Should my business consider an ASO?

Judy Pershern – jpershern@stall-legal.com
October 11, 2021

Employers and other providers of employee health care benefits continue to be challenged to provide the quality benefits that employees seek at an affordable cost to the company and employees. Some employers have turned to Administrative Services Only Health Plans (ASO) in an effort to take greater control of benefit plan design and costs. ASOs provide several distinct, and potentially significant financial and human resource related advantages that should be considered.

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

An ASO plan is one in which the employer assumes the financial risk in providing health benefits to its employees.  The employer chooses a plan benefits design and assumes the risk of paying the claims, usually only up to a certain stop loss level.  This type of arrangement contrasts with a fully insured plan, where the insurance company bears the financial responsibility of paying the eligible claims.

Who manages the ASO?

There are two primary parties responsible for the formation and the administration of an ASO Health Plan- the Plan Sponsor and the Plan Administrator.  The Plan Sponsor is the entity that offers, maintains, and funds the health benefits plan, which is in most cases is the employer.  While many of the administrative duties may be delegated to an entity other than the employer, the employer is still considered to be the Plan Sponsor.  The Plan Administrator is responsible for the day-to-day operations of the health plan.

Generally, an employer will retain a Third Party Administrator (TPA) as the Plan Administrator that has expertise in areas like compliance, claims processing, and other administrative services.  These other administrative services may include activities such as the preparation of the summary plan description, communication with employees, regulatory filings and financial accounting. 

Why should I consider an ASO for my business?

ASO plans are gaining popularity as many employers explore the potential advantages that this type of plan can provide.  An ASO plan allows an employer to take greater control of benefit design and costs.  Plan costs are based on a group’s claims experience, not pooled with other groups like fully insured plans.  Moreover, the financial risk associated with paying the medical claims may be mitigated through the purchase of stop loss insurance.  In addition, an ASO plan provides the opportunity for an employer to retain control over reserves and better manage cash flow.  Utilization reports can help identify trends specific to a group’s coverage and allow the employer to better manage costs.

Another difference between fully-insured and ASO health plans concerns application of mandated benefits.  For example, it is possible for a state to mandate a health benefit for a fully-insured health plan but exclude that mandate for self-insured health plan.  Generally, state premium taxes that apply to premium in fully-insured plans, do not apply to most ASO plans.  In addition, not all Affordable Care Act (ACA) fees are applicable to ASO plans.

Are there downsides to an ASO?

However, an ASO arrangement may not be suitable for all employers, and it comes with certain risks.  For example, plan assets can never inure to the benefit of the Plan Sponsor.  Once funds become plan assets-whether through payroll deduction from employees or employer contributions to the plan-those assets belong to the plan.  Caution must be taken not to mingle plan assets with the general funds of the employer.  Also, the employer may be exposed to risk of high losses due to extraordinary health claims beyond the stop loss coverage limits.   An employer should understand all the costs and delegated responsibilities before entering into a self-funded program.

Conclusion

When considering health benefits plan funding options, it is important to take the time to understand the terms of the agreements.  The Stall Legal attorneys can assist in your evaluation of health benefits plan funding options that you may be considering.