Most self-funded healthcare plans require an administrator to process claims. These administrative services can be purchased directly from the insurer, or from a third party. Often times, an ASO agreement will be offered by major health insurance carriers.
What is an ASO?
An ASO (Administrative Services Only) agreement is a comprehensive contract between the insurance carrier and the self-funded employer. This contract lumps administrative fees into a bundle offering that encompasses the entire healthcare plan, seemingly creating simplicity and savings.
What is really happening here?
Let’s take a look at 3 common myths of ASOs.
ASOs are the only option when it comes to healthcare plan administration.
Reality: Employers typically think ASO first because of their omnipresence, but the truth is that there are third party providers that offer these services as well.
ASOs save employers a lot of money by bundling services.
Reality: Bundling services creates a lack of transparency in pricing. You lose the ability to see what you are paying for each component of the bundle, and therefore are usually not getting the best value for each individual service in your plan. The bundle may even include services that you do not necessarily need, and because you are locked into one bundle package, you are unable to seek out the best value from vendors.
ASOs can negotiate better “discounts” with providers.
Reality: Prices are often inflated to make final charges appear to be a better “discount” than they truly are. Plus, with services bundled together, discounts are often compensated for by increasing prices in other areas of the package.
So what is the alternative?
TPAs (Third Party Administrators) can be contracted for these administrative services in place of an ASO, and generally have no common ownership or relation to the insurance company. The TPA handles the administrative responsibilities on a fee-for-services basis, so that employers always know how much the administration fee is. This can generally save an employer $5 to $15 per employee per month. And more importantly, a good TPA is acting as the employer’s advocate, whereas an ASO’s loyalties are first to maintain the financial health of the network.
Curious to learn more about TPAs? Read the full white paper.