ASO is a fancy way of saying “Administrative Services Only” or self insured. That is where the Administrator of the plan is distinct from the insurance provider for the plan. Insurance companies will administer ASO plans but usually prefer to do so for larger employers.
Our company administers plans for small and medium sized employers. We use ASO plans because the economics are typically more favorable for the Plan Sponsor. By employing a deductible in the Plan, the premium can be a smaller element of the total cost of the Plan. The employer is responsible for paying claims up to the deductible. If an employee incurs claims past the deductible, the insurance starts to reimburse the claims.
So why doesn’t everybody do this?
1) Some advisors are not aware that this is available to small and medium sized employers.
2) The monthly expense may vary. While we budget the monthly expenses, they can be lumpy. So the employer may need to top up the Plan if every employee goes to the dentist in the same month. Savings generally occur in the later months of the policy year.
3) The Plan belongs to the Plan Sponsor. If they do not fund the Plan, the Administrator has no obligation to pay claims or premiums.
Then why have an ASO plan?
1) Sustainability. The Plan Sponsor controls the plan and can decide what benefits they want to offer. A good Administrator will review the Plan to ensure it is meeting the needs and budget of the Sponsor. We have a dedicated team of Benefit Specialists who pro-actively review each of our Plans.
2) Potential for savings. When the premium is a smaller element of the Plan, the premium increases (yes-the premiums will still increase over time) are likely to have a smaller impact on the total cost of the Plan. Savings can be passed onto the Plan Sponsor or used to enhance the Plan.
3) Information. The Administrator can provide data on how the employees utilize the Plan. Then the Plan can be modified to maximize value.
4) Control. The plan is a contract between you and your employees. You can decide what to offer to your group of employees.
5) Security. Our company is a member of the Third Party Administrators Association of Canada (TPAAC). As a member we are required to adhere to their strict code of ethics (which can be found here).
Is ASO a good solution for your health benefit plan? Ask your advisor today!
Author: Marla Schwartz MBA, CFA