There’s a lot of jargon to keep straight around the topics of self-funded insurance and stop-loss insurance. TPAs, attachment points, ISL vs ASL, catastrophic thresholds, lasers – were other people learning this language while you were sitting in high-school Spanish class? When you’re navigating the world of self-funded insurance, one of the terms you’ll see come up most often is ASO. It stands for Administrative Services Only. Understanding what ASO means, and the options you have around ASO plans, is an essential precursor to making the right decisions for your business and its insurance needs.
The ABCs of ASOs
If your business currently has self-funded insurance, you might not realize that you’re already part of an administrative services only plan. An ASO is an arrangement through which a company funds its own health benefits. Rather than buying insurance through a carrier, the company opts to pay for covered employee health costs using its own money.
Unlike in a more traditional insurance relationship, where the company may end up overpaying a carrier for its employees’ coverage, a self-funded company only pays for the real claims that its employees incur. If claims are lower than anticipated during a given benefit year, the employer keeps more of its money.
Though the self-funded company agrees to foot the bill for employees’ claims, it still needs administrative support for things like processing employee claims and reporting. So in an ASO plan, the self-funded entity works with an insurance company to provide just those services that it needs; in other words, the insurer provides administrative services only.
An employer could have an ASO arrangement and nothing else, but it’s typical to have an ASO and stop-loss insurance concurrently. Self-funding inherently comes with a high degree of risk. What if a higher-than-anticipated number of employees have catastrophic claims during the same benefit year? The employer is on the hook for all of those expenses. Adding stop-loss coverage puts a cap on the risk. The employer is only responsible for claims up to a certain point, and the stop-loss carrier pays for claims in excess of that amount.
ASOs by the Numbers
ASOs weren’t always commonplace in the American insurance marketplace, but they’ve become markedly more popular within the last decade.
Where are we right now? According to research compiled by the Employee Benefit Research Institute, 38.7% of private-sector businesses were self-insured in 2018, a significant jump from 26.5% in 1999. The share of private-sector workers who were enrolled in self-insured plans also increased significantly, from 41.2% in 1999 to 57.8% in 2018.
The EBRI also broke down the data by business size. Of all small businesses (fewer than 100 employees), 13.2% self-insured at least one plan in 2018. Among businesses of medium size (100-499 employees), 29% had a self-insured plan in 2018. By contrast, 78.7% of large businesses (500+ employees) offered a self-insured plan in 2018. Of the three categories, medium-size businesses have experienced the biggest increase over the last five years. Just 25% of those firms had ASO plans in 2013.
Why’s this data so significant? Well, it demonstrates two things. First, if ASOs were once a niche product, those days are over. Self-funding is an established mainstream approach to benefits. Many of the country’s largest employers are enrolled in these plans.
Second, the EBRI data illustrates that size has always affected firms’ willingness or ability to participate in ASO plans. The passage of the Affordable Care Act triggered a slight increase in self-funding among small companies, but those employers with fewer than 100 employees continue to be far less likely to adopt self-funding.
Small groups with few covered workers may avoid this type of coverage because they assume that it will be much harder to absorb a few major claims in a company with limited cash flow. What some smaller employers don’t realize is that ASO-based plans can represent a path to savings. That’s especially true for employers that have mostly young, healthy employees and want to avoid community rating (an ACA mandate that prevents insurers from charging higher premiums to some of its insured members than others, within a given geographical area). Combining an ASO plan with stop-loss coverage gives these smaller employers the flexibility to design their own plans, while establishing a dollar limit on the employer’s responsibility for catastrophic claims.