Enjoy this guest blog from Benefits by Design (BBD) Inc.
There are many innovative ways to help employers save money on a benefit plan. An Administrative Only Services (ASO) plan is a great example of this. ASO covers employees for Extended Health and Dental in the same manner as regular, fully insured benefits do. However, instead of paying premiums, employers pay only for covered claim, plus administration fees, and applicable taxes.
Pros of an Administrative Only Services (ASO) plan
In order for an ASO plan to be a good fit, the group should have the ability to accept and manage risk and fluctuations in cashflow.
Lower Cost of Delivery in the Long-Run
Under a fully insured plan, a group pays the agreed upon amount of premiums each month, regardless of how much the plan is used. In an ASO plan, because no premiums are charged, the group is only paying for the cost of claims plus fees and taxes. Therefore, the group is only paying for the plan usage, and any savings remain in the company’s pockets instead of the insurers.
Same Great Service, Greater Flexibility
With an ASO businesses get greater flexibility in plan design structure and coverage. For example, they can choose exactly what medical items will and won’t be covered, specify maximums and frequency limits, and add formulary drug options. Usually, when a company implements a fully insured program, they are subject to choosing a pre-designed one with limited options to adjust.
Greater Plan Transparency
Because the corporation is only paying for what your employees claim, it is really easy to see exactly what you are paying for. There are no reserves to establish, and fees are set as a percentage of the cost of covering the claims, which is very easy to see and calculate. Plans are billed in arrears, with no additional hidden charges.
No Renewal Negotiations
Since there are no premiums, there is no need to check the claims experience and balance that with the amount actually paid in claims reimbursement.
Extra Risk Protection for High-Cost Claims is Available
There are some medical expenses, such as high costing medications for chronic conditions, that could be too high to risk for some employers. Employers might feel comfortable taking on the risk of smaller claims but taking on high-cost claims could not be within their ability. Stop-Loss protection is available to help protect against these perils. Claims for an individual that exceed the stop-loss threshold of are removed from the claims owed by the employer. Depending on the plan set-up, the employer might have to pay for the claim initially and then be reimbursed. A typical stop-loss threshold is $10,000, but plans can be set up at the value determined appropriate.
Cons of an Administrative Only Services (ASO) Plan
ASO plans are not for every organization. There are some factors which may mean ASO is not a good fit.
Plan risk is taken on by employer, not insurer
In a traditionally insured plan, the insurance company takes the risk that the claims might go above the Target Loss Ratio (TLR). This would be a calculated loss for the insurer and would ultimately lead to higher premiums at the next renewal. With an ASO plan, the employer takes on the risk. If all employees utilize the benefits plan frequently and submit under multiple eligible expenses, the employer must pay for these claims. Remember, stop-loss protection only protects against a single high-cost claim.
Charges Fluctuate Monthly
ASO plans have direct billing of claims with no calculated month-to-month premiums. This means that employers are not able to budget their monthly employee benefits expenses as they normally would. For example, one month, there could be no claims, the next month there could be ten $120 claims. Therefore, employers will need to have the ability to pay these unknown charges.
There are Budgeted Administrative Services Only (BASO) plans that can help alleviate this. Budgeted rates are set and paid monthly, and generally there is a reconciliation every 12 months. If the total claims are more than the claims costs plus fees, the plan sponsor owes the difference. However, if the total claims are below, those savings belong to the plan sponsor. In this way, the plan sponsor is accepting the risk of underpayment, but reaps the benefits if there is overpayment.
A Deposit Is Still Required
As the billing is done in arrears, a deposit is required. This deposit is held for the duration of the benefit plan. Different insurers will have varying criteria for the amount. At Benefits by Design, the deposit is equal to two months of anticipated claims, administrative fees, commissions, and taxes. The deposit is reviewed at renewal and may require adjustment if demographics have changed significantly.
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