What is Administrative Services Only (ASO)?

Administrative Services Only (ASO) is an arrangement where an employer self-funds their employee benefits plan but outsources the administrative tasks to a third-party service provider. This setup is common among larger organizations seeking greater control over their benefits programs while leveraging the expertise of external administrators.

Key Features of an ASO Arrangement

1. Self-Funded Benefits

Under an ASO plan, the employer assumes the financial risk of providing benefits to employees. Instead of paying a fixed premium to an insurance company, the employer directly covers the cost of claims.

2. Outsourced Administration

Administrative tasks are managed by a third-party administrator (TPA) or insurance carrier. These tasks may include:

• Processing claims.
• Managing enrollment.
• Providing customer support.
• Ensuring compliance with regulations.

3. Flexibility

Employers have the flexibility to design a benefits plan that meets their unique needs, often resulting in cost savings and tailored coverage options.

Benefits of ASO Plans

1. Cost Control

Employers pay only for the actual claims incurred, rather than a fixed insurance premium. This can result in significant cost savings, especially if claims are lower than anticipated.

2. Plan Customization

ASO arrangements allow employers to design benefits packages that align with their organizational goals and employee needs. This customization can improve employee satisfaction and retention.

3. Transparency

Self-funded plans provide detailed data on claims and usage, enabling employers to analyze trends and make informed decisions about their benefits offerings.

4. Avoidance of Insurance Profit Margins

Since the employer funds the claims directly, they avoid paying the profit margins typically included in fully insured premiums.

Challenges of ASO Plans

1. Financial Risk

Employers bear the responsibility for covering claims, which can be unpredictable and costly. Stop-loss insurance is often purchased to mitigate this risk by capping the employer’s liability.

2. Administrative Complexity

While administration is outsourced, employers must still manage the relationship with the TPA and monitor compliance and performance.

3. Regulatory Compliance

Employers must ensure their plans comply with applicable laws, such as the Employee Retirement Income Security Act (ERISA) and the Affordable Care Act (ACA).

Who Uses ASO Plans?

ASO plans are typically adopted by:

• Large Employers: These organizations often have the financial resources to assume claims risk and benefit from the flexibility of self-funding.
• Mid-Sized Employers: Companies looking to transition from fully insured plans to a more cost-effective solution may also consider ASO arrangements.

Key Components of an ASO Agreement

1. Administrative Fees: Employers pay the TPA a fee for administrative services, often charged on a per-employee-per-month (PEPM) basis.
2. Claims Management: The TPA handles the day-to-day processing of claims, ensuring timely payments and accuracy.
3. Stop-Loss Insurance: To manage financial risk, employers often purchase stop-loss insurance to protect against high-cost claims or unexpectedly high overall claims.
4. Reporting and Analytics: Detailed reporting from the TPA helps employers monitor plan performance and identify opportunities for cost savings.

ASO vs. Fully Insured Plans

Conclusion

Administrative Services Only (ASO) plans offer a flexible and cost-effective way for employers to manage employee benefits while retaining control over plan design. By outsourcing administrative tasks, organizations can focus on strategic decisions and employee satisfaction. However, the financial risks associated with self-funding require careful planning and risk management. For employers with the resources and desire to customize their benefits programs, ASO can be a highly advantageous option.

‍