Guide to Administrative Services Only (ASO) Benefit Plans

When an employer enters into an ASO arrangement and pays for administrative services, the third-party administrator may complete the following tasks:

• Preparing a benefits administration manual with the terms of coverage

• Managing aspects of the Consolidated Omnibus Budget Reconciliation Act (COBRA) for current employees

• Overseeing health reimbursement accounts (HRAs), flexible spending accounts (FSAs) and health savings accounts (HSAs)

• Assisting with the benefits enrollment process

• Communicating with employees and answering their questions in real-time or within a certain number of hours or business days

• Ensuring employees understand their rights in terms of health insurance coverage

• Completing accounting tasks

• Evaluating and processing claims

• Adhering to an established privacy policy to protect employees' information

ASO plans typically occur in larger businesses that can spread the risk out among many employees, but no restriction prevents a smaller company from using an ASO plan. Smaller businesses may work to determine the benefits of offering an ASO plan versus the costs they may accrue. A small business may also consider adding in a stop-loss agreement to ensure it doesn't pay more than it can afford for unexpected claims.

Businesses that use ASOs can attract talented employees by highlighting this benefit when they're looking to fill open positions. An employee may find this plan enticing because they may be able to receive unconventional benefits that traditional group health care plans don't cover.

An employer has some creativity in choosing the direction they want to go with providing benefits, which can be appealing to an employee who has only had basic benefits in the past. Most ASO plans offer health insurance, dental insurance and short-term disability. Some plans may even offer long-term disability.

Related: FAQ: Employee Insurance Benefits

Yes, employers may refer to an ASO plan as a self-funded health care plan, as they are both the same benefit. An employee, who is a plan user, can expect their employer to pay the full costs of covered claims, while a third-party administrator is responsible for dealing with the associated administrative tasks.

The amount at which a business may set its stop-loss depends on many factors. The business can consider how many employees it has and how much it can reasonably afford to pay in claims for each year.

Traditional stop-loss levels appear around $10,000 to $15,000 per employee, making it harder for smaller businesses to afford. You can raise or lower this level based on the preferred level of risk. Some organizations offer stop-loss levels as low as $1,000 per employee, making it easier for some small businesses to afford the ASO plan.

Employees can rely on ASO plans just as they rely on any other insurance program. ASO plans remain under the administration of insurance companies. They just receive a different funding source. Also, many employers who offer ASO plans can provide additional benefits you may not get through traditional insurance coverage, like deductible reimbursement.

Consider these benefits of ASO plans:

• They come with the option of stop-loss agreements to minimize the financial effects of unexpected expenses.

• They allow employers to offer nontraditional benefits to employees, like designated paid time off for mental health breaks.

• The employer gets to retain the cost savings.

Related: 10 Unusual and Valuable Job Perks and Benefits for Employees

A disadvantage of an ASO plan is that the employer accepts full legal responsibility for paying all covered claims. They can minimize the risks of this situation by planning out their ASO benefits thoroughly to ensure they only agree to pay for claims for which they have the funds. Otherwise, they can establish a stop-loss agreement to relieve themselves of paying the costs after a certain amount. If you work in an HR position and are trying to decide if an ASO plan is the right option for your employer, you can review company information from recent years to today.

Determine what the company's budget is for employee benefits. If a company has used an ASO plan in the past and you're trying to determine if it's worth it to continue with this option, you can study analytics and data to see if the company had a surplus amount or experienced losses. These figures can provide you with actionable insight and help you determine the best place to go for employee insurance coverage. You may collect the names of different providers and see how they commit to helping the futures of employees.

While an ASO plan may be right for many businesses, it isn't the best option in every situation. For example, if a company chooses to offer life insurance over $10,000 or long-term disability benefits, it may find it easier to use a traditional group plan. These two claims prove costly and often happen suddenly. This makes it harder for a business to budget for and afford them on its own. A company can avoid this problem by forgoing life insurance, as this tends to be the most costly kind of expense.

If you work for a company that's experiencing a fast growth rate in terms of revenue and volume of employees, you may consider trading a group insurance plan for an ASO plan. This decision can take time and consideration, so it's important to think through it thoughtfully. Study these steps to learn how a business can switch over to an ASO plan:

1. Create a plan. The first thing to do is create an action plan. Determine an ideal timeline and start gathering details about the logistics of your desired ASO plan.

2. Gather a team. You may work with an accountant or account broker to review organizational data and understand a company's earnings, budget and restrictions. You may also work with someone who's an expert on health insurance laws so they can provide an independent perspective and ensure your place of employment abides by legal standards.

3. Determine a stop-loss level. Figure out where you prefer the insurer to begin covering claims. Traditionally, this number appears at around $10,000 to $15,000 per employee.

4. Hire an administrator. Appoint someone or hire someone within the company to administer the health care coverage. This ensures there's a designated individual to handle and process claims.

5. Inform employees. Share the news of the completed transition with the company's employees and establish a system for answering any questions they may have.