Administrative Services Only
An arrangement where an insurance company provides administrative services like claims processing, customer service, and record-keeping for a self-insured employer, but the employer assumes the financial risk for actual claims. The insurance company does not underwrite or pay claims from its own funds.
Example
“The large corporation chose an administrative services only arrangement with Blue Cross, allowing them to self-insure their employee health benefits while outsourcing the paperwork and claims processing.”
Memory Tip
Remember 'ASO' - Administrative Services Only means they do the paperwork, but YOU pay the bills.
Why It Matters
ASO arrangements can save large employers significant money on insurance premiums and provide more control over their benefit programs. However, they also expose companies to potentially unlimited claim costs, making proper planning and stop-loss coverage essential for financial protection.
Common Misconception
Many people think ASO arrangements mean the employer gets insurance services for free, when actually they pay administrative fees plus all claim costs. Others assume the insurance company provides some coverage, when in reality the employer bears 100% of the claims risk.
In Practice
A manufacturing company with 1,000 employees enters an ASO arrangement with an insurance carrier, paying $25 per employee monthly for administrative services ($25,000 total). During the year, employee medical claims total $3.2 million, which the company pays directly, plus the $300,000 in administrative fees. The company saves approximately $400,000 compared to traditional insurance premiums of $3.9 million, but also purchases stop-loss insurance for $150,000 annually to protect against catastrophic claims exceeding $4 million in total costs.
Etymology
This term emerged in the 1970s as large employers sought alternatives to traditional insurance. 'Administrative' comes from Latin 'administrare' meaning 'to manage,' reflecting the service-only nature of these arrangements.
Common Misspellings
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