What Are ASO Fees and How Are They Calculated?

Administrative Services Only (ASO) fees represent charges from third-party administrators (TPAs) or insurance carriers for managing the operational aspects of an employer’s self-funded health benefit plan. These fees compensate the provider for the day-to-day work involved in running a health plan, distinguishing them from the actual cost of medical claims. ASO fees are a fundamental component of self-funded benefit strategies, allowing employers to manage their own claims risk while outsourcing complex administration.

Understanding Administrative Services Only Arrangements

Administrative Services Only (ASO) arrangements are built upon the concept of self-funded health plans, where an employer directly pays for employee medical claims rather than transferring this financial risk to an insurance company through premiums. ASO arrangements provide the mechanism for these self-funded employers to outsource the administrative burden of managing such plans.

A key distinction between self-funded plans with ASO and fully insured plans lies in who bears the financial risk. In a fully insured plan, an employer pays fixed premiums to an insurer, and the insurer then assumes both the claims risk and the administrative duties. Conversely, under an ASO arrangement, the employer retains the financial risk of claims, paying them as they occur, while the ASO provider is compensated solely for administrative expertise. If claims are lower than anticipated, the employer retains the savings, which would otherwise be kept by an insurer in a fully insured model; conversely, they are responsible for higher-than-expected claims, often mitigated by purchasing stop-loss insurance. The ASO provider, whether an insurance carrier or a specialized TPA, does not bear the financial risk of these claims.

Services Included in ASO Fees

ASO fees cover various administrative tasks for employers. One primary service is claims processing, where the ASO provider receives, adjudicates, and pays medical, pharmacy, and dental claims according to the plan’s established rules.

Access to an established provider network is another component, allowing plan members to utilize a network of doctors, hospitals, and specialists, often with discounted rates. ASO providers also offer customer service, assisting plan members with inquiries about benefits, claims status, and locating in-network providers.

Reporting and analytics are also included, providing the employer with data on plan utilization, claims trends, and financial performance, enabling informed decisions on plan design and cost management. Furthermore, ASO fees encompass compliance support, assisting employers in navigating healthcare regulations like the Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act (ACA), and the Employee Retirement Income Security Act (ERISA). The ASO provider also handles enrollment and eligibility management, processing new employee enrollments, managing eligibility changes, and maintaining accurate member data.

How ASO Fees are Structured

ASO fees are commonly structured in several ways, reflecting different charging models for administrative services. The most prevalent method is the “Per Employee Per Month” (PEPM) model, where a fixed fee is charged for each employee covered by the plan, regardless of the volume of claims incurred. This provides a predictable administrative cost for the employer each month.

Another structure involves charging a fee as a percentage of the total claims paid out by the employer. This model directly links the administrative cost to the actual claims volume. Some arrangements use a fixed fee or base fee, which is a flat annual or monthly charge, often applied to smaller groups or for limited services. This offers a consistent administrative expense.

Hybrid models combine elements of these structures, such as a base PEPM fee with additional charges for specific services or for stop-loss insurance coverage. These structures can vary based on the specific services included in the agreement, the size of the employer group, and negotiations between the employer and the ASO provider. Some ASO plans may also operate on a “budgeted” basis, where monthly payments include an estimate for claims, with a reconciliation at year-end, while “non-budgeted” plans require the employer to pay claims as they occur, providing more direct cash flow management.