Understanding Administrative Services Only (ASO) Plans: A Comprehensive Guide

Administrative Services Only (ASO) is a plan provided to administer employee health claims. ASO involves hiring an external services provider, called third-party administrators, to handle the administration of a company’s self-funded health benefits.

A self-funded ASO plan transfers the financial risk to the employer. In a traditional group insurance plan, the direct risk is on the insurance companyLife and Health InsurersLife and health (L&H) insurers are companies that provide coverage on the risk of loss of life and medical expenses incurred from illness or injuries. The customer - the purchaser of the insurance policy - pays an insurance premium for the coverage.. Either way, employees and employers still share the costs of the benefits. In the end, though, the employer handles the shortfall.

Summary

• Administrative Services Only (ASO) plans are availed by companies to self-fund health claims.
• Employers enjoy greater flexibility in choosing a payment plan with a third-party administrator.
• Stop-loss insurance is available to cover unpredictable, non-routine costs. It will help when costs are more than what employers can handle.

Types of ASO

1. Pay-as-you-go plans

Pay-as-you-go plans, which are paid by the employer, vary month by month. Employee claims determine actual amounts to pay. It is the least predictable cost offering for employers.

2. Budgeted plans

Budgeted plan costs remain equal per month. They are established based on the history of claims from the previous year. It is the most predictable approach for employers. The budgeted plan approach will also generate a surplus or deficit, which is typically reconciled annually.

Example of ASO

Underground Inc. operates a large mine with over 500 employees. The company oversees a self-funding mechanism for employee health and insurance benefits. It assumes the risk to ensure that employees pay claim benefits.

Underground Inc. soon realizes that they need outside help in administering the claims. They approach Northern Insurance Co. (NIC) to provide administrative support. Underground Inc. and NIC then enter an Administrative Services Only contract.

NIC charges a flat feeService ChargeA service charge, also called a service fee, refers to a fee collected to pay for services that relate to a product or service that is being purchased. for the service, as well as on a percentage based on the total claims amount. The payment of claims is done by NIC, and in turn, is reimbursed by Underground Inc.

In addition, there must be a cap or limit to such a risk to Underground Inc. To its benefit, NIC also provides stop-loss insuranceAggregate Stop-Loss InsuranceAggregate stop-loss insurance is a type of insurance that protects the insured if the total number of claims under a specific deductible in their policy. The insurance helps to establish a ceiling to the claims. Anything above moves onto the insurance company; thus, mitigating the burden upon Underground Inc.

Traditional Administrator vs. Administrative Services Only

Traditional Insurance AdministratorAdministrative Services OnlyInsurance company administers the employees’ claims. It is part of the deal in the contracted health and insurance premiums.Insurance company only offers paid administrative support and does not assume financial responsibility of health and insurance claims.Insurance premiums assessed annually, making it a reactive approach for some employers.ASO allows employers to be aware of rising costs on-the-go. It allows them to tackle any potential abuse of benefits.The insurance reserve increases when prior year spending is more than anticipated.  Any decrease in spending does not lessen premiums to the same extent for employers.When actual costs surpass last year's budget, the deficit passes onto the employer. When actual costs are less than the budget, it becomes a surplus. Thus, it becomes a direct benefit to the employer.Employers and employees share the costs.Same as traditional.Stuck to one insurance carrier. Difficult to negotiate or walk away for small to mid-sized businesses.Third-party administrators can choose from a variety of insurance offerings.

Related Readings

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