As an employer watching health insurance premiums rise every year, you may be considering going the self-insured route and hiring an Administrative Services Only (ASO) company to administer it.
This is a great option that covers more than 150 million people through employer-sponsored health benefits. While most small business owners like the idea of cost savings, they are not keen on the administrative tasks involved in self-funded health care.
The Administrative Services Only (ASO) is the solution that takes on the Third-Party Administrator (TPA) role to manage the paperwork and administer the plan. Self-funded health care is also regulated and must remain in compliance with state and federal regulations. The ASO is the outsourced human resources body that deals with these and other employee benefits’ tasks.
Understanding ASOs and Self-Funded Health Insurance
Unlike a fully insured health insurance plan, a self-insured group health plan puts money aside for employee medical claims and uses an Administrative Services Only company to take care of the details involved in running the health care program.
Employees still get the required health benefits is mandated by the Affordable Care Act (ACA) to provide health care benefits. Something both employers and employees like is the fact that self-funded plans allow businesses to customize the plan in more effective ways to serve employees.
Employers fund the reserve trust account and set up a contractual agreement with the ASO to manage the plan. Employees are given summary plan descriptions to choose from that are based on the allotted caps that employers choose to fund. The ASO works with a contracted medical network to provide medical services. Employees go to the doctor and then the claims are submitted directly to the ASO where the medical services are paid for by the reserve trust account.
Administrative Services Only Tasks Include
Many self-funded ASO plans use the same network of providers that Preferred Provider Organizations (PPOs) use. This means the business is able to save money while still allowing employees to get the choice of doctors they would through a traditionally funded health insurance plan.
Self-funded health insurance plans using an Administrative Services Only provider may include:
Medical claims for individuals and family dependents.
Dental benefits for preventative services and extended dental needs.
Vision coverage for testing, glasses, contacts, and designated procedure.
Pharmacy benefits for prescribed medications.
Short-term disability coverage.
Some plans may be more robust with more extensive coverage than others. This is part of what the summary and plan descriptions accomplish, in order to set the parameters of coverage. Just like a traditional health insurance plan has defined deductibles and out-of-pocket costs with caps on some coverage options, the same is true for the self-funded plan. The employer creates the plan design that becomes the contract for group health benefits within the organization.
Similar Plan Outlines as Traditionally Funded Health Insurance
While the self-funded health insurance plan can be customized, it often resembles a plan obtained through a traditional health insurance program. Major health insurance carriers offer ASO services to compete for the ASO business. It is possible that you move from one of the Blue Shield or Anthem insurance companies’ traditional health insurance programs to a self-funded plan with Blue Shield or Anthem as the Administrative Services Only provider.
This means that the employee may not see much difference in the plans, when the transition to a self-funded plan happens in open enrollment. This helps alleviate concerns employees have over changes. Some may even wonder why there was a change, if the plans look similar.
Ultimately, it is the employer saving money by not paying insurance companies for their profits on health insurance plans.
Self-Funded vs. Fully Insured Health Insurance
When employers first start thinking about offering health insurance plans, the first thing that comes to mind is calling a health insurance broker and looking and providers such as Kaiser or Anthem insurance companies. The costs of fully insured plans are a simple but costly solution. Plan participants work directly with the carrier’s administrative services to pay medical claims and address servicing needs.
Self-funded health insurance is a great option for the business who has the financial capacity to build the reserve accounts and the right team to administer the policy. The team comes by way of the Administrative Services Only (ASO) provider.
A couple of key points to remember about choosing a self-funded option with an ASO include:
Compliance with ERISA regulations for employers providing health care.
Reviews the costs associated with a fully-insured plan versus self-funded.
Considers the needs of your employees when it comes to group benefits.
Financial Risk of Self-Funded Health Insurance
Financial risk of health insurance is more than just the cost of premiums; the medical reimbursement costs can be considerable. The financial risk involved with a self-funded plan can put a business at risk if it doesn’t have the financial stability or proper coverage caps in place.
The fully insured health insurance plan transfers all risk for claims to the insurance carrier. The employer is responsible for the premium payments and the insurance company pays all claims. This mitigates the overall financial risk to the employer though the company is still responsible for increasing in annual premium costs. Stop-loss insurance is a high-deductible plan to address claims over the catastrophic limit caps set in the plan.
ASO Plans and Deductibles
It is possible for employers to mimic the plans of PPOs when providing self-funded health insurance. This helps mitigate the claims paid by the employer, transferring some of the financial responsibility to employees for their own care. When an employer create a plan design with a high deductible health plan of at least $1,350.00, the employees are eligible for a Health Savings Account (HSA).
The HSA works similarly to an Individual Retirement Account (IRA) in that money goes into the account before taxes, isn’t taxed while in remains in the account, and is tax free when withdrawn for medical expenses.
The Health Savings Account (HSA) becomes a long-term health deductible savings account for employees who are generally healthy but are concerned about a major medical expense requiring a full deductible payment. The balance of an HSA rolls from year to year so it doesn’t need to be used immediately.
Happier Employees with Benefits
A business that offers employee benefits is held in higher regard by existing employees and prospective hires. Affordable care seems to become more difficult for individuals and families every year. Finding a job that provides more than just a competitive income is the goal of many top recruits and companies that embrace this fact find better talent and keep employees longer.
When employees have access to health care, dental and vision benefits, and disability plans, they are able to care for themselves better. They are able to get the care needed, often have fewer sick days and remain healthier overall. Better health ends up leading to greater results productivity that translates into greater innovation, more revenues, and stronger collaboration.
Here are five reasons to transition into self-funded health care and use an ASO:
Cost Savings of Health Coverage Premiums
Health care costs are growing. When a small business owner opts to build a self-funded plan, he is better able to control costs and avoid increasing insurance premiums. Small business owners generally split the cost of employee health insurance.
The average cost to an employer covering health insurance in 2017 was $5,477 for an individual and $13,049 for a family. The Affordable Care Act (ACA) has done little to help business owners offer affordable care.
So a small business with 10 employees, half of whom are married with children, could potentially cost a small business owner $92,630 just to provide the health care plan. On top of this price is another 2% to 3% of state taxes on the premium, approximately another $2,000 annually.
Ultimately, well-managed ASO plans can save a business anywhere from 10% to 15% in annual costs compared to traditionally funded health insurance.
Many small business owners running the costs differentiation will realize that collecting six to seven months of medical care costs to cover employees through standard and catastrophic claims become the savings solution desired. They then design health plans that include dental, pharmacy, and other employee benefits. Even with the added costs of an ASO and stop-loss insurance policy, the numbers frequently work in favor of the business’ budget.
Greater Control and Plan Flexibility
Moving from a traditionally funded health care plan to a self-funded plan working with an Administrative Services Only (ASO) provider gives employers the ability to design a plan that better meets the needs of employees rather than a broad health insurance program. As a plan sponsor, the employer is able to create a custom plan design and still mitigate the overall financial risk of catastrophic claims.
The extended health services a self-funded plan can offer with the help of an Administrative Services Only company include comprehensive dental plans, vision coverage, short-term disability, and pharmacy benefits. With the help of the ASO, the employer is able to implement more meaningful benefits that fit the needs of its employees. The ASO administers the employers’ insurance plans making it easy and compliant.
Better Cash Flow Management
There is no question that one of the biggest reasons employers switch from fully funded employee benefits to self-funded health insurance programs is the ability to better manage cash flow. A traditional employer group plan pre-pays for potential claims through monthly premiums. If it is a low-claim filing period, the employer must pay the premiums regardless. To make matters worse, premiums go up every year adding to the costs when offering employee benefits such as health care.
By funding the medical claims reserve trust account managed by the Administrative Services Only company, the employer can better manage cash flow for claims based on real costs. Most self-funded health plans look to have two months of reserves for standard claims and seven or more months of medical claims funding for catastrophic claims periods.
The financial risk to the company is based on medical claims reimbursement. To mitigate the unknown risk, employers work with the ASO to define the average claims and costs during any given claim period. Reserves are created and a stop-loss insurance plan is obtained to cover any claim reimbursements over the set limit. This gives the employer a finite cap on his costs should something unforeseen happen but reduces his monthly spend on medical and dental claims.
Plan Design Savings
The self-funded health insurance with an Administrative Services Only plan helps employers save through plan design in addition to the overall premium savings. Plan design revolves around not just implementing the medical and dental services most needed or desired by employees, but also means avoiding the marketing schemes of insurance providers who raise premiums in order to offer “discounts” for certain plans.
Cash is king in most business areas and health care costs are no different. Rather than remain subject to the ever-changing details of health insurance carriers’ policies, business owners are able to negotiate directly with a network of providers for rates pertinent to the services and demographics of the employer groups’ needs.
Transfer of Compliance and Liability
With the help of the Administrative Services Only (ASO) provider, employers are able to transfer the compliance risk away from themselves. Plan sponsors must have open enrollment, maintain proper reserve trust accounts, provide reporting to the state and federal agencies regarding health plan compliance, and administer all claims. This is a lot for a small business owner or even a mid-sized business to do without hiring a new person dedicated to the task.
The Administrative Services Only (ASO) provider’s sole job is to administer the employee benefits. Not only to they handle the paperwork of it all, but they also maintain and enforce the guidelines to process claims either with acceptance or denials. They are trained to understand the regulations and file proper reports as required. The ASO also seeks the medical reimbursement from stop-loss insurance policies should catastrophic claims hit the limit.
The ASO also works with employees during open enrollment periods to provide summary plan descriptions and assist with any questions.
Thinking About Other Group Benefits
When establishing a health insurance program for employees, take the time to review all potential benefits you would ideally like to offer your talent. Remember that better benefits packages attract and keep better talent. The investment into people often pays for itself in higher production and revenues.
Other group benefits to consider offering employees include:
Life Insurance: Low cost group benefits term life.
Long-term Disability: Aside from workers’ compensation insurance.
Retirement Plans: Matching and non-matching programs are available.
Hospital Indemnity Programs: Added options for financial remuneration after accidents.
Pet Insurance: Voluntary payroll deductions that don’t cost an employer anything more.
Commuter Benefits: Assistance for employees using public transportation.
Child Care Allowances: Partial coverage for employees requiring child care near work.
This may seem like a lot to incorporate and afford for many small business owners. This is where talking to your Administrative Services Only provider helps develop the right plan for your business’ budget. It could be that each of these could be looked at in an individual platform.
The PEO Option
The other option is to consider what a Professional Employer Organization (PEO) is able to offer in terms of comprehensive HR outsourcing. Along with all of the health and disability benefits that can be offered through the group plan, the PEO is able to reduce costs for employers for payroll services, retirement plan administration, and workers’ compensation insurance.
A PEO contracts with an employer to become the employer of record for everyone in the company. The company leases employees back from the PEO to use and manage on normal administrative tasks.
By assigning all employees to the PEO, the employees become pooled with other PEO client companies. Larger companies always have the advantage of mass employee pools to leverage all costs. The PEO also more readily allows a company to have employees across state lines working remotely.
This means that a company that had 25 employees is now part of an organization with thousands. Economies of scale kick in, allowing the PEO to negotiate better rates for all benefits, reduce costs on insurance and make other benefits accessible because administrative costs and liability shifts to the PEO.
If you are considering a change in health benefits and want to explore more options for group plans, consider talking to a PEO broker about the specific benefits to your company based on your size, location, and benefits goals.
Making the Best Choice for Your Company
Establishing employee group benefits is a major decision that takes time to understand the options, do cost analysis of different programs, and survey employees about what would have the biggest impact. The great news is a small or mid-sized business doesn’t need to do it alone.
An HR Services or PEO broker should be your trusted ally in reviewing the options and doing a benefits comparison for you. Brokers work for you, not the insurance providers which means it is their job to help find the right solutions for your company needs. There is no obligation to consult with one and get the insight into your options from a human resources expert.