Administrative Services Only (ASO)

What is Administrative Services Only (ASO)?

Administrative Services Only (ASO) is an agreement that a company uses when they decide to fund their employee benefits plan. It involves hiring an external vendor or a third-party administrator to take care of the administration of the company’s health benefits plan. It is important to highlight that the external vendor does not provide the benefit per se. As the term Administrative Services Only implies, their job is to handle the administrative aspect only. 

For example, Company A decides to fund their health benefit plan for employees. The company hires an insurance company to review and process claims made by employees under Company A’s health benefit plan. While the claims are processed by the insurance company (external vendor), the claims themselves are paid for by Company A. 

What health benefits coverage do Administrative Services Only (ASO) plans provide? 

Though the health benefits coverage details of each company vary, Administrative Services Only (ASO) typically provides doctor’s check-ups, prescription medicines, and hospital stays. Depending on the company, Administrative Services Only plans may also cover dental benefits, short-term and long-term disability. 

What are the pros of having an Administrative Services Only (ASO) Plan?

Having an Administrative Services Only (ASO) Plan in place can yield potential financial advantages for companies. Because it is a self-funded benefit plan, an ASO plan allows a company to have greater control of benefit costs. They can be flexible and customize the benefits to fit the company’s needs. 

The annual funding amount per year is based on the actual paid claims made by the company. Meaning, if employees have been mostly healthy throughout the year, fewer claims were made. Ultimately, fewer claims mean less money out of the company’s funds and more into savings or reserve funds. While this may seem beneficial at first glance, this arrangement does not necessarily mean fewer costs every time. There is no guarantee. 

What are some disadvantages of having an Administrative Services Only (ASO) Plan?

Since the health benefit is self-funded, all claims are paid by the company. This is good if there are only minimal claims or if the employees are generally in good health. On the other hand, the company also faces potential financial risk. Accidents, sudden illnesses, surgeries, and other health concerns can cause expensive and costly claims, the employer will still be responsible for them even if it exceeds their allotted budget.  To reduce financial risk, companies can invest in a stop-loss insurance policy. 

What is stop-loss insurance?

Stop-loss insurance is an extra level of protection for companies. Employers will set a predetermined amount as the limit or ceiling to the claims they will pay. In case the claims go beyond this cap, anything that goes beyond the limit is covered by the stop-loss insurance. This way, the burden of paying excessive claims will be lifted off employers and they can reduce financial risk. 

Do a lot of companies have Administrative Services Only (ASO) Plans?

Administrative Services Only (ASO) plans have been used by large companies to mitigate the risk of expensive claims. Its popularity has increased with small and medium-sized companies. Organizations need to weigh the pros and cons, advantages and disadvantages of ASO plans.