WHAT IS THE TYPICAL FUNDING MODEL OF INSURANCE?

In a typical funding model, an insurance company collects fixed premiums over the year, regardless of how many claims it pays out. As a result, any surpluses or deficits which accumulate belong to the insurance company.

IS THERE AN ALTERNATIVE APPROACH?

An Administrative Services Only (ASO) plan (also commonly called a self-insured plan) is an alternative approach for smaller employers to fund the group benefits they provide to employees. Under this approach, an employer assumes the cost of a portion or all of the benefit claims.

Typically employers will self-insure the health and dental components of their benefit plan while providing the pooled benefits (Life Insurance, AD&D, Dependent Life, Short Term Disability, Long Term Disability and Critical Illness Insurance) through a fully insured model.

HOW COMMON ARE ADMINISTRATIVE SERVICES ONLY PLANS?

Traditionally, Administrative Services Only plans were only accessible to larger companies, as the administrative and technological resources required were too onerous for smaller firms. Recently, third party administrators have developed platforms to administer ASO plans to smaller employers. With the additional transparency that ASO plans provide, more and more employers are making the switch.

WHAT ARE THE BENEFITS OF ASO PLANS?

Compared to traditional insurance company funding, Administrative Services Only plans are generally more cost-effective, as employers only pay for the actual claims paid out. This applies to smaller companies with 50 or less employees, all the way to larger companies with hundreds of employees.

ASO plans enable employers to gain full transparency and flexibility for their group benefit plans.

Additionally, ASO plans also provide the option to maintain ownership of any surpluses or deficits, allowing employers to keep any surplus in lower claim years while still being protected from the risk of catastrophic claims costs through stop-loss insurance.

Finally, Administrative Services Only plans also reduce the typical fees charged by insurance providers, including:

• Insurer reserves
• Higher inflation factors (which add to the renewal cost of an employer’s plan)
• And higher administration fees

SHOULD I SWITCH TO AN ASO PLAN?

Administrative Services Only plans aren’t for every employer, but they do provide an alternative to a traditional insurance provider structure. You can find additional information on this topic here.

Contact Benefit Strategies Inc.

To learn more, contact a Benefit Strategies specialist today at 780-437-5070. We’ll discuss if an ASO plan could be a more cost-effective approach for your business.