Administrative Services Only (ASO)

What Is Administrative Services Only (ASO)?

Administrative Services Only (ASO) is a plan where a company funds its own employee health benefit plan. Instead of paying premiums to insurers, the company pays for employees' healthcare costs as they are incurred. In this arrangement, a third-party administrator (TPA) or an insurance company administers the plan for a fee, handling responsibilities like enrolling employees, processing claims, and ensuring compliance with regulations. However, the company itself takes on the financial risk of providing healthcare benefits. This is often used by larger companies to save costs and maintain more control over their employees' healthcare plans.

What Is the History of Administrative Services Only (ASO)?

ASO plans came into existence in the mid-20th century. They grew in popularity in the United States following the enactment of the Employee Retirement Income Security Act (ERISA) of 1974. ERISA provided regulations that allowed companies, particularly large ones, to self-insure, which mitigated some of the risks associated with healthcare costs.

The main driving force behind the implementation of ASO plans was cost control. Companies sought to cut the costs associated with healthcare benefits but did not have the administrative bandwidth to manage them internally. Thus, contracting with a third-party administrator to handle the administrative services of a self-funded healthcare plan became a cost-effective solution.

Over the years, ASO plans have evolved and become more sophisticated due to changes in health care laws, increases in health care costs, and advances in technology. Despite these changes, the fundamental appeal of ASO plans -- control over healthcare costs and benefits offerings -- remains the same.

What's the Difference Between Administrative Services Only (ASO) and Self-Funded Health Plan?

Administrative Services Only (ASO) and Self-Funded Health Plan actually refer to the same concept but from slightly different angles.

A Self-Funded Health Plan is a structure where an employer assumes the financial risk of providing healthcare benefits to its employees. The employer is responsible for the healthcare claims of its employees rather than paying a fixed premium to insurance carriers.

Administrative Services Only (ASO), on the other hand, is the service that is often availed by companies which operate a Self-Funded Health Plan. In an ASO arrangement, the company hires a third-party, often an insurance provider, to administer the plan — handling tasks like processing claims and benefits disbursement, but the company retains the financial responsibility for these claims.

So, in summary, a Self-Funded Health Plan refers to the financial setup of the plan, while ASO refers to the administrative handling of that plan.

What Are Some Examples of Self-Funded Health Plan?

Most self-funded health plans are offered by larger corporations due to the potential risk involved. Here are a few examples of such plans:

1. Apple Inc: Apple operates a self-funded health plan for its employees, covering medical and dental claims.

2. Starbucks: Starbucks's "Your Special Blend" program is an array of benefits that includes a self-funded health plan, along with other perks.

3. General Motors: General Motors offers a self-funded health plan as part of its comprehensive employee benefits package.

4. Whole Foods Market: Whole Foods handles its own insurance claims through a self-funded benefits program that helps the company control costs and customize coverage for its employees.

5. Walmart: As the largest private employer, Walmart has a self-funded health plan to provide healthcare benefits to its employees.

Please notice that these examples are subject to changes as companies are free to change their coverage options and benefits packages at their discretion.

What Distinguishes an Administrative Services Only (ASO) Plan From a Third-Party Administrator (TPA)?

An Administrative Services Only (ASO) plan and a Third-Party Administrator (TPA) are different components within a self-funded health plan.

An ASO plan refers to an arrangement where an employer self-insures their employees' healthcare benefits, but contracts with an external entity, often an insurance company or a professional administrator, to handle the administration of the plan. The ASO performs tasks like claims processing, benefits disbursements, and compliance with regulations.

A TPA, on the other hand, is the entity that provides the administrative services in an ASO plan. They are a third-party organization specifically hired to administer healthcare claims for the self-insured employer.

So, in summary, an ASO plan is the self-funded setup where the employer takes on the financial risk of healthcare costs, and the TPA is the entity that actually administers the plan on behalf of the employer.

What Are Some Examples of Companies That Serve as Third-Party Administrators (TPAs)?

Here are some examples of companies that act as Third-Party Administrators (TPAs):

1. UnitedHealth Group
2. Blue Cross Blue Shield
3. Aetna
4. CIGNA HealthCare
5. Sedgwick
6. Gallagher Bassett
7. Broadspire
8. HealthSmart
9. Meritain Health
10. CoreSource

What Are the Benefits of Administrative Services Only (ASO)?

There are several benefits associated with Administrative Services Only (ASO) arrangements:

1. Cost Savings: ASO plans can often result in cost savings for employers, especially those with a healthy workforce. By directly paying for healthcare costs, employers can save on overhead and profit margins usually built into insurance premiums.

2. Flexibility and Control: ASO plans allow employers more control and flexibility in designing a healthcare benefits package that suits their specific workforce. This can result in more tailored, suitable coverage for employees.

3. Tax Benefits: Under current tax laws, employers can deduct their actual payments for employee healthcare costs, which can lead to substantial tax savings.

4. Cash Flow Benefits: Since claims are paid when healthcare services are provided rather than through regular premiums, companies can maintain better control over their cash flow.

5. Transparency: ASO arrangements can provide employers with more access to data on health claims, helping them to better understand the health trends of their workforce and manage their healthcare program.

6. Risk Management: Although the employer is taking on the risk of medical costs, they often purchase stop-loss insurance to limit their risk. This insurance kicks in if individual or overall claims exceed a certain amount.

What Are the Negative Effects of Administrative Services Only (ASO)?

While Administrative Services Only (ASO) plans do offer several benefits, there are also potential downsides to consider:

1. Financial Risk: The primary disadvantage of an ASO plan is the financial risk the employer assumes. If claims are higher than anticipated, it can lead to significant unexpected costs for the company.

2. Administrative Complexity: While the administrative tasks are handled by a third party, the employer still has to oversee the plan, make decisions, and ensure everything is compliant with the law. This can be complex and time-consuming.

3. Regulatory Requirements: ASO plans are subject to different regulations than insured plans. Ensuring compliance with these regulations can be challenging.

4. Variable Costs: Unlike fully insured plans where the premium is set for the year, costs for ASO plans can vary from year to year based on claims made by employees which can make budgeting for healthcare costs less predictable.

5. Employee Reactions: Depending on the structure, employees may see changes in their healthcare benefits, which might not always be welcomed. Employers need to manage these changes carefully to maintain employee satisfaction.

Overall, the decision to adopt an ASO plan should involve careful consideration of the potential risks and rewards. In many cases, it's ideal for larger companies that can absorb the potential financial risks and manage the larger administrative needs.

How Can the Risks Associated With Administrative Services Only (ASO) Plans Be Mitigated?

There are several strategies for mitigating the risks associated with Administrative Services Only (ASO) plans:

1. Stop-Loss Insurance: This insurance protects employers from exceptionally high individual claims (specific stop-loss) or high total claims (aggregate stop-loss) that exceed a predetermined level. This can cap the amount the employer might need to pay out in a given year.

2. Wellness Programs: Implementing and promoting wellness programs can help maintain or improve employee health, which may help to lower overall claims costs. These programs could include gym memberships, regular health screenings, quit-smoking programs, etc.

3. Strategic Plan Design: Employers can further control costs by strategically designing their healthcare plan, implementing cost-sharing measures like co-pays, deductibles, and co-insurance, or focusing on high-value care.

4. Data Analysis: Employers should consistently analyze their claims data to identify trends and potential cost-saving opportunities. This can help in early identification of potential high-cost claims and more efficient management of health services.

5. Employee Education: By effectively educating employees about the health plan, how to use it, and how to maintain their health, employers can foster more effective utilization of the plan, promoting preventive care and potentially reducing costly urgent care.

Employers considering an ASO plan should work closely with experienced insurance professionals, brokers, or healthcare advisors to appropriately balance the benefits of these plans with the potential risks.

Which Employers Are Likely to Be Affected by Administrative Services Only (ASO)?

Administrative Services Only (ASO) plans are typically attractive to larger employers due to the associated financial risks and administrative demands. However, smaller employers who are seeking to control healthcare costs and are prepared to assume extra risk may also consider this arrangement.

Employers who are most likely to be affected by ASO arrangements are:

1. Large Corporations: ASO allows such companies to potentially save significant costs on their employees' healthcare benefits and have more control and flexibility in their benefits package design.

2. Companies with a Healthy Workforce: Businesses with younger and generally healthier employees might have lower health costs, making the ASO arrangement a cost-effective option.

3. Employers Seeking More Control Over Healthcare Expenditure: By directly funding their employees' healthcare, employers can better manage their financial resources.

4. Employers in Stable Industries: Companies in industries that are stable and predictable may prefer ASO plans since they can better forecast their healthcare costs.

5. Employers Willing to Take On Risk: Companies that can absorb financial risk and unpredictability year-to-year may lean towards ASO plans.

6. Companies with Robust Risk Management Strategies: ASO arrangements can be a good fit for employers who have strong risk management strategies in place that can absorb or mitigate potential financial shocks from high healthcare costs.