what is administrative services only aso 
administrative services only aso refers to an agreement that companies use when they fund their employee benefit plan but hire an outside vendor to administer it for example an organization may hire an insurance company to evaluate and process claims under its employee health plan while maintaining the responsibility of paying the claims itself an aso arrangement contrasts with a company that purchases health insurance for its employees from an external provider understanding administrative services only aso plan specifics for administrative services only aso vary depending on the agreement a company establishes with insurance companies and third party administrators tpa in aso arrangements the insurance company provides little to no insurance protection which is in contrast to a fully insured plan sold to the employer as such an aso plan is a type of self insured or self funded plan the employer takes full responsibility for claims made to the plan for this reason many employers using aso plans also establish aggregate stop loss policies in which the insurance company takes responsibility for paying claims that exceed a certain level for example 10 000 per insured person in exchange for a premium aggregate stop loss insurance policies will protect the employer if claims are greater than expected to reduce financial risk these policies are especially advisable for companies that choose self funded benefit plans aso insurance plans typically cover short term disability health and dental benefits 1 occasionally they cover long term disability for larger employers aso services are gaining popularity as many employers particularly larger ones explore the potential financial advantages that this type of plan can provide an aso may allow an employer to take greater control of benefit costs to meet the organization s needs however aso arrangements may not be suitable for all companies and they come with certain risks traditional administrator vs administrative services only aso a traditional administrator agreement is an arrangement whereby an insurance company fully administers claims the insurance company is responsible for the services to maintain and manage plans including making decisions on and covering the costs of claims alternatively under the aso the insurance company only provides administrative services for plans the insurer serves as a third party administrator to the employer who assumes the duty to cover claim costs the percentage of employees who were covered by an aso plan in 2022 2under the traditional administrator agreement premiums are fixed and reviewed annually this arrangement makes it difficult for employers to know the impact of claims until premiums are assessed for the next year with aso arrangements employers can in real time keep track of fluctuating costs and plan accordingly considering costs when they exceed what was expected premiums increase the following year with the traditional administrator if costs are less than expected the surplus remains with the insurance company on the other hand with an aso agreement the surplus is reinvested with the employer advantages and disadvantages of administrative services only aso the costs for fully insured plans depend on an insurer s evaluation of anticipated claims for a given year for an aso however annual funding levels are based on actual paid claims if there are fewer claims than anticipated then employers keep the surplus and reinvest the reserves the surplus can translate into employers offering additional benefits many of which would not be ordinarily covered by conventional health plans the total costs for an aso are typically lower than those for a traditional administrator as the employer pays a negotiated fee to the third party rather than salaries and benefits to dedicated staff these cost savings can offset rises in claims and be used to help the company grow alternatively if claims consistently exceed forecasts the cost for aso may exceed that of a traditional administrator plan on the other hand employers would be responsible for any deficit if claims exceed budgeted amounts catastrophic claims or sudden and unexpected events are of particular concern as they can exceed projected budgets and erode profits employers often invest in a stop loss insurance policy to provide an additional level of protection in the event of these cases in some cases an aso arrangement may not be suitable for life insurance and extended healthcare benefits employers need to weigh the risks and benefits of how different aso arrangements might affect their organizations cost savings are retained by the employer additional benefits may be offered to employees stop loss insurance protects the employer from large unforeseen expenses losses erode profits deficits are realized by the employer traditional administrator plans may be more cost efficient administrative services only faqsa common stop loss level for an aso plan is 10 000 per eligible employee 1self funded healthcare and administrative services only aso are the same these terms indicate an insurance arrangement in which the employer or organization assumes full responsibility for the cost of covered claims under a fully insured plan the insurance company retains profits 