What is an Administrative Services Only (ASO) Benefit Plan?

Have you ever wondered how organizations offer employee heath benefits without the hassle and high costs of traditional health insurance plans? There are many ways for organizations to accomplish this. The administrative services only (ASO) model is one way companies can offer employer-sponsored health insurance without having to manage administration in-house.

An ASO arrangement is typically part of a self-funded health benefit. According to KFF's 2024 Employer Health Benefits Survey¹, 63% of covered workers have coverage through a self-funded health plan. As self-funded health plans gain popularity, understanding ASO is crucial for employers seeking to balance costs and employee satisfaction.

In this article, we'll explain ASO plans, their benefits, and how they compare to traditional administrator arrangements.

In this blog post, you'll learn the following:

• How an ASO benefit plan can provide control and cost savings for employers.
• The key differences between ASOs and traditional administrator arrangements.
• An alternative option for companies seeking the benefits of ASO plans without the financial risks.

What is ASO?

An ASO plan is a type of employee benefits arrangement in which an employer self-funds their employee benefits, such as health insurance. Instead of handling everything themselves, employers outsource the administrative tasks associated with managing those benefits to a third-party administrator (TPA) or a carrier that offers ASO services. This model allows business owners to maintain greater control over their benefit plan while reducing administrative burdens.

Employers can offer a self-funded plan with an ASO arrangement for health insurance, dental or vision care, and short-term disability.

TPAs or carriers that offer an ASO plan typically offer the following services:

• Benefits administration
• Managing COBRA
• Enrollment support
• Claims evaluation
• Preparing any necessary compliance documents or reports

ASO plans vs. traditional administrator arrangements

There are a few key differences between ASO plans and traditional administrator arrangements, including:

• Claims. The main thing that sets an ASO health plan apart from a traditional administrator arrangement is who's picking up the tab for costly claims. In a traditional fully-insured setup, the employer pays an insurance company a monthly premium to handle claims processing and to cover the costs of employee claims. With an ASO plan, the insurance company or a TPA will still process claims, only now it’s the employer footing the bill for those claims.
• Premiums. In a traditional setup, the insurance company calls the shots on yearly premiums. If the health benefit costs go higher than expected, they can jack up the premiums for the next year. With an ASO insurance plan, you won't be stuck with a fixed premium. Instead, employers get to determine their own health benefits budget by forecasting expected employee claim and administrative costs.
• Cost. If healthcare costs are lower than expected with a traditional setup, the insurance company pockets the leftover cash. But with an ASO plan, the employer gets to keep that extra money and can reinvest it however they want.

• Laws and regulations: Some ERISA and ACA rules don’t apply to self-insured plans. For instance, ERISA exempts self-funded plans from following state insurance laws-.² Self-funded plans also don’t need to provide coverage for the ten essential health benefits (except for preventive care) or follow medical loss ratio rules³.

Pros of ASO Plans

ASO benefit plans offer several advantages for organizations looking to manage their employee health benefits more effectively.

Here are some key benefits:

• Cost control. Employers can have more control over their healthcare spending. Large employers or employers with young, healthy employees may save money by self-funding their employee benefits instead of paying premiums to an insurance carrier.
• Cash flow. Aside from paying ASO fees on a regular basis, employers only pay for health costs when employees incur health claims. This means you may experience improved cash flow compared to traditional fully-insured plans, where you need to pay health premiums upfront.
• Flexibility. ASO benefit plans offer greater flexibility for employers in terms of plan design and coverage options. They can customize benefits based on their specific workforce demographics and preferences.
• Integrated services. Many ASO providers offer additional services, such as wellness programs, disease management, and employee engagement initiatives. These can support better health outcomes and lower claim costs.

Cons of ASO plans

Although ASO plans offer several advantages to employers, they also come with some challenges.

An ASO benefit plan has several disadvantages, including:

• Lack of transparency. Depending on the ASO provider, employers may face challenges in accessing or comprehending employee health claims and data. This can make it difficult for employers to understand the costs and outcomes associated with their health plan.
• Higher risk. Employers assume full responsibility for claims. You may face periods of financial stress when there’s a spike in healthcare use or unforeseen expenses with employee medical bills. This is why employers tend to invest in a stop-loss insurance policy for an additional level of financial protection.
• Cost-efficiency. In some cases, you may save money by sticking with traditional, fully-insured plans. ASO health care usually works best for larger companies⁴, where expenses can be shared among a bigger group of employees and their families. For small employers, self-funded plans often carry too much risk.

A self-funded health plan with less hassle and financial risk

Traditional, fully-insured insurance plans don't work for every budget. For that reason, self-funded health insurance plans are gaining traction with small businesses. But they have their fair share of risks. Thankfully, there’s another option that’s easy to administer and offers more financial stability.

A stand-alone health reimbursement arrangement (HRA) is an easy way to get the perks of a self-insured health plan without all the headaches that usually come with it.

With an HRA, there's no need to buy a group health plan. Instead, you can reimburse your employees tax-free for their health coverage and other eligible medical expenses.

There are more than 200 types of out-of-pocket expenses you can reimburse with an HRA, like:

• Monthly premiums for health, dental, and vision plans
• Prescription drugs
• Over-the-counter medication
• Preventive care

HRAs give you full control of your budget. You decide how much money your employees get each month. Any leftover cash rolls over to the next month, and this keeps going until the end of the benefit year. You don't have to reimburse your employees when they go over their set allowance amount either, so you can plan your annual costs with ease.

The two types of stand-alone HRAs you can offer are:

• The individual coverage HRA (ICHRA): The ICHRA offers the greatest flexibility. There are no limits on employer contributions and you vary allowances based on employee classes. Many large employers offer this benefit as a way to comply to the ACA employer mandate. In order to participate in this benefit, our employees must have their own individual health insurance plans.
• The qualified small employer HRA (QSEHRA): The QSEHRA is only for employers with fewer than 50 full-time equivalent employees (FTEs). Unlike the ICHRA, employees only need an insurance policy that provides minimum essential coverage (MEC) to participate in the benefit. There are also annual contribution limits with a QSEHRA.

HRAs are also easier to administer than a self-funded plan. Employees choose their own health insurance plans, so your administrative burden is reduced to reimbursing their premiums and qualifying out-of-pocket costs. Plus, working with an HRA administrator like PeopleKeep makes an HRA straightforward. We’ll generate legal plan documents and review employee reimbursement requests for you.

An HRA is often a better choice for:

• Small businesses or startups with limited budgets that want predictable costs
• Employers looking for an affordable way to offer an ACA-compliant health benefit
• Companies wanting to empower employees to choose their own healthcare coverage that best fits their needs

Conclusion

Overall, an ASO benefit plan provides employers the opportunity to take charge of their employee benefits while leveraging the expertise of third-party administrators to streamline operations and improve efficiency.

However, an HRA provides the same benefits as a self-funded plan with fewer risks. This makes them an option worth considering for employers who want to offer affordable employee health benefits. Need help making an informed decision for your team? Schedule a call with a PeopleKeep HRA specialist.

1. KFF
2. KFF - ERISA plans
3. MLR requirements under the ACA
4. BambooHR