Administrative Services Only, most commonly referred to as ASO, is a type of insurance where the client takes the responsibility of covering claim costs and uses the insurance company primarily to administer the plan. This means the client is accepting a higher degree of risk. In effect the insurance company is hired for their expertise, processes and systems. The insurance company performs key tasks, such as adjudicating claims against the policy coverage and tracking usage against maximums. In return the client pays an administration fee on top of the cost of claims, so for a $10 claim the client may actually be charged $12, to cover the costs of administration.
ASO is typically only available for a subset of benefits and may have additional restrictions, such as requiring a particular number of members in the benefits plan. This is because on ASO the risk lies with the policyholder and so it is in the insurance companies interest to ensure the client is of sufficient size to absorb the potential swings in cost that an ASO benefit may see.
Not all benefits are well suited to ASO. It is typically the experience rated benefits such as EHB and Dental that are sold on an ASO basis. Benefits such as Life, Out of Country coverage and LTD have low claims incidence but very high cost claims, making them ill suited to the ASO model. For these benefits the risk remains with the insurance company, which is referred to as Fully Insured.
There is nothing stopping a policyholder from mixing and matching, having ASO dental and fully insured EHB, or vice versa. It is also possible to switch from an existing fully insured EHB or dental plan to an ASO model, or vice versa.
Where should I start?
Dental is the typical starting point for groups to try ASO, as dental has clearly defined limits and even the most expensive dental treatment is usually within the thousands of dollars range. Most dental work is routine, making the experience more predictable. ASO dental is typically available at a lower number of lives, making it an option for smaller companies.
ASO EHB on the other hand can expose a group to very high risk, with a single employee or dependant on a recurring drug having the potential to cost the policyholder tens of thousands of dollars every year. Stop loss still exists on ASO policies and claims above the stop loss remain fully insured, so the exposure is not unlimited, but it is potentially far more volatile than dental. Plan design, co-insurance and maximums can be used to control risk exposure, but as always they leave the possibility of employees with large claims being out of pocket.
ASO billing options
There are a few different ways that ASO benefits can be billed. One is a traditional pay as you go model, where the experience at the end of the month is billed directly to the customer, plus the administration fees. This leaves the potential for volatility in the month to month cost but means there is nothing to settle at the end of the year.
An alternative is budgeted ASO, where the customer pays the same amount each month and at the end of the year any difference is settled. If the client paid too much they can ask for a refund, or use the surplus to offset next years rates. If claims exceeded what was paid then the client must pay the difference. At the end of each year the budgeted ASO rates are negotiated, but this is purely to try to avoid a large surplus or deficit at the end of next year, no matter what rates are negotiated the cost of the claims must still be covered.
Health Care Spending Accounts
An increasingly popular ASO benefit is a Health Care Spending Account (HCSA) which is essentially a bucket of money that employees can chose to spend on anything covered by the Canada Revenue Agency guidelines. This can be used to top up existing coverage or in place of a more traditional benefits plan. The advantages of a HCSA is that it provides flexibility to employees, allowing them to chose where to spend their benefit dollars, while still controlling the risk exposure for the policyholder. Allowances can be allocated annually, bi-annually or quarterly to further control the exposure, useful for companies with high turnover. Leftover balances can often be transferred to the next period, although limitations apply. You can read more about HCSA’s here.
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