Administrative Services Only (ASO)

What is ASO?

Administrative Services Only (ASO) is an arrangement in which an employer self-funds employee benefit claims but hires an outside vendor—often an insurance company or third‑party administrator (TPA)—to handle plan administration (claims processing, provider network access, billing, etc.). The employer remains responsible for paying claims; the vendor provides administrative services only.

How ASO works

• Employer funds claims from its own accounts and retains the financial risk.
• A third party manages day‑to‑day administration (claims adjudication, member services, reporting).
• Employers commonly purchase stop‑loss insurance to limit exposure to large or unexpected claim costs.
• Annual funding is based on actual paid claims rather than an insurer’s projected premiums.

Common coverages

ASO arrangements typically cover:
* Health insurance
* Dental
* Short‑term disability
* Occasionally long‑term disability for larger employers

Stop‑loss protection

Stop‑loss insurance shifts extreme losses back to an insurer when claims exceed set thresholds. Two common forms:
* Specific (per‑person) stop‑loss: covers catastrophic claims above a per‑individual threshold (an example threshold often used is $10,000 per covered person).
* Aggregate stop‑loss: covers total plan claims that exceed a defined aggregate level.

Why employers choose ASO

• Control: More direct oversight of plan design, claims management and data.
• Cost transparency: Real‑time visibility into claims and expenses.
• Potential savings: Administrative fees are negotiated and surplus funds (if claims are lower than expected) remain with the employer and can be reinvested in benefits.
• Flexibility: Easier to customize benefits compared with standard fully insured products.

How ASO differs from fully insured plans

• Fully insured: Employer pays fixed premiums to an insurer; the insurer bears claim risk and retains any underwriting profit.
• ASO (self‑funded): Employer pays actual claim costs and keeps any surplus; the insurer/TPA only provides administration and may offer stop‑loss coverage.

Pros and cons

Pros
* Cost savings when claims are favorable—surplus funds stay with the employer.
* Greater control over plan design and cost‑management strategies.
* Customization and potential to offer additional benefits not typical in fully insured plans.
* Stop‑loss insurance can limit catastrophic exposure.

Cons
* Employer assumes full liability for claim deficits and catastrophic events.
* Large or volatile claims can erode profits and increase financial risk.
* Not always the most cost‑efficient option for smaller employers or organizations with limited cash reserves.
* Some benefits (e.g., life insurance or extended health offerings) may be less suitable under ASO in certain cases.

Who is ASO best for?

ASO is often attractive to larger employers with:
* Sufficient cash flow and risk tolerance to fund ongoing claims.
* Resources to analyze claims data and implement cost‑management programs.
* A desire for customized benefits and control over plan design.

Key facts

• ASO is another term for a self‑funded plan—the employer pays claims directly and outsources administration.
• Employers commonly add stop‑loss insurance; a frequently cited specific stop‑loss example is $10,000 per eligible employee.
• In 2022, roughly 65% of employees were covered by an ASO plan.

Frequently asked questions

Q: Is self‑funded healthcare the same as ASO?
A: Yes. “Self‑funded” and “ASO” are often used interchangeably to describe plans where the employer funds claims and hires an administrator.

Q: Who keeps profits under a fully insured plan?
A: Under a fully insured plan, the insurance company retains underwriting profits; the employer does not receive any surplus.

Q: What stop‑loss level is commonly recommended?
A: A common specific stop‑loss threshold cited is $10,000 per eligible employee, though actual thresholds vary by employer and market.

Conclusion

ASO arrangements offer employers greater control, potential cost savings, and flexibility by separating financing (employer) from administration (vendor). They also transfer meaningful financial risk to the employer, making stop‑loss insurance and careful claims management important components of a successful ASO strategy. Employers should weigh size, cash flow, risk tolerance and administrative capabilities before choosing ASO.