Which entity must contract with a TPA for the first five full calendar years?

• A. Private individual self-insurer
• B. Public agency self-insurer
• C. Private group self-insurer
• D. Nonprofit organization

Answer: (C)

In California self-insurance, the rule requiring a Third-Party Administrator during the early years applies specifically to private group self-insurers. The idea is that when multiple employers pool together to self-insure, claims handling, reporting, and reserve management are more complex, so professional administration is needed at least during the initial period. Contracting with a TPA for the first five full calendar years helps ensure consistent claims processing, accurate financial reporting, and regulatory compliance as the group establishes its internal processes and experience.

Public agency self-insurers typically have different oversight and resources, so the five-year TPA requirement isn’t necessarily imposed in the same way. Private individuals and nonprofit organizations generally operate under different structural rules or scales of risk, so the explicit five-year TPA mandate does not apply to them the way it does to private group self-insurers.