ADMINISTRATIVE SERVICES ONLY (ASO)

Administrative services only (ASO) is essentially a self-funded agreement with the insurance company for health and dental benefits.

It works similar to a bank account, whereby premiums are collected and remitted to the insurance company to administer claims. At the time of renewal, any balance of the claim versus premiums is the responsibility of the sponsoring company.

If there's a shortfall due to higher claims, the insurance company will adjust the premiums in an effort to have stable rate increases that correlate with inflation.

The concept of an ASO plan is to save on the inflated premium the insurance provider usually charges for unknown risks of future claims and the risk of a company changing providers while at a loss.

The result is a lower-cost plan due to the discounted premiums offered by the insurance company for simply taking less risk. In addition, because a traditional insurance contract always charges in advance to avoid losses, this strategy reduces the overall risk, hence the premium reduction.

Benefits such as Life, Accidental Death and Dismemberment, Long Term Disability and Critical Illness are all considered fully insured. Any claims will not affect the performance of the company's premiums, as these benefits are pooled to avoid any significant loss to an individual company.

In addition to pooling the risks that could create a significant loss to an individual company, the extended health portion of an ASO plan is also pooled in the event that an individual requires more than $5000 - $10,000 in a calendar year (depending on your provider).