An administrative services only plan (ASO) is an agreement between a company and an insurance provider. According to the terms of most ASO contracts, the parties agree that the company will fund its own employee benefits plan, and the insurance provider will process any claims that the company’s employees submit.
Discover how an ASO plan benefits a company, its employees, and even the insurance companies below.
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Give Your Staff What They Need
The level of competition companies face in the modern business world forces employers to stay on their toes. Retaining your best talent represents a sure-fire way to maintain your company standards. However, to keep your best employees and stay within budget, you need to offer attractive benefits to your staff while closely managing your costs.
ASO plans, like standard insurance plans, allow companies to provide employees with health benefits. They may include cost-sharing options, drug cards, stringent claims adjudication, and more.
Under an ASO plan, also known as self-funded healthcare, the company covers their employees’ eligible dental and health claims up to a specified amount. Once the accepted claims surpass the agreed-upon stop-loss amount, the insurance company then pays for all remaining and future claims for the year.
Differences Between an ASO Plan and a Standard Insurance Plan
A standard group insurance plan and an administrative services only plan both serve the same need. However, each approach has its benefits and drawbacks.
Effective Coverage
ASO plans are a good fit when covering minor, short-term health issues, like:
- Regular doctor visits
- Paramedical services
- Prescription drugs
- Vision services
These relatively low-cost claims seldom cause financial hardship to a company. Also, employers can monitor cost fluctuations in real-time if they have an ASO in place.
Provincial and supplemental health insurance plans protect employees during serious medical events without placing a heavy financial burden on the company. This type of insurance performs well when covering:
- Life-threatening illnesses or injuries
- Loss of limb
- Other high-cost claims
Fortunately, Canada’s public healthcare system covers most medical incidents.
Premiums
For a traditional insurance plan, the premiums remain fixed, and employers can only review them annually. Also, the insurance company keeps any surplus premiums if the cost of claims falls below the expected value.
In an ASO plan, the employer pays for third-party administrators to process claims but does not pay premiums towards healthcare claims reimbursement. Instead, the company pays for medical bills as they arise. Thus, the company can reinvest any surplus from the money set aside for medical claims.
For help choosing between supplemental coverage and an ASO plan, compare your health insurance options to understand the various types of arrangements available in Canada.
What You Need to Know About ASO Plans
The specifics of ASO plans depend on the terms agreed upon by companies and insurance providers as third-party administrators.
Aggregate Stop-loss
Under a pure ASO plan, the employer assumes total responsibility for claims made by employees. To avoid financial disaster, many companies set a deductible as part of an aggregate stop-loss policy. With a stop-loss in place, the insurance company agrees to pay all claims that exceed the deductible.
Financial Control
An ASO plan provides employers with better control of the company’s costs. As a result, ASO plans continue to gain popularity because of their financial advantages. Many third-party administrators also offer budgeted ASO plans. These plans provide companies with limited spending and customization options.
Advantages of an ASO Plan
ASO plans offer several advantages over traditional insurance options. Take a look at some of the benefits of an ASO plan below.
Precise, Needs-based Funding
With a standard insurance plan, the insurance provider evaluates a company’s anticipated claims for that year before deciding on the cost of premiums. ASO plans, on the other hand, base their annual funding on actual paid claims.
Retention of Funds
With an ASO plan, employers can access any funds left over after the third-party administrator processes all claims for the year and reinvest the funds as they deem fit. This feature allows the company to provide additional benefits that traditional health plans may not offer.
Cost-effectiveness
On average, ASO plans cost less than the benefits plans that insurance providers offer, even when accounting for out-of-pocket expenses incurred before reaching the stop-loss.
Disadvantages of an ASO Plan
Like most business decisions, choosing an ASO plan over a traditional insurance plan involves a tradeoff. Discover some of the disadvantages of an ASO plan below.
Runaway Costs
Under a pure ASO plan, the employer carries full financial responsibility for all claims. Sudden, tragic events and high-cost insurance claims can quickly derail a company’s budget, cutting into profits and slowing down growth. This potential risk explains why employers impose aggregate stop-loss insurance coverage policies for added financial protection.
Inadequate Coverage
Sometimes, an ASO arrangement may not prove adequate for extended health benefits or life insurance. We recommend conducting thorough research about the benefits and risks involved with an ASO plan before you apply for one.
ASO Health Insurance
Although the billing processes differ based on your choice of third-party administrator or insurance provider, most ASO arrangements roughly adhere to the following procedure:
- Employer creates employee classifications
- Employer establishes a spending limit
- Employer pre-funds the ASO account
- Employee submits a claim online
- ASO provider scrutinizes the claim
- ASO provider either accepts or rejects the claim
- ASO provider pays funds from the employer’s account for a valid claim
7 Group Healthcare Benefits for Small Businesses in Canada
Have more questions about Group Benefits Plans? Check our our piece on Health Care Benefits for Small Business.
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