ASO benefits versus fully insured, which is the right choice?

Group benefits are an essential part of any employee compensation package. They provide employees with a range of benefits, such as extended health care, dental care, life insurance, and disability insurance. Group benefits can be provided through a number of different financial arrangements. In this article, we will explore the differences between fully-insured and Administrative Services Only (ASO) benefits and help you understand which one is best for your organization.

Fully Insured Group Benefits

Fully insured group benefits are the traditional way of providing benefits to employees. With this option, a company purchases a group benefits plan from an insurance company, and the insurance company assumes the risk of paying claims. The insurance company collects premiums from the employer and pays out benefits to employees as needed.

When an employer chooses a fully insured group benefits plan, they typically have a fixed monthly premium that they pay to the insurance company. The premium amount is based on the number of employees, the coverage options selected, and the age and health of the employees. The insurance company assumes the risk of paying claims, and the employer has little to no involvement in the claims process. At the end of each plan year, the insurer provides a renewal report with rate impacts based on the claims from the previous year and the new premiums are determined for the upcoming year.

One of the main advantages of a fully insured group benefits plan is that it is predictable during the plan year. The employer knows exactly how much they will pay each month, and they can budget accordingly.

Another advantage of an insured group benefits plan is that it is easy to administer. The insurance company handles all aspects of the plan, including enrollment, claims processing, and customer service. This frees up the employer to focus on other aspects of their business.

However, there are also some disadvantages to an insured group benefits plan. One of the main disadvantages is that it can be expensive. Premiums are typically higher than ASO plans because the insurance company assumes the risk of paying claims. Additionally, insured group benefits plans are not as flexible, and employers may not be able to fully customize the plan to meet the specific needs of their employees.

Administrative Services Only (ASO) Group Benefits

ASO group benefits are a newer option for providing benefits to employees. With this option, a company hires an administrative services provider (typically an insurance company) to handle all aspects of the benefits plan. The employer assumes the risk of paying claims, and the administrative services provider charges a fee for their services. This fee typically is a percentage of claims submitted.

When an employer chooses an ASO plan, they typically have more control over the plan design. They can customize the plan to meet the specific needs of their employees, and they can adjust the plan as needed. Additionally, ASO plans are typically less expensive than fully insured plans because the employer assumes the risk of paying claims.

Another advantage of an ASO plan is that it provides employers with more control over the claims process. Employers can work directly with the administrative services provider to ensure that claims are processed efficiently and accurately. Additionally, employers can monitor claims data to identify trends and make adjustments to the plan as needed.

However, there are also some disadvantages to an ASO plan. One of the main disadvantages is that costs can be unpredictable during the plan year. Employers assume the risk of paying claims, which means that they could end up paying more than they anticipated if there are a large number of claims.

Most ASO plans still have an element of insurance to them known as Large Amount Pooling (LAP). LAP provides a threshold where the plan changes from employer-paid claims to insurer-paid claims. This provides a level of financial protection and puts a cap on the maximum amount an employer can pay in total claims or claims per plan member.

Which is Best for Your Organization?

Choosing between a fully insured group benefits plan and an ASO group benefits plan will depend on several factors, including the size of your organization, the needs of your employees, and your budget.

If you have a small or medium-sized organization and want a predictable benefits plan, a fully insured plan may be the best option as your cost-per-employee is determined at the beginning of each plan year. Additionally, if you are looking for a plan that is easy to administer and provides standard coverage parameters, a fully insured plan may be the best option. Smaller employers can supplement a fully-insured plan with an ASO component such as an HSA for benefits that have a lower potential for high-cost claims such as vision care, paramedical practitioners, and dental services.

If you have a larger organization that wants a flexible benefits plan and can handle the possible fluctuations in cost throughout the plan year, an ASO plan may be the best option. With ASO the employer is assuming the risk of paying claims. Therefore an ASO arrangement is not typically suitable for smaller organizations as even one large claim can be a financial burden on the employer if there is no LAP coverage.

Conclusion

Group benefits are an essential part of any employee compensation package. Fully insured group benefits plans and ASO group benefits plans are two options for providing benefits to employees. Insured plans are predictable and easy to administer, but they can be expensive and inflexible. ASO plans are flexible and can be less expensive, but they can be unpredictable and provide less protection for employers. An experienced benefits broker will explain the pros and cons of your specific situation, and help you make an educated decision on what makes the most sense for your employee benefits plan.