Administrative Services Only

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What is Administrative Services Only?

Administrative services only (ASO) is an arrangement in which a company funds its own employee benefit plan, such as a health insurance program, while purchasing only administrative services from the insurer or a third-party administrator (TPA). 

By doing this, the business avoids paying insurance premiums to an insurance carrier and instead pays the claims made by its employees out of its own money. The TPA or insurer offers services like managing provider networks, processing claims, and providing customer service.

Under a fully insured plan, the company pays premiums to an insurance company and transfers the risk of claims to the insurer. This is not the case in an ASO arrangement. It also differs from a conventional administrator plan in which the insurance provider handles both the administration and the risk of claims.

What Are the Advantages of ASO Plans?

ASO plans offer several potential benefits for employers, such as:

• Lower costs: Employers can save money by self-funding their employee benefits by avoiding the standard premiums, taxes, fees, and commissions connected with fully insured plans. Also, customers can tailor their plans to meet their unique requirements and preferences and avoid paying for services they do not require or want.
• Improved cash flow: Employers can optimize their cash flow and put their money to better use by paying claims as they come in rather than in advance. On their reserves, they can also profit from investment income.
• Greater flexibility and control: Employers can have more influence over the creation, management, and administration of their employee benefits by self-funding them. Also, they can more readily modify their strategies to cope with evolving legal requirements or market realities.
• Access to national preferred provider organizations (PPOs): Employers can access national PPOs that provide discounts on healthcare services and providers by hiring an insurer or TPA to manage their ASO plans. Both their claim costs and employee satisfaction may decrease as a result.

What Are the Drawbacks of ASO Plans?

ASO plans also come with certain risks and challenges for employers, such as:

• Financial risk: Employers assume full legal responsibility for paying all covered claims by self-funding their employee benefits. This implies that the employer's finances could suffer greatly if there are several expensive claims, such as those brought about by accidents, illnesses, or pandemics. Most firms with ASO plans also acquire stop-loss insurance, which pays for claims that exceed a particular threshold, to mitigate this risk. Stop-loss insurance, however, raises the price of ASO policies and might not cover all kinds of claims.
• Administrative complexity: Employers who self-fund employee benefits have extra administrative duties and chores to handle, such as setting up reserves, filing reports, auditing claims, and following rules. In order to make sure their insurer or TPA is offering enough services and assistance, they must also keep an eye on their performance and quality.
• Legal liability: Employers who self-fund employee benefits may be exposed to higher legal risk and lawsuits from staff members, service suppliers, authorities, or other parties. Also, they might need to abide by other federal and state laws and rules, such as the Employee Retirement Income Security Act (ERISA), which controls self-funded plans.

How Common Are ASO Plans?

As healthcare expenses grow and insurance alternatives become more constrained, ASO plans are becoming more and more popular among companies. A self-funded health plan was provided to employees by 38.7% of private sector firms, according to a 2020 Kaiser Family Foundation study. The number was 67% for large firms with 200 or more employees, while it was 18% for small employers with 3 to 199 employees.

Large businesses that can spread the cost of expensive claims over a large number of employees and dependents are particularly fond of ASO plans. However, many small and medium-sized organizations have also opted for ASO plans in recent years in an effort to cut costs and regain control of their benefits.