Administrative Services Only (ASO)

What Is Administrative Services Only (ASO)?

Administrative services only (ASO) is an agreement in which a company retains its profit and control by funding an employee benefits plan but hires an outside company to handle its administration.

Agency services only (ASO) is a form of private health insurance administration provided by an external third party running the program and allowing the contracting employer to maintain regulatory liability for the program.

Understanding Administrative Services Only (ASO)

The benefits offered to Administrative Services Only (ASO) beneficiaries may vary depending on the terms of the ASO arrangement between an employer and insurance company or a third-party administrator (TPA). The terms Administrative Services Only (ASO) and Administrative Services Arrangement (ASA) refer to plans where the insurance company provides little to no insurance protection to participants. 

An Administrative Services Only (ASO) plan is a type of self-funded plan. A self-funded plan is one in which the employer takes full responsibility for claims made to the plan. Under most ASO plans, the employer assumes responsibility for paying medical bills that exceed a specified level—for example, $10,000 per insured person. In exchange, the insurance company pays or reimburses the employer for those expenses.

Administrative Services Only (ASO) insurance plans offer pre-tax, comprehensive benefits that typically cover short-term disability, health, dental, and vision benefits. Because each ASO plan is specific to a company’s needs and budget, there is no standard benefits package.

Types of ASO

There are two types of ASO

1. Pay-as-you-go 

Different companies offer different Pay-as-you-go (PAYGO) plans, and employee costs can be unpredictable. Sometimes a certain amount will be paid into the plan every month, and sometimes it may vary from month to month. Payers and contractors only pay into a PAYGO plan if the employer/ contractor has made an offer acceptable to them.

Pay-as-you-go plans do not have defined payment terms and interest rates, and the contractor can project and calculate fees even though it is being billed into a different department within the company.

2. Budgeted Plan

A budgeted benefit plan is more targeted than a traditional benefits plan because it focuses on how much you will spend each month rather than your expected future income. Again, Budgeted plans help you achieve fair coverage for unexpected events – for example, you stop working and lose your job.

However, a Budgeted plan focuses on longer-term expenses rather than short-term disruptions, which is more valuable for those who frequently anticipate changing work schedules.

Traditional Administrator vs. Administrative Services Only (ASO)

The main differences between the two policies arise when it comes to responsibility for claims. Traditional administrative agreements typically grant authority to the insurer to make claims on behalf of the policyholder. At the same time, an ASO requires that a third party claim a process between the insurer and the claimant.

The most fundamental difference between the traditional administrator agreement (TA) and ASO is that the premium is fixed and public rather than variable and personal. Under the traditional TAA, employers can fix the premium and make it available to all employees regardless of whether they have a claim. The term “administrator” is used to describe a third party who administers a plan on behalf of an employee to understand their benefits under the plan better and negotiate with employers directly.

If you use a traditional administrator, unexpected costs could cause your insurance premiums to increase. On the other hand, when you use an ASO agreement, the cost savings help keep your premiums down.

Traditional administrator agreements and ASO arrangements both have their benefits and drawbacks. The former is more fixed, but the latter is more flexible. It’s important to consider both options before making a decision.

Advantages of Administrative Services Only (ASO)

With an ASO, the employer retains control of key benefits and cost-saving programs. By retaining part of the premium, the employer earns a tax advantage and may offer certain benefits not available under other plans. Programs that offset major medical expenses are usually included in an ASO plan.

ASO ensures that an employer will not exceed the maximum benefit exposure. The cost of coverage is saved and may be used in place of wages for their employees.

Stop-loss insurance protects against large, unforeseen expenses, ensuring that you remain profitable and continue to grow.

Disadvantages of Administrative Services Only (ASO)

To be fiscally sound, companies need to keep their losses at a minimum. 

The employers bear the entire burden of deficits. 

Traditional administrator plans may be more cost-efficient.

What Is a Recommended Stop Loss Level for an ASO Plan?

The recommended stop loss level for an ASO plan is $10,000 per eligible employee.

Is Self-Funded Healthcare the Same as Administrative Services Only?

Self-funded health care and administrative services only (ASO) are the same. These arrangements are the most popular method of purchasing healthcare coverage because they allow employers to determine what they will pay for when it comes to their health benefits.

Who Keeps the Profits in Fully Insured Coverage?

When a plan is fully insured, the insurance company retains the profits and risk and pays claims.

Example of ASO

An example of administrative services only (ASO) plan is called Good Medicare—it helps reduce administrative costs for your employer by allowing you to pay a lower fee for health care than what you would pay if you had your plan. The fee reduction effectively pays for the administrative costs of paying for your insurance, eliminating most of the cost savings for your employer.