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ASO vs Insured Plans

A traditional group plan is administered on an insured basis, which means that the premium is set for the prescribed time period (usually 12 months), at the end of which the insurer assessing the premium vs claims and offers a renewal at an adjusted cost. You can then choose to renew your plan, modify it or leave with no financial accounting for the insurers loss or gain during the time period.

Administrative Services Only (ASO) plans were typically offered in the large employer market and included a financial accounting at the end of the term, which meant they shared in the loss or gain. As large employers could count on an adequate spread of risk and somewhat predictable claims, there was a minimal amount of risk in these arrangements for them and allowed a refund if the premium was set too high. Conversely there is a repayment plan for a loss to the insurer if the premium was set too low. To offset the risk of catastrophic drug/Health claims, an insurance product called Stop Loss Insurance is purchased to limit the employers risk to a prescribed amount. As Drug/Health costs have increased, so has the cost of Stop Loss Insurance and the levels of exposure are rising. In the last 10 years Stop Loss levels have risen from $5,000 per employee claimant (not including dependents) to $10,000. Breakthrough drugs are leading this increase in costs.

The refund concept of ASO is very attractive to some employers, particularly when their claims are low and the plan premiums continue to rise. Some administrators now offer ASO plans for small employers… down to 5 insured. These administrators have negotiated Stop Loss Insurance that can be purchased for as low as $1,000 which is expensive but offsets the risk for a small employer. The ideal strategy is then to build up a reserve and raise the Stop Loss level to a more affordable premium. The plan can then operate with no future increases and give the employer stability in budgeting.

The best strategy is to consult with us on your benefits objectives and we can review the pros and cons of each arrangement with you to determine the best scenario for your company.

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