What Is Administrative Services Only (ASO)?
Administrative Services Only (ASO) is an agreement utilized by companies to manage their employee benefit plans by outsourcing the administration to an external vendor while retaining the financial responsibility. For instance, an organization might engage an insurance company to handle and process claims for its employee health plan, while still being accountable for paying those claims internally. ASO differs from traditional health insurance purchasing models.
**Key Points:**
– ASO-based, self-funded benefit plans are prevalent among large corporations due to their ability to distribute the risk of expensive claims across a larger workforce.
– Employers utilizing ASOs assume full liability for plan claims, often securing stop-loss arrangements for added protection.
– ASO agreements cater to larger companies seeking to outsource payroll, workers’ compensation, health benefits, and human resources functions while self-funding their health plan.
– ASO insurance commonly covers short-term disability, health, and dental benefits.
Understanding Administrative Services Only (ASO)
Administrative Services Only (ASO) plans involve companies partnering with insurance providers and third-party administrators (TPA) to customize the plan’s specifics. Unlike fully insured plans, ASOs offer minimal insurance protection, making them essentially self-insured or self-funded. Employers under ASO agreements bear the responsibility for plan claims and often opt for aggregate stop-loss policies to cover claims surpassing a certain threshold, further mitigating risks.
Companies should consider aggregate stop-loss insurance as a safeguard against unforeseen financial risks, particularly in self-funded benefit scenarios.
ASO insurance typically encompasses short-term disability, health, and dental benefits, with some larger employers extending coverage to long-term disability. This model is gaining traction among employers, especially larger corporations, seeking financial flexibility and control over benefit expenses, although ASO arrangements may not suit all business sizes.
Traditional Administrator vs. Administrative Services Only (ASO)
In a traditional administrator setup, insurance companies manage claims entirely, sharing both administrative services and claim risks. Conversely, ASO models see insurers solely providing administrative support while shifting claim liabilities to employers.
Real-time cost monitoring is a pivotal advantage of ASO arrangements, providing employers with agile cost management capabilities compared to the fixed premium reviews in traditional plans.
Cost implications differ significantly between traditional administrators and ASOs. With the former, premiums are set and adjusted annually, making it challenging for employers to gauge claims impact until annual premium assessments. ASOs allow for immediate cost tracking, empowering employers to adapt to fluctuating expenses effectively.
Advantages and Disadvantages of Administrative Services Only (ASO)
ASOs offer cost benefits compared to traditional administrators, with funding levels based on actual claims rather than anticipated ones. Employers retain surpluses, enabling additional benefits that traditional plans might not cover.
Moreover, ASOs typically incur lower costs as employers negotiate fees with third parties instead of maintaining in-house staff, leading to potential savings that can support company growth. However, persistent claims exceeding forecasts may reverse this cost efficiency.
Employers should be wary of deficits in ASO models, particularly in catastrophic claim scenarios where unexpected costs can deplete profits. Supplementing with stop-loss insurance can offer additional safety nets against such risks.
Certain limitations exist within ASO models, notably concerning life insurance and long-term healthcare benefits, necessitating thorough evaluations to weigh organizational impacts.
**Pros:**
– Employers retain cost savings.
– Additional benefits potential for employees.
– Protection from unforeseen costs through stop-loss insurance.
**Cons:**
– Profit loss risks.
– Employer bear deficits.
– Traditional administrators may offer more cost-effective solutions.
Administrative Services Only FAQs
What Is a Recommended Stop Loss Level for an ASO Plan?
A standard stop loss level for ASO plans typically stands at $10,000 per eligible employee.
Is Self-Funded Healthcare the Same as Administrative Services Only?
Self-funded healthcare and ASOs share similarities, as both involve the employer assuming full responsibility for covered claims costs.
Who Retains Profits in Fully Insured Coverage?
Under fully insured plans, profits remain with the insurance company.