Hybrid ASO (Administrative Services Only)
An employee benefit plan is a crucial part of the total compensation your employees receive, and a key tool to keep your workforce healthy and productive. A well-designed employee benefits plan helps you attract new employees, retain existing employees, and engage your employees through health and wellness initiatives.
There’s no question that a benefits plan can return huge value to your employees and your organization, but it’s crucial that your organization understands the value it’s receiving from your plan. As such, it makes sense to explore options that can help lower plan costs. One popular is commonly called ASO (Administrative Services Only). Let’s start by looking at traditional insured employee benefits, then look at some other options.
Traditional insured employee benefits
Traditionally, employee benefits programs are fully insured. This means:
1. The insurer assesses the employee group;
2. The insurer uses calculations to try to predict what claims will be made;
3. The insurer charges a monthly premium and pays claims.
The insurer assumes the risk. If claims are higher than they predicted, the insurer must cover the shortfall. If claims are lower than they predicted, the insurer keeps the extra money. Your premium doesn’t change month to month, but higher claims will impact the premium rates at the next renewal.
Traditional insured employee benefit plans give employers predictable expenses. You know in advance how much money is due (the premium) for the employee benefit plan. If there are large unanticipated claims, your monthly payment is not impacted.
Administrative Services Only (ASO)
Some employers choose to self-insure the health and dental components of their employee benefits plans. This means the employer is responsible for the funds needed to pay eligible claims. Employers that choose to self-insure still need a third party to administer the plan and dispense the money for covered claims. This arrangement is called “Administrative Services Only (ASO.)” The employer pays the third party to provide administrative services only.
When self-insuring, you’ll need an independent third party in order to maintain employees’ confidentiality. The ASO provider is usually responsible for maintaining employee records, adjudicating claims, paying claims (with the employer’s money) and communicating with employees. Simply put, the employer transfers one large amount of money to the ASO provider to cover anticipated claims, and the ASO provider then transfers many smaller amounts to employees with eligible claims.
Advantages to an ASO plan
Employers that choose an ASO employee benefit plan do so in order to save money. Rather than the insurer benefiting financially when claim costs are lower than anticipated, the employer benefits. For companies with a long claims history and a stable employee group, an ASO plan can be a good choice. Companies with this profile can often very accurately anticipate claims expenses. ASO plans also allow the employer to customize the plan, since it is not being provided by an insurer. This gives the employer the flexibility to choose exactly what is covered.
Disadvantages to an ASO Plan
The biggest disadvantage to an ASO plan is that the employer is assuming the risk. If actual claims exceed the budgeted amount, the employer is responsible for the deficit. This can be risky. As in any plan, drug claims are always the biggest risk. New specialty drugs can cost $50,000-$100,000 for treatment. This means a single large drug claim can be catastrophic to a company that self-insures drugs and doesn’t have a large contingency fund.
An ASO employee benefit plan is definitely not a good choice for employers that have ambiguous or volatile claims experience and a low risk tolerance.
The best of both worlds: Hybrid ASO
Hybrid ASO employee benefit plans combine the cost savings of self-insuring, with the protection of an insured plan. GroupHEALTH’s Hybrid ASO plans significantly lower the risk of self-insuring extended health and dental benefits. In Hybrid ASO plans, prescription drugs are isolated from other extended health benefits and are fully insured. This protects you, the employer, from the largest risk in ASO benefit plans, prescription drugs.
With Hybrid ASO, you still save money as compared to a traditional fully insured plan. You’re self-insuring predictable extended health and dental claims (like massage therapy, vision, physiotherapy, and more), but you are protected from volatile specialty drug costs. It really is the best of both worlds.
Logistics of Hybrid ASO
Typically ASO plans are best for large companies with the financial resources to pay claims and cover spikes in claims or large single claims (usually for specialty prescription drugs). Hybrid ASO opens the playing field for smaller organizations. It is ideal for employers with:
- 16 or more employees
- An employee group that is stable in both size and structure
- A moderate to low tolerance for risk
Good Advice is Key
A knowledgeable group benefits provider can help you decide whether ASO or Hybrid ASO are a good fit for your company. Get reliable information from a reliable source. Review your options with one of our licensed advisors on the phone, or contact us for a comparison quote.