Third party administrator revenues grew at a modest rate of 3.5% to $42.3 billion from 2005-2007. Within the last year, revenue has dipped to $41.8 billion. Projections for 2009 have industry revenue decreasing by 3.9% to $40.2 billion due to the recessionary environment. A major factor attributing to the modest growth in strong economic times is that the industry is in the mature stage of the business cycle. If passed, current healthcare reform legislation will have a significant impact on the TPA industry for the near and long-term. If all employers are required to provide health coverage, increased demand for insurance coverage will likely drive up premiums and more companies will look to cut costs through self-funded insurance, thereby positively impacting the TPA industry. However, this legislation could also have a negative impact on TPA’s if a public insurance option is low-cost and the penalty to a company for not insuring their employees is lower than premiums through private or self insurance. Employers will then likely forgo providing benefits. A low cost public option would significantly lower the demand for private and self-insurances. Without this healthcare reform, the industry will continue to track the economy.
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 As the economy rebounds, large and medium size firms will continue to consolidate to leverage their technology platforms and attempt to reduce overhead in acquired companies. While the debate will continue as Congress and the White House fight over healthcare reform, if the penalty for not providing health coverage to employees is significant, it will drive higher valuations and M&A activity as the industry growth rate increases significantly. Buyers that will pursue transactions in the near term will be motivated because either they do not believe reform will happen or they think that potential reform will only increase the demand for self-insured plans. Wyatt Matas & Associates believe these two types of buyers will increase M&A activity for the third party administrator industry throughout the end of 2009 and into 2010. |
