Administrative Services Only (ASO) is an effective option for a larger employer to control costs of Dental, and on occasion Extended Health benefits.  An insurance component  is provided to protect an Employer against very high claims by including Stop Loss insurance.  Beyond that, the Employer arranges to cover the cost of claims  – whatever that cost may be.  There is no “loss ratio” to drive a renewal.  An Administrator, either the Insurer or another third-party,  must be engaged  to settle and pay the claims.     It is the Administrator who receives the claims, checks their validity, and reimburses the employee.  The Administrator then invoices the Employer for the cost of claims plus the administration charges and any taxes applicable.  

This works well if claims have been stable….but if the claims results are poor the employer needs to be able to “write the cheque” to clear any deficits.  A bad year could be created by a poor economy,  impending layoffs which employees may be expecting, or even a sudden illness which requires an employee to take a very expensive medication.  This “bad year” from a benefits point-of-view might occur at the same time as the business itself is struggling.   We repeat:  you need to be in a position to write the cheque!  ASO is available to smaller businesses (maybe as low as 25 employees, and especially to fund Dental benefits) but many Insurers have minimum size requirements which small employers cannot meet.  And – it is often the smallest employers who would have trouble covering the cost of an unexpected claim which might arise.

Small employers can use Health Spending, or even Administrative Services Only, to provide some stability and value for employees, and we are not suggesting they are not viable alternatives.  In fact, many Insurers offer unique solutions for small business which may contradict some of the general comments we have made here.  Our objective is to point out that various solutions exist and that there are pros and cons for your business regardless of the  underwriting methodology.  Sorting out the options is what a good Advisor will do for you.  Contact us at RPP Benefits Inc. if you need help defining your options.