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A group benefits plan is a promise made by an employer to their employees. Many employers regard their benefits plan as “good enough” for their purposes. However, having an acceptable solution is not the same as having the best solution strategically designed for your business and your employee population.
Weary of escalating premium costs, rigid options and a lack of transparency, smart entrepreneurial employers are moving away from traditional group benefits plans and adopting Budgeted Administrative Services Only (ASO) Plans to control costs and improve retention of key employees.
Through a Budgeted ASO contract, a small enterprise can work with a Third Party Administrator (TPA) to build a plan tailored to their business objectives while putting controls on cost.
However, the question every business owners asks is: Compared to traditional group benefits insurance, is Budgeted ASO the most effective method to fund my group benefits plan? To answer this question, we must understand the two components to every benefits plan –
Insurance & Administration:
1 – Insurance
Insurance protects against catastrophic, sudden and unexpected low frequency/high cost events. These include Life Insurance, Accidental Death & Dismemberment, Long Term Disability, Out of Country Emergency, and Critical Illness.
2 – Administration Services
Effectively handle every-day high frequency/low cost transactions. These include Health and Dental Care benefits. These benefits operate on a reimbursement principle rather than requiring traditional risk insurance.
Both Traditional and Budgeted ASO plans use insurance to protect against risk. Stop Loss Insurance is specifically designed to limit potential exposure to catastrophic health care claims. For routine health and dental claims, funding on a Budgeted ASO basis is simple and transparent.
The Health and Dental component is based on the principle of “Money-in, Money-Out”. With traditional insurance, rest assured that increases based on actual costs are built in at the next renewal period. However, should you incur less than anticipated claims, it is unlikely that your premiums will fall to the same extent. Walking away is not a valid option, because your actual claims experience will follow.
With Budgeted ASO, you pay a fixed amount every month based on your previous claims history. The budgeting process each year is straightforward. Should actual claims exceed the budgeted amount, you are responsible for the deficit. If your claims are less than anticipated, the surplus is yours to keep.
Business owners need to fully understand their benefits costs as they arise. With monthly surplus and deficit reports, Budgeted ASO plans meet this need. In addition, benefits plans can be tailored to strategically align with business objectives as it relates to cost control, benefits abuse, retention and turnover.