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THE SELF-FUNDED ADVANTAGE (ASO)

Unlike benefits that need a pure insurance element, health, dental and even short term disability claims occur more frequently but are relatively low cost. Claims experience in a group tends to remain relatively stable when monitored over time. As such, you can predict and budget for these types of expenses.

An Administrative Services Only (ASO) or "self-funded" arrangement for these benefits provides employers with flexibility, a reduction in administration costs, and gives firms greater control over the amount they actually spend on benefits. Employers only pay for what they use, not what the insurer estimates it will cost.

Belton Boisselle advisors can help design coverage based on your company’s current needs, employee demographics and budget. We will then work with your firm to put in place appropriate Stop Loss and Travel Health insurance needed to protect the benefit plan from catastrophic health claims. We can even help establish funding levels (for budgeting purposes or cost sharing arrangements) based on the plan designs chosen.

Belton Boisselle programs provide a stable, cost effective and flexible way of providing benefits to your employees and ASO plans make annual negotiations with insurance companies a thing of the past – benefit costs are always actual claims plus expenses.

Self-Funded vs. Fully Insured Plans

In a fully insured group plan, the employer pays a monthly premium for the upcoming plan year for employee benefit coverage. If the program pays fewer benefits than expected, the insurer realizes an underwriting gain that is not typically refunded to the employer. If the program pays more benefits than the insurer anticipated, the insurer assumes an underwriting loss and employers can anticipate significant premium increase in subsequent years.

In contrast to an insured plan, where funding is provided through the payment of non-refundable premiums, a self-funded plan treats claims as expenses. The employer keeps the funds in their own account and only pays IF and WHEN claim occurs. If claims do not materialize, there is potential for savings for the employer that would otherwise have been reflected as an underwriting gain to the insurer. If catastrophic claims occur, “stop-loss” insurance protects the plan.

Under an ASO plan, expenses, including commissions, are paid as a function of claims, not premiums and there is not requirement for the employer to pay premium tax (2%) or a risk charge (2%). Lastly, unlike an insured plan, there is no requirement to hold a reserve in the plan for claims that have been incurred but not reported to the insurer. This also saves you money!

Why Self-Insurance?

Traditionally, most companies chose a benefit plan provided through an insurance company. The employer pays a non-refundable premium to the insurance company to assume the risk and cover the benefits. That may have been fine when benefit plans were first introduced, but two significant changes in the benefits industry over the past number of years may get you to think differently.

While the general inflation rate has been between 2 and 3% over the last number of years, the cost of benefit plans has gone up significantly faster. Health care inflation trend factors used by insurance companies have resulted in increases of between 10% and 18% annually.

Insured health program premiums are set to reflect these factors, raising rates to cover off what the insurance company estimates it will cost them to insure. Consolidation of the insurance industry means fewer competitors and options when it comes to plan selection.

Today the top three group insurance providers control over 60% of the market. If employers don't like the annual renewal increases, there are fewer options for them to consider.

Choosing the Right Elements

There are risks that employers do not wish to assume due to high and unpredictable costs - death and dismemberment claims, disability and travel health claims. These benefits are best provided through an insured program with one of the many insurers in the marketplace, providing employers and employees convenience and peace of mind.

Claims that occur most frequently in a benefit program are for medical and dental costs. Being more predictable, it can be argued that for health, dental, and even short term disability benefits, the “insurance” component is very small – one is only paying a fee to an insurance company to administer, adjudicate and pay the claims.

Using an ASO model for these claims, employers can save on the expense costs payable under an insured program and control the funding of these claims.

Though the majority of health claims are routine, individuals can develop severe medical conditions and become high claimers. Balancing risk and cost, employers can protect themselves from high health care costs by purchasing Stop Loss coverage.

A fully insured plan may not be the best solution for your employee benefit program.

Stop Loss

Stop Loss insurance provides your company catastrophic claim protection against large medical expenses in an ASO plan. Each time an insured’s annual claims exceed the limit your company chooses, the Stop Loss insurer pays the excess amounts – protecting the plan’s financial integrity.

The level of claims will, of course, vary by individual. In the example graph, insured #2 and #8 trigger the Stop Loss insurance. Amounts in excess of the firm's Stop Loss limit will be paid by the Stop Loss insurer, not the company.


Administrative Services Only (ASO) Myths

Is there a downside to Administrative Services Only (ASO) or self-funded plans? For a company with a solid understanding of how the plan works, many of the common myths about ASO plans are put to rest.

ASO plans put all the risk on the employer

A properly implemented ASO plan allows the employer to control the amount of risk they assume through the use of Stop Loss coverage.

ASO is only for large companies

The economics of ASO plans for groups does not change with the size of group. With an appropriate level of Stop Loss coverage, ASO plans work for any size firm.

Higher claims means ASO costs more

Poor experience may mean higher costs whether the plan is insured or on an ASO basis. However, the same benefits will still cost less in an ASO plan as you are not paying for profit, risk charges, high trend factors and reserve charges in addition to the insurance coverage.

As is the case in many financial decisions, employers looking at ASO plans need to examine the concept with a long term view (normally on a three-year basis).

Budgeting an ASO plan is difficult

Prior claims experience is an excellent indicator of your future financial commitments, and Stop Loss coverage will limit risk to a definable level for potential catastrophic claims. Belton Boisselle advisors can help you establish funding levels (for budgeting purposes or cost sharing arrangements) based on the plan designs chosen. There are many different ways to fund an ASO plan including on a pure basis (pay as claims occur) or on a Budgeted ASO basis (remit deposits each month like an insured plan and review financial results annually).

ASO plans provides less comprehensive coverage

An ASO plan provides the exact same benefits to employees as an insured plan, with the only real difference being the way the employer pays for or funds the plan. With the potential cost savings afforded by changing your plan to a self-funded apprach, it could be argued that benefits could be enhanced for plan members for the same net cost!