What is administrative services only (ASO)?

Administrative Services Only (ASO) is a type of arrangement where an employer funds their own employee benefit plan, such as health insurance, but outsources the administrative tasks to a third-party service provider.

How does an ASO arrangement differ from traditional insurance?

In a traditional insurance model, the employer pays premiums to an insurance company, which then assumes the risk and pays out claims. In contrast, an ASO arrangement involves the employer assuming the financial risk for claims while the third-party administrator (TPA) handles the administrative functions. This means that the employer is directly responsible for the cost of claims, which can lead to potential cost savings and carries the risk of higher expenses if claims are higher than expected.

What are the primary functions of an ASO provider?

An ASO provider handles various administrative tasks related to employee benefit plans. These tasks typically include:

• Processing claims
• Managing enrollment
• Maintaining records
• Ensuring regulatory compliance
• Providing customer service support

The provider may also offer services such as utilization review, case management, and wellness programs. Outsourcing these functions allows employers to focus on their core business operations while ensuring that employee benefits are managed effectively.

What are the advantages of using an ASO arrangement for employers?

The advantages of an ASO arrangement include:

• Greater flexibility in plan design
• Potential cost savings
• Enhanced control over benefit plans
• Improved data transparency

Employers can customize their benefit offerings to better meet the needs of their workforce and can potentially save money by avoiding the profit margins and administrative costs associated with traditional insurance. Additionally, having direct access to claims data allows employers to identify trends and implement cost-containment strategies more effectively.

What are the potential risks associated with an ASO arrangement?

The primary risk associated with an ASO arrangement is the financial risk of high claims costs. Since the employer is responsible for paying claims, unexpected high-cost claims can significantly impact the company’s budget.

Additionally, employers must ensure the ASO provider is competent and reliable, as poor administration can lead to compliance issues, employee dissatisfaction, and potential legal liabilities.

Employers must also be prepared to manage regulatory requirements and reporting complexities.

How do ASO arrangements impact employee satisfaction and engagement?

ASO arrangements can positively impact employee satisfaction and engagement by offering more customized and relevant benefit plans. Employees will likely appreciate the flexibility and responsiveness of benefits tailored to their needs.

Additionally, the efficient administration of claims and other services by the ASO provider can enhance the overall experience and perception of the benefits program. However, employers must maintain open communication and provide clear information about the benefits and any changes to ensure employees feel informed and supported.

Complimentary reading: 12 Employee Benefits Trends: Understand the Perks of the Future

How can employers mitigate the risks of high claims costs in an ASO arrangement?

Employers can mitigate the risks of high claims costs by purchasing stop-loss insurance, which provides financial protection by covering claims that exceed a certain threshold.

They can also implement wellness programs and preventive care initiatives to promote employee health and reduce the likelihood of high-cost claims. Regularly analyzing claims data to identify trends and intervention areas can also help manage costs effectively. Additionally, working with a reputable ASO provider with a proven track record can ensure better administration and cost control.

What should employers consider when selecting an ASO provider?

When selecting an ASO provider, employers should consider factors such as the provider’s experience and expertise, the range of services offered, the quality of customer support, and the provider’s track record with compliance and data security.

Employers should also evaluate the provider’s technology and reporting capabilities to ensure they can access timely and accurate data. Additionally, it is essential to assess the provider’s ability to customize services to meet the employer's and their workforce's specific needs. Conducting thorough due diligence and seeking references from other clients can help employers make an informed decision.

What are the compliance considerations for employers using an ASO arrangement?

Employers using an ASO arrangement must ensure compliance with various federal and state regulations, such as:

• The Employee Retirement Income Security Act (ERISA)
• The Health Insurance Portability and Accountability Act (HIPAA)
• The Affordable Care Act (ACA)

The ASO provider typically assists with compliance by managing reporting requirements, maintaining data security, and ensuring benefit plans adhere to legal standards.

However, the employer retains ultimate responsibility for compliance and must stay informed about regulatory changes and requirements.

What are some common challenges employers face when implementing an ASO arrangement?

Common challenges employers face when implementing an ASO arrangement include:

• Managing the financial risk of claims
• Ensuring compliance with complex regulations
• Selecting a reliable ASO provider
• Effectively communicating benefit changes to employees

Employers may also struggle with integrating the ASO arrangement with existing systems and processes. To address these challenges, employers should conduct thorough research and due diligence when selecting an ASO provider, invest in robust compliance and risk management strategies, and prioritize clear and transparent communication with employees.

Stay compliant across the US with Deel PEO

Keeping up to date with the latest state-specific labor and employment laws is a crucial but resource-intensive task for HR and payroll teams. With Deel PEO, you can offload HR and compliance risks and focus on growing your business. Deel’s services include:

• Expert payroll administration

• Advanced HR and benefits compliance

• Access to benefit plans from leading providers

• Training, HR policies, and on-demand HR support

Book a demo to explore Deel’s platform and speak with an expert.