What is an Administrative Services Only (ASO) Plan?
By: Benefits by Design | Tuesday April 23, 2019Updated : Tuesday December 15, 2020
Administrative Services Only (ASO) provides a different funding arrangement than a traditional benefits plan that can translate to significant cost-savings.
In a traditional benefits plan, employers pay a set monthly premium and receive an annual renewal at the end of their benefit year, where premiums increase or decrease based on usage. Employers pay a set amount throughout the year regardless of usage, so they’re sometimes paying for benefits that are underutilized (or not utilized at all), leading some to wonder, “Is there a better way for me?”
Administrative Services Only (ASO) is that better way! ASO is a benefits solution growing in popularity as Insurers, Advisors, and employers continue to explore the merits of a self-insured arrangement versus an insured plan.
What is an ASO?
Administrative Services Only (ASO) benefits plans are a self-insured solution for employers and one of several benefits funding options. An employer pays for employee’s eligible health and dental claims (plus any applicable administration fees, commissions, and taxes). As a result, they assume the risk of claims.
You can also purchase additional insured protection called Stop-Loss, where you can limit the amount you would pay for employees’ claims. The Insurer will pay any claims above the chosen threshold, helping keep your costs more controlled.
With an ASO plan, employers will pay only for what gets used throughout the year. In contrast, on a fully-insured plan, employers may be paying for health and dental benefits that aren’t used.
What are the advantages of a self-insured plan?
Full disclosure — ASO plans aren’t perfect for every employer. However, for the right employer, there can be several advantages.
- Lower Costs. Paying only for actual claims made will generally bring costs down. The main cost savings component comes from the reduction of charges the insurer charges for their risk.
- Plan Flexibility. Endless possibilities for plan design, including choice in benefits coverage and exclusions.
- Transparency. Employers pay claims (plus taxes, administration fees, and commissions) throughout the year. They get a clear and consistent fee structure every time.
Budgeted vs. Non-Budgeted ASO Plans
ASO plans come in two types: budgeted and non-budgeted.
Non-Budgeted ASO arrangement allows for direct billing of claims with no calculated month-to-month premiums other than set cost benefits, such as Travel.
You will need to have a steady cash flow to support the changes each month as funds can fluctuate based on employee claiming activity.
Budgeted ASO arrangements charge monthly premiums. These premium costs take your previous claiming activity, expected claims, administrative fees, and taxes into consideration.
If claims are less than budgeted, you will receive the funds back at the time of reconciliation. Depending on the surplus, you could receive a lump-sum payment, a credit on your account for future months payments, or could work it back into the budgeted rates.
For example, if the employer’s monthly claims were budgeted at $1,000, but only $800 were claimed, they would be credited for the $200.
Employers will owe any amounts surpassing the previously established level of the budgeted claims. Depending on the deficit, you could be required to provide a lump-sum payment or revisit the monthly budgeted rates to collect the deficit amount owed.
For example, if the employer’s monthly claims were budgeted at $1,000, but hit $1,200 that month, they would be on the hook for the extra $200.