What Is an ASO Insurance Plan and How Does It Work?
Learn about ASO plans, a strategic health benefits model offering employers financial control and comprehensive administrative support.
An Administrative Services Only (ASO) insurance plan represents a distinct approach to employee health benefits. It enables employers to manage their healthcare costs effectively by funding their own plans. This arrangement allows a business to maintain significant control over its benefit offerings.
Understanding ASO Plans
An Administrative Services Only (ASO) plan operates as a self-funded health benefits arrangement. In this structure, an employer, often referred to as the plan sponsor, directly assumes the financial responsibility for its employees’ healthcare claims. This differs from traditional insurance where fixed premiums are paid to a carrier.
Key parties in an ASO arrangement include the employer, who bears the financial risk and pays the claims, and the ASO provider. The ASO provider, which can be an insurance company or a Third-Party Administrator (TPA), handles the administrative tasks. The ASO provider does not take on the financial risk for the healthcare claims themselves.
Services Provided by ASO Plans
ASO providers offer a range of administrative services to the employer. These services are designed to manage the day-to-day operations of the health plan without the provider assuming financial risk. A central function is claims processing, which involves evaluating, adjudicating, and paying employee healthcare claims.
ASO providers typically facilitate access to broad preferred provider organization (PPO) networks, allowing employees to receive care at negotiated rates. They also manage critical functions such as eligibility verification, employee enrollment into the plan, and the production of member identification cards. Other support includes customer service for plan members, managing Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs), and assisting with regulatory compliance, including aspects of COBRA.
Financial Structure of ASO Plans
To mitigate the financial exposure from high-cost medical events, self-funded employers frequently purchase stop-loss insurance. This insurance protects the employer from unexpectedly large individual claims or a high aggregate total of claims across the entire group.
Stop-loss insurance typically includes two forms: specific stop-loss, which covers claims exceeding a set amount for any single individual, and aggregate stop-loss, which limits the total amount an employer pays for all claims combined over a period.
The ASO provider is compensated through administrative fees, which are distinct from the actual claims payments. These fees are generally structured on a per-employee basis or as a percentage of total claims paid.
Distinction from Fully Insured Plans
The primary difference between ASO and fully insured plans is who assumes financial risk. In a fully insured model, the insurance carrier bears this risk in exchange for fixed monthly premiums paid by the employer. With an ASO plan, the employer retains the financial risk, paying for claims as they occur, which can offer cash flow advantages as funds are not paid upfront as premiums.
Employers with ASO plans generally have greater control over the design and customization of their benefit plans, allowing for tailored coverage options.
Regulatory oversight also differs; fully insured plans are subject to state insurance regulations, while self-funded ASO plans are primarily governed by federal law, specifically the Employee Retirement Income Security Act (ERISA). This federal oversight means certain state-specific mandates may not apply to ASO plans.