What is an ASO Arrangement?
Administrative Services Only (ASO) is a plan structure where the employer retains the financial risk of claims while contracting a third-party administrator to handle claims processing, provider network access, and operational administration.
Unlike fully insured plans where a carrier absorbs claims risk in exchange for a fixed premium, ASO arrangements require the employer to fund claims directly from their balance sheet, paying the TPA only an administrative service fee.
When ASO Makes Financial Sense
ASO structures become financially advantageous when the employer has a sufficiently large and stable employee population to create a statistically predictable claims pool. The Society of Actuaries notes that self-funded arrangements are most common among larger employers, where claims variability per capita is lower due to the law of large numbers.
Employers with strong cash reserves and a tolerance for claims volatility can capture the savings that would otherwise be embedded in a carrier's risk margin. The Society of Actuaries and industry literature indicate that insurer risk loadings in fully insured group health plans typically represent a meaningful portion of the gross premium.
Risk Management Mechanisms
Stop-loss coverage is the primary risk mitigation tool in ASO arrangements. Specific stop-loss protects against catastrophic individual claims exceeding a defined threshold. Aggregate stop-loss caps the employer's total annual claims exposure at a predetermined ceiling.
Setting appropriate stop-loss attachment points requires actuarial analysis of historical claims data, workforce demographics, and the employer's risk appetite. Attachment points set too low erode cost savings; points set too high expose the employer to significant downside.
Transitioning from Fully Insured to ASO
The transition typically requires significant advance planning. Employers need credible claims history to establish baseline expectations. The first ASO year should include conservative reserves and lower stop-loss attachment points to manage uncertainty.
Financial reporting cadence increases under ASO: monthly claims dashboards, quarterly actuarial reviews, and annual reserve adequacy assessments become essential governance tools. CFOs should expect a higher administrative engagement level compared to fully insured plans.