What Is Administrative Services Only (ASO)?

What Is Administrative Services Only (ASO)?

Let me explain what Administrative Services Only, or ASO, really means. It's an agreement where companies fund their own employee benefit plans but bring in an outside vendor to handle the administration. For instance, you might hire an insurance company to evaluate and process claims for your employee health plan, but you stay responsible for paying those claims yourself. This setup differs from simply buying health insurance from an external provider for your staff.

Key Takeaways on ASO

ASO-based, self-funded benefit plans are common among large firms because they can spread the risk of costly claims over a large number of workers and dependents. Since employers with ASOs take full responsibility for claims made to the plan, many also establish stop-loss arrangements to manage that risk. These agreements were designed for larger companies that prefer to outsource payroll, workers' compensation, health benefits, and human resources functions, but still want to fund their own health plan. ASO insurance generally includes short-term disability, health, and dental benefits, while traditional administrator plans involve the insurance company providing administrative services and assuming the risks of claims.

Understanding Administrative Services Only (ASO)

Plan specifics for ASO vary depending on the agreement you establish with insurance companies and third-party administrators (TPA). In these arrangements, the insurance company provides little to no insurance protection, which contrasts with a fully insured plan sold to the employer. As such, an ASO plan is a type of self-insured or self-funded plan where you, the employer, take full responsibility for claims made to the plan. For this reason, many employers using ASO plans also set up aggregate stop-loss policies, where the insurance company takes responsibility for paying claims that exceed a certain level—say, $10,000 per insured person—in exchange for a premium.

Aggregate stop-loss insurance policies will protect you if claims are greater than expected, and they're especially advisable for companies that choose self-funded benefit plans to reduce financial risk. ASO insurance plans typically cover short-term disability, health, and dental benefits, and occasionally long-term disability for larger employers. These services are gaining popularity as many employers, particularly larger ones, explore the potential financial advantages. An ASO may allow you to take greater control of benefit costs to meet your organization's needs, but remember, ASO arrangements may not be suitable for all companies, and they come with certain risks.

Traditional Administrator vs. Administrative Services Only (ASO)

A traditional administrator agreement is where an insurance company fully administers claims, taking responsibility for maintaining and managing plans, including deciding on and covering the costs of claims. Alternatively, under ASO, the insurance company only provides administrative services for plans, acting as a third-party administrator while you assume the duty to cover claim costs.

In 2022, 65% of employees were covered by an ASO plan. Under the traditional administrator agreement, premiums are fixed and reviewed annually, making it difficult for you to know the impact of claims until premiums are assessed for the next year. With ASO arrangements, you can keep track of fluctuating costs in real-time and plan accordingly. When costs exceed expectations in traditional plans, premiums increase the following year, and if costs are less, the surplus stays with the insurance company. But with an ASO agreement, the surplus is reinvested with you, the employer.

Advantages and Disadvantages of Administrative Services Only (ASO)

The costs for fully insured plans depend on an insurer's evaluation of anticipated claims for a given year, but for an ASO, annual funding levels are based on actual paid claims. If there are fewer claims than anticipated, you keep the surplus and can reinvest the reserves, perhaps offering additional benefits that wouldn't be covered by conventional health plans. The total costs for an ASO are typically lower than those for a traditional administrator because you pay a negotiated fee to the third party rather than salaries and benefits to dedicated staff. These cost savings can offset rises in claims and help your company grow, though if claims consistently exceed forecasts, the cost for ASO may exceed that of a traditional plan.

On the flip side, you would be responsible for any deficit if claims exceed budgeted amounts. Catastrophic claims or sudden events are a particular concern as they can exceed projected budgets and erode profits. You can invest in a stop-loss insurance policy for an additional level of protection in these cases. In some situations, an ASO arrangement may not be suitable for life insurance and extended healthcare benefits, so you need to weigh the risks and benefits of how different ASO setups might affect your organization.

Administrative Services Only FAQs

What is a recommended stop-loss level for an ASO plan? A common stop-loss level for an ASO plan is $10,000 per eligible employee.

Is self-funded healthcare the same as Administrative Services Only? Yes, self-funded healthcare and ASO are the same; these terms indicate an insurance arrangement where you assume full responsibility for the cost of covered claims.

Who keeps the profits in fully insured coverage? Under a fully insured plan, the insurance company retains profits.