Administrative Services Only (ASO): What Is It?
An agreement known as “administrative services only” (ASO) is used by businesses when they pay their employee benefit plan but contract with a third party to handle the administration. For instance, a corporation may contract with an insurance provider to review and handle employee health plan claims while still in charge of making the necessary payments. A corporation that obtains health insurance for its employees from an outside source is in contrast to an ASO arrangement.
Administrative Services Only (ASO): What You Need to Know
The terms of the administrative services only (ASO) plan vary depending on the business’s agreements with third-party administrators (TPA) and insurance carriers. In contrast to a fully insured plan provided to the employer, the insurance provider offers little to no insurance protection under ASO agreements.
As a result, ASO plans fall under the category of self-funded or self-insured plans. Claims made against the plan are entirely the responsibility of the employer. Because of this, many companies that use ASO plans also set up aggregate stop-loss policies, under which the insurance provider is responsible for paying claims that total more than a particular amount, such as $10,000 per insured person, in exchange for a fee.
Typically, short-term disability, health, and dental benefits are covered by ASO insurance plans.
They sporadically provide long-term disability coverage for larger firms. As more businesses, especially bigger ones, look into the possible financial benefits of this kind of plan, ASO services are becoming more and more popular. Employers may be able to exercise more control over benefit expenses through an ASO to satisfy their demands. ASO agreements come with some risks and might not be appropriate for all businesses.
Comparing administrative services only (ASO) with the traditional administrator
In a conventional administrator agreement, an insurance company is responsible for handling all aspects of claims administration. The services required to maintain and manage plans, including making judgments about and paying for claims, are the insurance company’s responsibility.
Alternatively, the insurance company exclusively offers administrative services for policies under the ASO. The employer, responsible for paying claim costs, uses the insurer as a third-party administrator.
In a conventional administrator agreement, premiums are set and reevaluated every year. Due to this system, employers can’t fully understand the effects of claims until after rates for the following year have been determined. With ASO agreements, employers may track changing prices in real time and make necessary plans.
With the traditional administrator, premiums rise the following year when costs exceed anticipated. If expenses are lower than anticipated, the insurance company keeps the surplus. In contrast, the surplus is reinvested with the employer under an ASO agreement.
Administrative Services Only (ASO): Benefits and Drawbacks
The price of fully insured plans is determined by how much an insurer thinks the upcoming year’s claims will cost. However, the annual funding amounts for an ASO are determined by the actual paid claims. Employers keep the surplus and reinvest the reserves if there are fewer claims than expected. Employers may add extra benefits, many of which would not typically be covered by traditional health insurance if there is a surplus.
Because the company pays a third party a negotiated fee rather than paying salary and benefits to dedicated staff, the overall costs of an ASO are often lower than those for a regular administrator. These cost savings can be used to grow the business and offset increases in claims. Alternately, the cost of ASO could be more than that of a conventional administrator plan if claims routinely exceed projections.
On the other hand, if claims go over budgeted amounts, employers would be liable for any deficit. A major risk is catastrophic claims or sudden, unforeseen disasters since they can go over budget and reduce profitability. Employers frequently purchase a stop-loss insurance policy to offer extra protection in these situations.
An ASO agreement might not always be appropriate for life insurance and additional healthcare benefits. Employers must assess the advantages and disadvantages of various ASO arrangements that may impact their businesses.
FAQs for Administrative Services Only
What Stop Loss Level Is Recommended for an ASO Plan? ASO plans frequently have a $10,000 per qualified employee stop loss limit.
Is administrative services-only healthcare the same as self-funded medical care?
Both administrative services (ASO) and self-funded healthcare fall under this category. These terms denote an insurance policy where the employer or organization pays the complete cost of any covered claims.
In a fully insured policy, who keeps the profits?
The insurance company keeps profits in a fully insured plan.
- Large companies frequently adopt ASO-based, self-funded benefit plans because they can distribute the risk of expensive claims across many employees and dependents.
- Many employers with ASOs also set up stop-loss arrangements because they are entirely responsible for claims made to the plan.
- Larger businesses who prefer to outsource operations like payroll, workers’ compensation, health benefits, and human resources but still want to pay for their health plan can use ASO agreements.
- ASO insurance often offers benefits for health, dental, and short-term disability.
- Traditional administrator plans are agreements in which the insurance provider bears the risk of claims and provides administrative services.