What Is an Administrative Services Only (ASO) Agreement?
Administrative Services Only (ASO) is an arrangement by which an organization funds its own employee benefit plan, such as a health plan, but hires an outside firm to perform specific administrative services. For example, an organization may hire an insurance company to evaluate and process claims under its employee health plan while maintaining the responsibility to pay the claims itself. An ASO arrangement contrasts with the context where a company buys health insurance for their employees from an external provider.
- ASO-based, self-funded insurance benefits 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 the functions of payroll, workers' compensation, health benefits, and HR services but wants to fund its own health plan.
Administrative Services Only (ASO)
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 these arrangements, the insurance company provides little to no insurance protection as it would through a fully-insured plan sold to the employer.
In this sense, an ASO plan is a type of self-insured plan 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 stop-loss arrangements 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 will protect the employer if claims are higher than expected, and these policies are particularly advisable for companies that choose a self-funded benefits plan to reduce financial risk.
ASO plans typically cover short-term disability, health, and dental care 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 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, an ASO arrangement may not be suitable for all companies, and it comes with certain risks.
Percentage of covered workers who were in a self-funded health plan as of 2017, according to the Henry J. Kaiser Family Foundation.
ASO Pros and Cons
The costs for fully insured plans depend on the 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 then anticipated, employers keep the surplus and reinvest the reserves. Employers may offer eligible benefits 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 particularly concerning. In these cases, employers often invest in a stop-loss insurance policy to provide an additional level of protection.
Overall, however, an ASO arrangement may not be suitable for life insurance and extended health care benefits. Ultimately, an employer would need to weigh the risks and benefits of how different ASO arrangements may impact their organizations.