ASO: Is self-insurance right for you?
You may have recently heard about converting your benefit plan to Administrative Services Only (ASO), also known as self-insurance for health benefits. It can be excellent for some companies, but too financially risky for others.
How do you know if it’s right for you?
First, understand what is ASO:
- You agree to take on all of the risk of your employees’ health / dental claims up until a certain point. This “point” is called the “pooling point” or “stop-loss level.”
- There is a cost to insure claims above the “pooling” or “stop-loss” point, and that cost can be represented either as a flat rate per employee, or as a percentage of health premiums or health claims. Pooling/Stop-loss is purchased from an insurer.
- You can choose a processor of claims, which can either be an insurance company, third party administrator, or claims adjudicator.
- The processor charges fees either as a % of claims or as a flat fee per claim.
Budgeted vs Pay-As-You-Go
- There are two types of ASO funding methods: budgeted and pay-as-you-go.
- “Budgeted” means that the processor provides an estimate as to the forecasted claims for the year, and charges you a flat monthly amount per employee. At the end of the year, a reconciliation is done to account for any surplus or deficit.
- Surpluses belong to the plan sponsor.
- Deficits are the responsibility of the plan sponsor to pay.
- “Pay-as-you-go (PAYG)” is just that: each month, the claims processor provides a report to you of the total volume of claims. You would owe the cost of the claims, plus any fees and taxes.
- There are generally no surpluses or deficits to reconcile, but, PAYG can lead to lumpy cash flow schedules and may cause a problem for you if you are in a tight-cash-flow business, or, if you are hit with abnormally high claims.
- Compared to renewing fully-insured plans, renewals can be very different.
- There is no negotiation of the deposits under the stop-loss, because claims drive deposits.
- There may be negotiation of pooling or stop-loss premiums, which can increase over time based on the insurer’s book or the rest of the market.
Is ASO right for you?
- Are you comfortable understanding that you can no longer negotiate the largest premiums of your plan, the health & dental deposits?
- Are you comfortable paying a deficit if your claims increase dramatically?
- Do you prefer to keep 100% of your surplus if your claims decease significantly?
- Ask your advisor for a 5-year history of your premiums vs. claims, and ask to see how much money you would have gained or lost if you had instead been ASO.
How does ASO compare to the Beneplan Co-operative?
- While companies can choose to be self-insured within the co-operative, many smaller companies opt to stay fully-insured.
- Companies who choose to be self-insured with Beneplan can choose to self-insure just dental, just health, or both.
- Companies may choose to join Beneplan on an ASO basis to take advantage of the low stop-loss rates, or low pooling charges, plus the refund on pooled insurance items such as Life or LTD (depending on the insurer you select.)
- Over a 10-year period, most companies have 2-3 years of deficits and 7-8 years of surplus, on average. It’s important to compare the bad years and ask yourself if you would have been able to pay the deficit. Some deficits can be small, and some can be in the tens- or hundreds-of-thousands of dollars and beyond.
- Joining the Beneplan Co-operative on a fully-insured basis is usually the safest bet for most companies who are risk-averse.