This arrangement is very attractive to those SmallBiz Owners whose appetite for risk may be a little higher than the average business owner and they are tired of saying after each Renewal, “That damn insurance company made some serious money off of us again this year!”.
What Is ASO and How Does it Work?
In the SmallBiz Benefits world, an Administration Services Only (ASO) arrangement is a funding mechanism that is used for Health and Dental benefits. It is best set up by making regular contributions to an ASO Account to cover the expected claims of your employees. At the end of the year, a Reconciliation is undertaken to compare how much in Claims has been paid out on behalf of your employees compared to how well you have funded the ASO Account. You could be receiving a cheque or a credit towards next year’s funding, if you paid the Carrier too much or, of course, you could be writing a cheque to the Carrier or asked to increase the funding to cover any shortfall.
What does it cover?
How much does it cost?
There are a few components that factor into how much it costs…
- Typically, a Carrier will want to see a History of how much your employees have claimed…ideally, being able to see the past 3 years, is preferable. The Carrier also needs to have the rates that were in place during those Claims periods.
- The ASO expense charge is typically lower than Traditional Group Insurance (TGI). Where a TGI expense will run around 30%-35% for small businesses, ASO expense levels are typically at 15%-20%.
- The other cost consideration for ASO arrangements is for Catastrophic and Emergency Travel coverage.
Will the cost ever increase?
Just like a TGI, there is an annual review of the rates. Now, the nice part about ASO is that if your employees claimed below what the Carrier expected, you will get a REFUND or CREDIT! Of course, the opposite is true is if your employees claimed more than what was expected, then you will be writing a cheque to the Carrier. But remember, you entered into this arrangement because that damn insurance company was always looking for an increase…This is not for the faint of heart. Having said that, because you have the Catastrophic coverage, you then have some Peace of Mind that the amount you’re on the hook for won’t cause you to have to shut your doors.
Can I add Optional Coverage?
Yes, depending on the ASO Carrier, you can typically add some other Insured products like Life, AD&D, and Disability benefits or a service product like an Employee Assistance Program. If not, then your broker should be able to source out these products through other Carriers.
What if I am covered through my Spouse’s Plan?
You or any of your employees that have coverage through their Spouse do have the ability to “Coordinate Benefits”, which means that anything your Spouse’s plan doesn’t pay for may be paid for by your plan. This is especially handy when it comes to plans that only pay for 80% of a claim or have an annual maximum…how easy is it for someone with really bad back problems to surpass a $300 Chiropractor maximum?
What is involved with administering the ASO Program?
The first step in administering the ASO Program is to have determined the following:
- What is the definition of an eligible employee?
- Are you going to allow employees to opt out, if they are covered through their Spouse?
- Will you have different Plan Designs for the different Classes of Employees in your organization?
Most of the administration of the Program occurs at implementation…the employees fill out their Enrolment Forms and you sign the Application and provide the first month’s deposit. Moving forward, you will only need to just let the Carrier know of any employee additions/termination or other status changes…and, of course, submit the funding monthly. As a general rule, don’t submit claims on behalf of your employees. Other than that, all of the administration is done on-line and even the employees will submit most of their claims on-line.
What’s the downside?
If there is a downside to the ASO Program, then it is the fact that you are on the hook for high claims up to the Catastrophic amount.
Located in Cambridge, ON Sharkey Group Insurance provides independent Employee Benefits advice & counsel for Small Businesses across Ontario.