In the world of employee benefits, the Administrative Services Only (ASO) funding model has been gaining traction. It’s an alternative to a traditional insured employee benefits plan, and for some organizations, it’s the right fit.
Traditional Employee Benefits
Most organizations and employers are familiar with the funding model behind a traditional employee benefits plan. In this scenario, the insurer assumes the risk associated with the employee benefits plan. The organization is paying a premium in order for the insurer to take on that risk. The insurer calculates the premium by examining past claims history, industry averages and many more factors. Included in the premium is a fee for the administration of the plan.
The employer pays the set amount (monthly premium) regardless of usage. If claims are higher than the insurer had anticipated, the organization does not have to pay more during the year. In this way, the employer is protected from catastrophic or unexpected claims. At the end of the benefits year, the insurer will examine the year’s claims and may adjust the premium as a result.
If benefits are underutilized, the employer or organization is still paying the same premium. When this happens, the insurer’s profits increase.
Administrative Services Only (ASO) Employee Benefits
An ASO employee benefits plan means the organization or employer self-funds the benefits plan. The employer is assuming the risk associated with higher than anticipated or catastrophic claims, instead of transferring the risk to an insurer.
In this scenario, the employer hires an outside vendor (third-party) to administer the employee benefits plan and pay the claims (with the employer’s money). The third-party is responsible for maintaining employee confidentiality while evaluating and processing claims.
An ASO funding arrangement is most often used for health benefits, dental and sometimes short-term disability. Benefits such as life insurance, critical illness insurance and long-term disability are very rarely included in an ASO structure. This is because they are infrequent, significant claims that are very unpredictable.
There are two ways that an employer can pay for claims in an ASO arrangement.
- Budgeted ASO – This means the third-party administrator collects a premium from the employer (based on previous claims experience, expected claims and fees for administering the plan). If claims are less than anticipated, the employer receives those funds back at reconciliation. If the claims are more than anticipated, the employer is responsible for the surplus (either a lump sum payment or through changes to future premiums).
- Non-Budgeted ASO – This means the employer is billed directly for claims, with no calculated month to month premium. In this scenario, the employer must have good cash flow in order to accommodate months with high claims. Typically, the insurer or third-party providing the administrative services requires a security deposit to protect against loss of funds.
Finding the Right Fit
There are many variables that should be considered when choosing between a traditional insured employee benefits plan and an ASO funded plan. The right employee benefits provider will help you assess the risk/rewards of venturing into ASO territory.
- Fully Insured Employee Benefits Plan
Organizations with a lower tolerance for risk or unpredictable claims history are best suited for a fully insured employee benefits plan. This way the employer knows that large or unexpected claim costs will be the responsibility of the insurer, protecting the sustainability of the organization.
- Administrative Services Only (ASO) Employee Benefits Plan
In general, ASO is best for large companies with predictable claims histories. It’s a good option for an organization with a higher tolerance for risk that is looking for greater control of benefit plan costs. It can also provide the opportunity for total plan flexibility, since the organization is funding the plan, not an insurer. Organizations who wish to see benefit plan costs in real time (as opposed to hearing about it at renewal time) may also find ASO a good fit.
- Hybrid Administrative Services Only (ASO) Employee Benefits Plan
Hybrid ASO combines many of the cost saving advantages of an ASO arrangement with an element of insurance to protect against large claims that could impact the longevity of the organization. For example, prescription drug claims may have a ‘stop-loss’ threshold whereby any amount above the agreed upon threshold is full insured. In the case of specialty drugs this is a critical way to control the amount of risk that is being assumed by the organization.
Good Advice is Key
Are you looking for advice on whether an ASO funding arrangement may be a good fit for your organization? Have you considered the cost savings that may come from switching to an ASO employee benefits plan? Review your options with one of our licensed advisors on the phone, or contact us for a comparison quote.
Whether you’re looking for extended health and dental coverage, disability coverage, or life and critical illness coverage, GroupHEALTH has affordable benefits packages that work as hard as you do.