If you’ve ever braved the world of insurance quotes, you’ve probably run across the term Administrative Services Only (ASO) plans.
Maybe you’ve heard about ASOs, but never knew what it entailed and if it was appropriate for your small business or organization.
Under an ASO arrangement, an employer self-insures the benefits it pays out, but uses an outside company to deal with claims processing and paying providers. Simply put, an employer pays an insurance company or Third Party Administrator (TPA) to process claims based on a fee per person enrolled on the plan, but the company maintains the responsibility to pay the claims.
ASO fees vary, but let’s say an average fee is $7 per employee for a Dental ASO plan. If you have a group of 100 employees, the monthly ASO fee would be $700 per month. An employer with an ASO is only responsible for the claims on top of the monthly ASO fee, bypassing the risk charge and premium taxes associated with fully insured benefits. See the diagram below, which shows how premiums are determined with a fully insured arrangement.
In addition to omitting costs from the premium equation, the best part of an ASO is the flexibility. Employers can customize a dental plan, since it is a self-insured contract and outside the jurisdiction of state insurance regulators. If you want to change Type 3 benefits to 80% versus 50% coverage, you can change the Summary of Benefits since you are paying the claims.
We would not recommend this to a group that has had no dental insurance, since claims are usually high the first few years a company has dental insurance. Many employees will hit the calendar maximum benefits stated in the plan. After a few years of dental insurance, claims start to settle down and become very consistent and few employees will hit their calendar year maximum. That is the time to look into an ASO contract.
What’s the risk? Unlike health insurance which has unlimited lifetime maximums, dental plans have a calendar maximum which is typically $1,000. For a group with years of having a fully insured dental plan coupled with the calendar year maximum of $1,000, the risks are very limited. Think about it, why do you think dental plans let you roll over part of your unused dental benefits?
A group, a small business or non-profit organization, that has had dental insurance for many years will most likely have stable claims and is a perfect candidate for a Dental ASO plan. However, many insurance carriers will only negotiate ASOs with group of 100 or more members. Tapping into the expertise of an insurance benefits specialist who has developed relationships with carriers, can result in quotes for ASOs for groups as low as 25 employees.
If you have at 25 employees on your dental insurance and been fully insured for three to five years, you should look into an ASO dental contract for your company.
Mr. Randell is an expert in benefits management with extensive experience in all elements of insurance, as well as his personal experience in growing and managing small businesses. Contact Bill at: www.massdentalinsurance.com.