Administrative Services Only (ASO) is a short-term employee benefit plan that’s self-funded by employers for their employees.
Here, the company comes to an agreement with a third-party administrator (TPA) or a vendor, outsourcing the responsibility to them to look after the whole health benefits process, including the claims on behalf of the employers and employees. Generally, this third-party vendor is an insurance company but that is not always the case.
This third-party vendor often carries out administrative tasks for the business while processing private medical insurance claims for the employees.
Typically, large businesses go for ASO since they have a large number of employees and workers, which help them in disbursing the administrative and health benefit costs appropriately among them.
How an Administrative Services Only (ASO) Functions
To put the ASO function into perspective, let’s assume that the employers of a large firm have decided to acquire medical insurance from an insurance company for their huge number of employees and workers. But they’ve outsourced the overall process of reviewing and approving/rejecting claims to another firm.
Here, that firm won’t pay the premiums, assume any risks, or be responsible to comply with any of the insurance policies. All these liabilities will be borne by the employers.
That’s why many employers often adopt Aggregate Stop-Loss Insurance policies which compel the insurer to take responsibility to pay for the claims that exceed an expected number.
Nonetheless, the planning and functions of ASO may vary depending on the agreement among the main company, the insurance company, and third-party administrators.
The key factors that you can notice in an Administrative Services Only (ASO) agreement are
The whole employee benefit plan is self-funded by the employers of the company.
The insurance company bears very little liability for the insurance protection as opposed to a fully purchased insurance plan.
The employers have to take full responsibility for the insurance claims, including the premiums and claim process; hence, opting for a third-party administrator.
ASO usually covers short-term disability, such as dental and health benefits. But there’s a scope for a long-term disability benefit as well.
ASO is suitable for larger businesses with a large number of employees and workers.
This self-funded administrative program has its own risks that are mostly borne by the company itself.
Differences Between Conventional Administrator and Administrative Services Only
Knowing the differences between a conventional administrator and an Administrative Services Only (ASO) administrator will help you in understanding the functions of ASO better before putting it into action.
Let’s outline a few differences below:
Administrative Services Only
In a conventional administrator program, an insurance company carries out the claim process.
In an Administrative Services Only (ASO), the insurance company serves as a third party that only helps in carrying out administrative procedures such as reviewing claims.
Conventional administrator plans work under the agreement of fixed premiums and annual reviews.
In ASO, employers can review and track the costs of the program throughout the agreed timeline.
If the costs of this plan go beyond what’s expected, the premium will increase in the next year whereas the balance accrued from lower costs remain with the insurer.
With ASO, the employer can reimburse or reinvest the surplus in the current administrator plan.
Benefits and Downsides of Administrative Services Only (ASO)
Let’s point out some of the benefits you can achieve as an employer while implementing ASO within your business:
The annual funding is based on real paid claims.
The surplus due to the fewer claims than expected can be reinvested by the employer for the further benefit of employees and the company itself.
The overall expenses for an ASO are usually lower than the traditional administrator.
The ‘aggregate stop-loss’ policy protects the employer from exceeding or uncertain costs for claims.
Smaller businesses or startups may benefit from the ASO program as they’re less familiar with the legal and administrative processes of providing health benefits, the intricacies of healthcare policies, and so on.
Now, let’s take a look at the downsides of an ASO:
When the claims are higher than expected, the employer has to pay for the deficits.
Any loss that takes place within the ASO program will eat away at the profits.
On many occasions, an ASO might not prove effective for advanced healthcare benefits and life insurance.
So, based on whatever we have discussed so far, we can come up with the following takeaways for you regarding the Administrative Services Only:
ASO can work well with a group health insurance program for short-term and long-term employee benefits.
ASO is a self-funded benefits program of which the liability mostly lies with the employer of the company.
The employer can establish a stop-loss policy in order for sharing the cost of the deficits in a year with the insurance company.
An ASO insurance program will benefit employees with dental, health, and short-term disabilities.
The ASO works in contrast with the traditional administrator program where the third-party insurer or vendor doesn’t assume the risks of claims.