An Administrative Services Only (ASO) plan is a setup where a company outsources benefits administration to a third-party administrator (TPA) instead of using a traditional insurance provider. The big difference? The employer covers employee claims directly, rather than paying premiums to an insurer that assumes the financial risk.
The TPA handles the admin work—processing claims, verifying eligibility, managing customer service, and designing plan features. ASO plans offer flexibility and cost control, but they also require smart risk management and financial planning.
How does an ASO work?
With an ASO, the employer pays a fixed fee to the insurance company for administrative services. This is usually based on a per-employee rate or a percentage of total claims paid out.
Employers are in charge of:
- Deciding contribution levels and designing the benefit plan.
- Using data and reports from the insurance company to track costs and make adjustments.
- Covering employee claims directly, instead of relying on an insurer to pay them.
Meanwhile, the insurance company handles the heavy lifting, including claims processing, enrollment management, customer service, and negotiating rates with healthcare providers and pharmacies.
What health benefits can ASO plans cover?
ASO plans can support a wide range of health benefits, including:
- Medical Insurance
- Dental Insurance
- Vision Insurance
- Prescription Drug Coverage
- Mental Health & Substance Abuse Services
- Wellness Programs
- Telemedicine Services
- Short-Term Disability
- Long-Term Disability
Why use an ASO?
Companies choose ASO plans for several reasons:
- Cost Control: Employers get full transparency into costs and can adjust benefits to manage expenses.
- Flexibility: Plans can be tailored to fit workforce needs, including coverage options and cost-sharing models.
- Customization: Employers can set their own rules for deductibles, copays, and coverage levels.
- Less Administrative Work: The ASO provider handles claims, customer service, and compliance, freeing up internal resources.
- Access to Data: Companies get detailed reports on claims, trends, and costs, helping them make smarter decisions.
- Better Employee Experience: A well-structured plan boosts satisfaction, morale, and retention.
- Risk Management: Employers take on financial risk, but they also gain control over strategies to lower costs, like wellness programs.
Is an ASO right for your business?
An ASO plan isn’t for everyone. Here’s what to consider before making the switch:
- Company Size & Budget: Do you have the financial strength and risk tolerance to self-fund employee benefits?
- Employee Needs: Does your workforce need customized benefits and flexibility, or would a standard plan work?
- Claims History: Have past claims been manageable, or are unexpected high costs a concern?
- Administrative Capacity: Can your HR team handle plan management, or would outsourcing be more efficient?
- Compliance & Regulations: Do you understand the legal requirements and reporting responsibilities of self-funded plans?
- Expert Consultation: Have you talked to a benefits consultant, broker, or legal expert to weigh the risks and benefits?
Switching to an ASO plan requires careful analysis. It’s all about balancing cost, flexibility, and risk to determine if self-funding is the right fit for your business.
