These days, employers know the value of providing group benefits to their employees – doing so boosts morale and encourages workers to remain at the company. However, what business owners and plan sponsors might not know – or understand – is that there are several differences between benefits plans.
Apart from conventional group benefit plans, there is something known as the Administrative Services Only plan (ASO). To find a program that fits the business, employers need to understand what ASO is, and how it is different from traditional group benefits.
ASO: What is it?
Essentially, employers who choose ASO are responsible for funding the cost of their employees’ claims. A third party administers the plan and charges service fees, but does not require a reserve.
Both conventional and ASO plans provide reliable coverage, along with convenient drug cards and employee cost sharing (health plan costs are divided between employers and employees). Additionally, both types of group benefits programs include basic day-to-day claims, catastrophic claims insurance, and administrative services.
Conventional – The plan provides predictable premiums over a 12-month period, regardless of claim amounts and usage. There are anticipated increases in claims costs; these increases are factored into each year’s renewal rates. If the claims are less than anticipated in a given year, the insurer gets to keep the surplus amounts. However, if the claims exceed what was anticipated, the premium and reserves increase at renewal. As part of a package, the plan is protected from catastrophic claims (over $10,000 per plan, per member, each year) through large amount pooling arrangements. Organizations of all types and sizes go with conventional group benefits programs, but more are considering the ASO option.
ASO – Premiums are based on actual claims instead of estimates. If claims are lower than what would have been estimated in a conventional plan, it results in cost savings to the employer, who can choose to fund the plan on a monthly basis or as claims are submitted.
The administrative cost is only charged on actual claims and not on premiums paid.
On the other hand, if claims exceed the estimates, the employer is responsible for covering the cost; at renewal, contributions may be increased on a go-forward basis to adjust for this. Catastrophic claims insurance is offered through a variety of providers. Additionally, ASO plans offer stop loss contracts with insurance protection starting at $5,000 – this attracts smaller businesses. Claims experience varies month-to-month, making it unpredictable; a third party administrator (TPA) offers budgeted ASO plans to address this concern. Overall, ASO offers employers greater control over the design of the plan and the money that is paid out. ASO often appeals to small and mid-sized businesses, as well as owner-operated businesses.
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Source: Benefits Canada