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What is an ASO Group Benefits Plan?
Sometimes referred to as a self-funded or self-insured plan, this is a type of group benefits policy where the employer takes on some, or all, of the responsibility to pay employees extended health and dental claims. Every ASO plan has a stop loss limit where the employer pays the claims up to the stop loss limit and then insurance takes over the remainder of the claims.
These plans are just as flexible as a fully insured group benefits plan when it comes to the range of benefits available and can work in the employer’s favor, especially in situations where there are few claims.
What is a stop loss limit?
It is important to ensure the right stop loss limit is in place in order to prevent a catastrophic claim from bankrupting a company or putting an unnecessary strain on the company’s finances. When picking a stop loss limit a company must decide what amount they can reasonably assume in claims before a serious strain is put on their finances. Stop loss limits typically range from $10,000 to $100,000, or more if your company is several hundred employees with strong annual cash flow.
Is this type of plan better than a fully insured group benefits plan?
These types of policies can be better for larger employers who have strong cashflow. ASO plans can be set up in two basic ways, billed in arrears where you will receive a bill every month for the total cost of the benefits used by your employees up to the stop loss amount, or on a budgeted or refund basis where you pay a set amount every month and reconcile every year at your plan renewal.
With a refund plan, if after reconciliation you have paid more than your plans claims you will receive a refund, if claims were more than what was budgeted for, you will owe. This is one reason why you want to ensure your company has strong cash flow and the ability to make a potentially large lump sum payment at your renewal.
What are the Advantages of a ASO plan?
Lower Potential Costs – The main advantage of an ASO policy is the typically lower cost compared to a fully insured group benefits plan. This is because you only pay for what you use, rather than paying for a series of benefits no one uses.
Pick only the benefits you want – With a ASO plan, you can pick only the benefits you want to provide so you can give more of what your employees want rather than paying for a spread of benefits your employees may or may not use.
What are the disadvantages of an ASO Plan?
Risk - With an ASO plan you are assuming more risk than if you set up a fully insured plan. This risk is normally offset by putting a stop loss limit in place but can set up your business for large payments some months. Accidents, sudden illnesses, surgeries, and other health concerns can cause expensive and costly claims.
ASO Plans work best for companies of 25 lives or more, with strong cash flow who are willing to take on the risk of self-funding a group benefits policy.
Who can apply for an ASO Plan?
An ASO policy can be a great way to potentially save money on your group benefits plan, but they may not be right for every employer. With an ASO policy you must be prepared to pay a large lump sum if there are multiple claims in a billing period.
If you are considering switching from a fully insured plan to an ASO plan or would just like more information on an ASO plan, please do not hesitate to contact us for a no fee no obligation benefits review.