Administrative Services Only (ASO)

What are Administrative Services Only (ASO)?

Administrative Services Only (ASO) is an arrangement where an employer self-funds their health insurance plan but outsources administration to a third party.

The employer assumes financial risk for claims, paying for them as they occur, while the administrator handles tasks like processing claims and customer service. To mitigate risk, employers typically purchase stop-loss coverage, which protects against unexpectedly high claims beyond a specified threshold.

For instance, Sierra Foods (formerly known as Eastern Meat Solutions), a Canadian food processing company, implemented an ASO plan to gain better control over its benefits costs. By self-funding their health insurance through an ASO plan, they got complete visibility into expenses and could customize their benefits to meet specific needs. This allowed them to adapt their employee benefits strategy while maximizing the company’s growth. As a result, Eastern Meat Solutions doubled in size over seven years.

What are the Differences Between ASO and Traditional Insurance?

ASO insurance and traditional insurance plans differ primarily in how they manage and fund health plans.

Traditional insurance involves the insurer taking on both the financial risk and the claims administration. However, when it comes to ASO, employers cover the cost of claims while the insurance company handles the claim administration process.

Here’s a detailed comparison table illustrating the differences between traditional insurance and ASO healthcare.

Feature	ASO (Administrative Services Only)	Traditional Insurance (Fully Insured)
Risk management	The employer assumes the financial risk for claims	The insurance company assumes the financial risk
Plan funding	Self-funded by the employer	Funded through premiums paid to the insurer
Cost structure	Pay-as-you-go, based on actual claims	Fixed premiums regardless of actual claims
Customization	Highly customizable	Limited customization
Administration	Handled by third-party administrators (TPAs), typically an insurance company	Managed by the insurance company only
Reserves requirement	Employer must set aside reserves for potential claims	No reserves are required, as risk is transferred to the insurer
Regulatory oversight	Governed by Employee Retirement Income Security Act of 1974 (for U.S.-based plans)	Subject to state insurance regulations
Stop-loss insurance	Often purchased to limit risk on high-cost claims	Not typically necessary, as risk is borne by the insurer
Claims payment	Employer pays for claims as they occur	Insurer pays claims using pooled premiums
Underwriting gain/loss	Employer keeps any surplus if claims are lower than anticipated	Insurer keeps surplus; insurer bears the loss if claims exceed expectations
Premium/contribution adjustments	Contributions increase if claims exceed estimates; employer pays shortfall at renewal	Insurer absorbs shortfall initially, but premiums increase at renewal
Catastrophic risk insurance	Can be insured by various insurers, including specialty carriers; coordinated through third-party administrator	Insured by the group benefits insurance company as part of a package
Admin fee	15% – 20%	25% – 35%
Claims adjudication process	Same process as traditional insurance, but the employer holds the cash	Same process as ASO, with the insurer holding the cash

What services does an ASO plan include?

An Administrative Services Only (ASO) plan offers various services to support employers in managing their self-funded health benefits. Here are the key services typically included in an ASO health plan.

1- Health and dental claims administration

ASO insurance typically manages more predictable benefits like health and dental, where claims are frequent but smaller in value. The predictable claiming pattern allows for effective cost management based on experience.

2- Plan design and customization

Employers can tailor their ASO benefits to meet specific needs. This includes selecting covered services, setting limits, and adjusting coverage levels. Such flexibility allows companies to create a benefits package that aligns with their budget and workforce requirements.

3- Catastrophic claims handling

For health benefits, ASO plans offer services to manage potential catastrophic claims. These can arise from emergency medical costs during travel or significant long-term illnesses requiring extensive use of benefits like prescription drugs or private-duty nursing.

4- Employee communication and support

ASO insurance providers often offer resources to help employees understand their benefits. These may include access to online portals, customer service support, and educational materials. Such support ensures that employees can easily access and utilize their benefits.

5- Annual maximum management

For dental benefits, ASO plans implement annual maximums. This service helps protect against unexpected high claim amounts. It limits the amount a person can claim and controls the company’s financial exposure.

6- Short-term disability claims management

ASO insurance typically implements cost-control measures for Short-Term Disability benefits. This includes setting weekly maximums and defining benefit periods. These measures help manage and limit the employer’s financial exposure for Short-Term Disability claims.

7- Compliance and regulatory support

Administrative Services Only plans assist in maintaining compliance with relevant laws and regulations, such as ERISA in the U.S. This service includes handling reporting requirements and ensuring plan documents are up-to-date.

8- Risk mitigation coordination

While not directly providing coverage, ASO plans typically include services to coordinate the purchase of Travel Health coverage and Stop Loss protection. These additional insurances are recommended to minimize the employer’s risk in an ASO model.

What are the pros and cons of Administrative Services Only (ASO)?

Administrative Services Only (ASO) plans have unique advantages and disadvantages for employers. Let’s explore ASO’s pros and cons to help you make an informed decision.

Pros	Cons
Potential cost savings if claims are low	Increased financial risk for the employer
Highly flexible plan design, customizable to meet specific needs	Limited provider network
Improved cash flow through retained reserves	Requires careful monitoring and audits
Monthly reports help in cost management	Complex claims administration
Eliminates insurance company profit charges
Easier portability between insurers

How to Choose an ASO Provider?

Choosing the right Administrative Services Only (ASO) provider is crucial for employers seeking more control over their employee benefits. However, before selecting an ASO plan, consider if it aligns with your company’s needs and goals.

Choose an ASO insurance if:

• You want more frequent reporting and transparency on claims costs
• You prefer to have plan surpluses returned to your company
• You seek lower benefits plan administration fees
• You need a customized, creative plan design
• Your company takes a long-term view of benefits plan costs

If you decide an ASO plan aligns with your company’s needs, follow these steps to choose the right ASO provider.

1- Define your objectives

Clearly outline your goals for implementing an ASO plan. This may include cost reduction, improved reporting, or more tailored benefits offerings.

2- Research potential providers

Thoroughly review ASO providers with experience in your industry. Look for those with a strong track record and positive client testimonials. Examine their service offerings, client retention rates, and industry reputation.

3- Request detailed proposals

Obtain comprehensive proposals from multiple providers. These should include specific information on services, technology platforms, and pricing structures.

4- Evaluate administrative capabilities

Assess each provider’s claims processing efficiency, reporting capabilities, and customer service standards. Ensure they can meet your specific administrative needs.

5- Consider compliance support

Choose a provider with robust compliance support to help navigate complex regulatory requirements in benefits administration.

6- Assess technological infrastructure

Evaluate the provider’s technology platform. It should offer user-friendly interfaces for both HR administrators and employees, as well as robust data security measures.

7- Analyze cost structures

While price shouldn’t be the sole factor, understand the full cost implications. This includes administrative fees, stop-loss insurance premiums, and any additional service charges.

8- Review service level agreements

Carefully examine proposed service level agreements. These should clearly define performance expectations, reporting standards, and issue resolution processes.

Wrapping Up

Administrative Services Only (ASO) plans offer a flexible alternative to traditional insurance for employers seeking greater control over their health benefits. Companies can potentially reduce costs, customize coverage, and gain deeper insights into their healthcare spending through self-funding their plans while outsourcing administration.

However, employers must also consider the increased financial responsibility and the need for careful management of these plans. Moreover, choosing the right ASO provider is crucial for maximizing the benefits of this approach. You should carefully evaluate potential partners based on their administrative capabilities, technological infrastructure, and compliance support.