As companies around the world look to save as much money as possible on their operations, employers are carefully evaluating employee benefit plan costs.
Group insurance benefits are typically subject to an annual renewal process.
At renewal, benefit plan managers have an opportunity to ensure that their insurance carrier is effectively providing essential employee benefits as economically as possible.
A popular option for saving clients money at renewal is the Administrative Services Only (ASO) plan.
Group ASO Plan Defined
ASO is now one of the fastest growing types of employee benefit arrangements. Under an ASO plan, employers are responsible for directly funding all claims that their employees incur. Plus, employers pay a fixed fee for administrative services like claim payment and management reporting. An insurance company or other financial institution usually provides those administrative services, but doesn’t collect any premiums where no insurance risk has been underwritten.
Health and dental benefits are most commonly covered under ASO plans. Self-insuring short-term and long-term disability benefits requires that employers set aside reserves to ensure that future claim payments are made even if coverage terminates. Larger employers fund ASO disability plans.
Fast-Growing ASO Plans
For the year ending December 31, 2008, Canada’s Great West Life Assurance Company garnered US$1.9 billion in self-funded premium equivalents under ASO contracts, up 8% from $1.8 billion in 2007. In contrast, Manulife Financial reported a 25% decrease from more traditional group insurance products in 2008. Competitor Sun Life Financial had a 7% slide in premiums for its more conservative portfolio of group insurance clients.
Costs That ASO Benefits Save
Under traditional experience-rated group insurance, employers pay a group premium that includes charges for claims, reserves, inflation factors, administrative fees, risk management and profit. Also included are sales commissions. The insurance company calculates group renewal premiums, looking at each group’s claims experience history but also adding rate adjustments and assumptions to improve profitability for the block of business to which the employer belongs.
In contrast, an Administrative Services Only plan limits client funding to actual paid claims plus a fixed fee for administrative charges. An ASO client saves the following group insurance charges:
ASO Advantages Over Group Insurance Premium Renewals
The annual renewal negotiation for insured health and dental benefits is often painful, with the insurance company trying to win maximum rate gains at the expense of their clients. Tactics used include waiting until the last minute to force through excessive premium renewals before the client has a chance to respond intelligently.
Employers do have the option of taking their insured plans out to market for competitive bids, either directly or through a group benefits broker. But if repeated annually, employee benefits re-marketing can become expensive both in terms of time and money.
An ASO plan eliminates the need for the premium renewal process. With an ASO plan, the administrative services fee is fixed and charges are more directly linked to the actual claims that employees incur.
Claims Advantages Of ASO Benefits
Administrators provide their clients with detailed reports of claim payments, then help their clients focus on claims’ cost control strategies without having to worry about other insurance charges.
For example, an ASO plan enables the client to take away overused benefit components like anti-depression medication that might be standard coverage under an insurer’s package plan for companies of a certain size.
US Health Plans Involve Major Risks
Here’s an important note for American group policyholders contemplating a switch of their Major Medical plans to ASO.
Canadian provinces offer medical care. Thus, a major portion of the costs for highly expensive treatment like cancer chemotherapy is provided for under government plans. Therefore, Canadian companies are insulated from major medical costs should their employees require extensive surgery, transplants or other expensive treatment.
In contrast, an American company that self-insures the Major Medical benefit may have to pay millions of dollars for medical complications from a pregnancy especially if there are no limits on coverage.
Therefore, ASO plans in the U.S. usually are sold with stop-loss policies that require an insurance company to assume the risk when claims exceed a contractually specified dollar amount or percentage.