What Is Administrative Services Only (ASO)?
Administrative services only (ASO) refers to an agreement that companies use when they fund their employee benefit plan but hire an outside vendor to administrate it. For example, an organization may hire an insurance company to evaluate and process claims under its employee health plan while maintaining the responsibility of paying the claims itself. An ASO arrangement contrasts with a company that purchases health insurance for its employees from an external provider.
Percentage of covered workers who were in a self-funded health plan as of 2019, according to the Henry J. Kaiser Family Foundation. This percentage is similar to last year's figure, which has been relatively stable for the past-10 years.
Understanding Administrative Services Only Agreements
ASO arrangements are common in Canadian health plans. Plan specifics vary depending on the agreement a company establishes with insurance companies and third-party administrators (TPA). In ASO arrangements, the insurance company provides little to no insurance protection, which is in contrast to a fully insured plan sold to the employer.
As such, an ASO plan is a type of self-insured or self-funded plan. The employer takes full responsibility for claims made to the plan. For this reason, many employers using ASO plans also establish aggregate stop-loss policies in which the insurance company takes responsibility for paying claims that exceed a certain level; for example, $10,000 per insured person in exchange for a premium.
Aggregate stop-loss insurance policies will protect the employer if claims are greater than expected. These policies are especially advisable for companies that choose self-funded benefit plans, in order to reduce financial risk.
ASO insurance plans typically cover short-term disability, health, and dental benefits. Occasionally, they cover long-term disability for larger employers. ASO services are gaining popularity as many employers, particularly larger ones, explore the potential financial advantages that this type of plan can provide. An ASO may allow an employer to take greater control of benefit costs to meet the organization's needs. However, ASO arrangements may not be suitable for all companies, and they come with certain risks.
- ASO-based, self-funded benefit plans are common among large firms because they can spread the risk of costly claims over a large number of workers and dependents.
- Because employers with an ASO take full responsibility for claims made to the plan, many also establish stop-loss arrangements.
- ASOs were designed for larger companies that prefer to outsource payroll, workers' compensation, health benefits, and human resources functions, but also want to fund their own health plan.
Weighing the Considerations of ASOs
The costs for fully insured plans depend on an insurer's evaluation of anticipated claims for a given year. For an ASO, however, annual funding levels are based on actual paid claims. If there are fewer claims than anticipated, then employers keep the surplus and reinvest the reserves. Employers also may offer eligible benefits that are not covered by conventional health plans.
However, employers would be responsible for any deficit if claims exceed budgeted amounts. Catastrophic claims or sudden and unexpected events are of particular concern. Employers often invest in a stop-loss insurance policy to provide an additional level of protection in the event of these cases.
Overall, however, an ASO arrangement may not be suitable for life insurance and extended healthcare benefits. Ultimately, an employer would need to weigh the risks and benefits of how different ASO arrangements might affect their organizations.