Historically, self-funded or administrative services only (ASO) contracts for group benefits have been the domain of “big business”. But smaller employers are demanding greater transparency and flexibility from benefits providers. Budgeted ASO plans are increasingly popular in response to these demands.
The key pricing factors to consider when comparing benefits plan providers are: the competitiveness of the administration fees for the services provided; and who has ownership of any surpluses or deficits (the employer or the insurer). In effect, in the benefits plan game, the employer becomes the “house”, and keeps any surplus in lower claims years, while being protected from the risk of catastrophic claims costs through pooled stop loss insurance.
Budgeted ASO plans set funding levels based on the same factors as traditional group benefits plans:
- Premiums for insurance to protect against catastrophic risk, such as life insurance, long term disability, out of country emergency medical, etc.,
- Claim costs for routine medical and dental claims, and
- Administration fees to manage the program.
Unlike a budgeted ASO arrangement, the monthly premiums for traditional insured plans also include insurer reserves, and significantly higher inflation factors, which add to the renewal cost of an employer’s plan.
Insurers also tend to apply high administration fees to smaller businesses, generally ranging from 25% to 35%. The Benefits Trust, a budgeted ASO provider, offers benefits plans specifically designed to serve the needs of smaller businesses. The result is more competitive administration fees of 12% to 20% for the same size businesses.
When comparing traditional plan funding with budgeted ASO plans, it is important to remember that with budgeted ASO you pay only for your actual paid claims experience. This works just as effectively for small groups of 5 to 50, as it does for large groups of hundreds of employees. And with the budgeted ASO model, smaller employers gain full transparency and flexibility for their group benefits plans.
To learn more about the advantages of budgeted ASO arrangements for small and medium sized businesses, talk to your insurance agent, or contact The Benefits Trust directly.
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