Administrative Services
Group Administrative Service is a type of service, commonly known as Administrative Services Only (ASO), where an employer self-funds certain employee benefits, but outsources the claims processing and other administrative tasks to a third party. This provides greater control over benefit costs and plan design compared to a traditional fully insured plan.
How ASO plans work
Under an ASO plan, the employer assumes the financial risk for predictable and routine claims, while outsourcing administrative duties like:
- Claims adjudication and payment: The administrator determines claim eligibility and disburses funds to employees.
- Customer service: The administrator handles employee inquiries and concerns.
- Record keeping and reporting: The administrator maintains plan records and provides the employer with detailed reports on claims experience and utilization.
ASO vs. traditional insured plans
| Feature | Administrative Services Only (ASO) | Traditional Insured Plan |
|---|---|---|
| Financial risk | The employer assumes the risk for claims and pays them as they are incurred. | The insurer assumes all the financial risk for claims in exchange for a premium. |
| Cash flow | The employer keeps control of the cash flow and only pays when a claim is made, potentially improving interest earnings. | The employer pays a fixed monthly premium, and the insurer holds the funds. |
| Cost | Potential for cost savings if claims are lower than anticipated, as the employer keeps the surplus. | Premiums include administrative costs, profit margins, and risk fees, which can be higher. |
| Transparency | The employer receives transparent, detailed monthly reports showing exactly where their money is going. | Premiums are less transparent, and the employer may only see cost adjustments at renewal. |
| Flexibility | The employer has greater control and flexibility to customize plan design. | Customization is often limited by the insurer's standard offerings. |
Components of an ASO plan
Self-insured benefits: These typically include predictable, high-frequency benefits with lower claims, such as:
- Health care (prescription drugs, paramedical services)
- Dental care
Insured (pooled) benefits: Less predictable and more catastrophic risks are typically handled by a fully insured plan, including:
- Life insurance
- Accidental Death & Dismemberment (AD&D)
- Long-term disability
- Emergency out-of-country medical
Stop-loss insurance: To protect against unexpectedly high claims for a single individual or the group as a whole, employers can purchase a stop-loss policy. This policy caps the employer's liability, and the insurer covers costs once the cap is reached.
Is an ASO plan the right choice?
ASO plans are most beneficial for employers with:
- A stable claims history: Predictable claims make it easier to budget and manage risk.
- The desire for greater control: Employers who want transparency and flexibility in their plan design.
- Financial stability: A company must have the cash flow to handle months with high claims.
- The ability to tolerate risk: The employer directly assumes the financial risk of a potential claim deficit.