Administrative Services Only (ASO)
What Is Administrative Services Only (ASO)?
Administrative Services Only (ASO) is a type of business arrangement used by employers who hire an outside company to administer certain employee health benefits. The vendor provides administrative services only, not the benefit itself.
Administrative services only is used by employers who self-fund employee health benefits instead of purchasing health insurance for their workers. These employers pay claims out of their own pocket and hire a third-party administrator, often an insurance company, to run the program and process claims.
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What Health Benefits May Be Provided by Administrative Services Only Plans?
Administrative services only plans are most often used to provide employees with coverage for traditional healthcare needs such as doctor visits, prescription medicines, and hospitalizations. But ASO plans may also provide:
- Dental benefits
- Short-term disability coverage
- Long-term disability coverage
What Are the Advantages of Administrative Services Only Plans?
Administrative services only plans offer a number of potential benefits compared to traditional insurance plans, including:
- Lower costs (this is common, but not guaranteed; see below)
- Improved cash flow
- Greater flexibility and control in designing benefits
- Access to national preferred provider organizations
Are There Drawbacks to Administrative Services Only Plans?
Administrative services only plans come with substantial financial risk. The employer assumes full legal responsibility for paying all covered claims. If employees are generally healthy, the employer saves money. But if there are many costly claims, the employer’s finances could be devastated.
To protect against this risk, most companies with ASOplans purchase stop-loss insurance. This coverage pays only if the cost of employee health claims exceeds a predetermined amount, much like the deductible on an auto insurance policy. The employer still pays for claims up to that amount, but is protected from enormous unforeseen expenses. A stop-loss policy costs a fraction of the amount an employer would pay for traditional employee health insurance.
How Common Are Administrative Services Only Plans?
Administrative services only plans continue to increase in popularity. They have long been favored by large companies that can spread the risk of expensive claims over a large number of employees and dependents. In recent years as health insurance has become more costly, a growing number of small and medium-sized businesses have turned to ASO plans too, hoping to save money. Recently, 38.7 percent of all private sector employers offered a self-funded health plan.