Is ASO Right for Your Benefits Plan? Here's How to Know
By Aneesa Toor, Principal, Leslie Consulting Group
Quick Read
What it is: ASO (Administrative Services Only) means your organization pays employee claims directly, instead of paying a fixed premium to an insurer.
The upside: Lower fees, no risk charge, and more of your money stays in your hands.
The trade-off: You carry the risk. One or two large claims can throw off your budget.
Who it fits: Usually groups of 200+ employees with steady claims history and low turnover.
Our advice: Always pair ASO with stop loss protection, and look at your own numbers before you decide.
"Should we move to ASO?" It's one of the questions I hear most from HR leaders and business owners. Someone has told them it could lower their benefits costs, and they want to know if it's true.
My honest answer is: it might. But before you make that call, you need to understand what ASO really is and whether the potential savings are worth the risk.
What does ASO mean?
With a traditional, fully insured plan, you pay your insurer a fixed monthly premium. In return, the insurer takes on the financial risk. Whether your employees claim $10,000 or $500,000 in a year, your premium stays the same. The insurer covers the difference.
ASO stands for Administrative Services Only. Under ASO, that risk shifts to you. Instead of paying a set premium, you pay for the claims your employees actually make, as they happen. The insurer still does important work. They process claims according to your plan design, and you pay them a fee for that service. But they're no longer paying for your employees' claims. You are.
Put simply, with ASO you're not paying an insurer to take on your risk. You're paying them to run your plan while you carry the risk yourself.
There is one important exception: stop loss protection.
Why stop loss protection matters
We always recommend stop loss protection (sometimes called pooling) on an ASO plan. It covers very large health claims and out-of-country emergencies, so a single major claim doesn't land entirely on you. You pay the insurer a fee for this coverage, which means even an ASO plan still has an insured piece.
Here's something many employers don't know. On ASO plans, most insurers base the cost of this protection on your group's own claims history. If your group has several large claims, that cost can rise sharply over time and become a big part of your health spending. On a fully insured plan, this charge usually isn't tied to your group's history in the same way.
Where the savings come from
When ASO works well, the savings usually come from four places:
More of your money stays with you. On an insured plan, the insurer holds a reserve for claims that have happened but haven't been submitted yet. On ASO, we recommend you record that reserve on your own books instead. The insurer holds less of your money.
Lower administration fees are often possible.
A lower stop loss charge, if your group has few large claims.
No risk charge, since the insurer is no longer taking on the risk.
The downside
You carry the ups and downs of claims, up to your stop loss limit. That can make budgeting harder.
Your stop loss charge can climb if your group has large claims.
So, is ASO a good idea?
It's not a simple yes or no. It depends on the size and makeup of your workforce, how much risk you're comfortable with, and your cash flow.
Where ASO tends to make sense
ASO usually works best for larger groups. A common rule of thumb is 200 or more employees, with several years of steady claims history. At that size, and with low turnover, claims tend to be more predictable from year to year. The risk may be worth the reward.
Where it gets risky
Smaller groups, groups without a solid claims history, and groups with high turnover are usually not a good fit. It's much harder to predict what claims will look like next year. In a small plan, one or two serious claims, like an expensive drug therapy or a major surgery, can use up a full year's benefits budget with nothing left to absorb the hit.
And because ASO means paying claims from your own cash flow, an unexpected shortfall can put real pressure on an organization whose cash flow already rises and falls through the year.
The bottom line
For the right group, at the right time, with the right protection in place, ASO can be a smart and cost-effective way to fund your benefits plan. For a group that isn't ready, it can bring real financial risk.
A rule of thumb is a starting point, not a decision. Before you move to ASO, or rule it out, sit down with your benefits advisor and look at your actual numbers. If ASO is on your mind for your next renewal, I'd be glad to walk you through what it would look like for your organization. Reach out to your benefits consultant to learn more.
Aneesa Toor is a Principal at Leslie Consulting Group and brings over 20 years of experience in group benefits.
As a consultant, Aneesa helps her clients to navigate the increasingly complex world of benefits as employers face the challenge of providing valuable benefits to five generations of employees in the workforce. With the focus of mental health, wellness, and a proactive and preventative approach to health and care becoming more important than ever, Aneesa works with her clients to leverage data and technology to provide tailored solutions for each employer.
Aneesa has an Honours Bachelor of Business Administration from the Wilfrid Laurier University, has a Group Benefits Associate designation certifying her as a group benefits professional, and is licensed by the Financial Services Regulatory Authority of Ontario (FSRA) as a life insurance agent.
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