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Understanding Administrative Services Only (ASO) - The What and How

Introduction

Administrative Services Only (ASO) is a general term used in the field of employee benefits to describe an arrangement where a third party, typically an insurance carrier or a professional organization, performs administrative tasks related to employee benefits for an employer. It aims to outsource administrative functions, allowing employers to focus on their core business activities.

What are Administrative Services Only?

ASO plans refer to a contractual arrangement where employer-sponsored employee benefit plans are self-funded, meaning the employer assumes the financial risk for providing the benefits directly to its employees. However, instead of handling all administrative tasks in-house, the employer contracts a third-party administrator (TPA) to manage the day-to-day operational responsibilities of the plan. The TPA may be the plan's insurance carrier or a specialized company providing administrative expertise.

Benefits of Administrative Services Only

Implementing an ASO approach offers several advantages:

• Cost Savings: By self-funding benefits, employers can eliminate the costs associated with a fully-insured plan, such as profit margins, state premium taxes, and risk charges.
• Flexibility: ASO plans allow employers to tailor plan design and benefits, providing greater flexibility in meeting the specific needs of their workforce.
• Data Access: Employers gain access to critical data and analytics, enabling them to make more informed decisions about benefit design, cost control, and population health management.
• Control: ASO arrangements give employers more control over the use of claims data and the ability to manage plan finances directly, resulting in greater oversight and accountability.

Drawbacks of Administrative Services Only

While ASO arrangements offer potential benefits, there are some potential drawbacks to consider as well:

• Risk Exposure: Employers must allocate reserves to cover high-cost claims or unexpected fluctuations in healthcare utilization, as the financial risk is transferred to the employer.
• Added Responsibilities: Employers may face additional administrative responsibilities, such as IRS reporting, complying with various federal and state regulations, and managing claims disputes.
• Expertise Needs: Employers need to possess or hire the necessary expertise to effectively manage an ASO arrangement or maintain a trusted partnership with a skilled TPA.
• Certainty of Costs: Unlike fully-insured plans that have set premium rates, ASO plan costs may fluctuate, making budgeting and financial planning more challenging.

Conclusion

Administrative Services Only (ASO) arrangements provide employers with flexibility, cost savings, and enhanced data control while requiring greater administrative involvement and financial risk assumption. Careful evaluation of an organization's goals, capabilities, and resources is crucial when considering an ASO approach to employee benefit administration. Working with a knowledgeable consultant or exploring well-structured TPAs can ease the transition, offering optimal benefits and reduced administrative burdens.

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