Administrative Services Only (ASO) represents an agreement where companies finance their own employee benefit plans while entrusting an outside vendor with administrative duties. For instance, a business might hire an insurance company to evaluate and process claims for its employee health plan, yet remain responsible for paying those claims. This approach contrasts with purchasing health insurance from an external provider.
Key Insights
- Risk Distribution: ASO-based, self-funded benefit plans are prevalent among large firms due to their ability to spread the risk of expensive claims over numerous workers and dependents.
- Stop-Loss Arrangements: Employers utilizing ASO often establish stop-loss policies to cap potential financial risks from claims.
- Outsourcing Efficiency: ASO agreements cater to larger organizations that prefer to outsource payroll, health benefits, workers’ compensation, and HR functionalities, while still funding their health plans.
- Contents of ASO Insurance: Typically includes short-term disability, health, and dental benefits.
- Differences from Traditional Plans: Traditional plans involve the insurance company administering and bearing the risk of claims.
Unpacking Administrative Services Only (ASO)
ASO agreements vary based on the specifics negotiated between a company and external service providers, such as insurance companies and third-party administrators (TPAs). Unlike fully insured plans, ASO plans offer minimal to no insurance protection, relying instead on the employer to handle all claims.
Employers with ASO plans often set up aggregate stop-loss policies. These policies transfer the burden of claims exceeding a certain amount—say $10,000 per insured person—to the insurance company for a premium, mitigating unforeseen high costs.
Typically, ASO plans cover short-term disability, health, and dental benefits, sometimes extending to long-term disability for extensive coverage. This model is gaining traction among larger employers aiming to take fiscal control of their benefit spending while still enjoying the operational efficiency of outsourcing administrative tasks.
Traditional Administrator vs. Administrative Services Only (ASO)
In traditional plans, insurance companies administer and cover claims, designing, maintaining, and managing these benefits while also assuming risk. Premiums are fixed and reviewed yearly, which can obscure the impact of claims until renewal.
Conversely, ASO plans involve the insurance company offering only administrative services, while the employer handles the financial responsibilities of claims. Real-time cost tracking with ASO setups enables better financial planning for employers.
Advantages of shifting surplus funds retained through ASO plans back to the employer allow further investment into growth or employee benefits. However, the risk of expenses exceeding forecasts can sometimes make traditional plans appear more cost-efficient.
Advantages and Disadvantages of ASO Arrangements
Pros
- Cost Retention: Savings are retained by the employer, promoting fiscal equity.
- Bonus Benefits: Potential to offer additional employee benefits, not typically covered under standard insurance.
- Security Net: Stop-loss insurance provides safeguards against unexpected high costs.
Cons
- Profit Erosion: Claims exceeding budgets reduce company profits.
- Financial Responsibility: Deficits arising beyond expectations fall back on the employer.
- Possible Oversights: Traditional plans might be inherently more cost-effective for some enterprises.
Common Queries About Administrative Services Only (ASO)
What Is a Recommended Stop-Loss Level for an ASO Plan?
A widely accepted stop-loss level in ASO plans is $10,000 per eligible employee.
Is Self-Funded Healthcare the Same as Administrative Services Only?
Yes, self-funded healthcare mirrors ASO structures; both terms denote plans where the employer covers the total cost of covered claims.
Who Keeps the Profits in Fully Insured Coverage?
In a fully insured arrangement, the insurance company retains any profits.
Unlocking the potential of an ASO setup entails thorough risk assessment and alignment with the strategic goals of your organization. While you gain administrative efficacy and control over costs, gauging the risks versus rewards will guide optimizing your employee benefit offerings.
Related Terms: employee benefit plan, stop-loss insurance, self-funded healthcare, third-party administrators, fully insured plans.
References
- The Benefits Group. “Administrative Services Only (ASO)”.
- Kaiser Family Foundation. “2022 Employer Health Benefits Survey.”
