indicate overly aggressive denial requiring appeals.
Most small employers never commission an independent claims audit. The cost, typically $5,000 to $10,000 for a small group, should be weighed against the cost of inaccurate processing. If an audit identifies $15,000 in recoverable overpayments and prevents future leakage, the return is positive. The employer who establishes an expectation of periodic audits at the beginning of the TPA relationship creates accountability that benefits the plan throughout the engagement. The TPA that resists audit rights in contract negotiation is a warning signal.