As a business owner, you may have heard the term “administrative services only (ASO) contract” thrown around in discussions about employee benefits and human resources. But what does it actually mean?

An ASO contract is essentially an agreement between a company and a third-party administrator (TPA) to handle certain administrative tasks related to employee benefits. Under an ASO arrangement, the company remains responsible for funding and designing its benefits program, while the TPA takes care of tasks such as claims processing, plan design, and compliance.

One of the main advantages of an ASO contract is that it can be more cost-effective than a fully-insured plan, which involves purchasing coverage from an insurance carrier. ASO contracts allow businesses to customize their benefits plans and only pay for the services they need, rather than paying a set premium for a one-size-fits-all insurance plan.

ASO contracts also offer more flexibility in terms of plan design. Companies can choose from a range of benefit options and customize their plans based on the needs of their employees. Additionally, ASO contracts typically come with more data and reporting capabilities, allowing companies to track and analyze their benefits programs more effectively.

However, there are some potential downsides to ASO contracts as well. Because the company remains responsible for funding its benefits program, it bears the risk of any unforeseen costs or claims. Additionally, ASO contracts may not provide the same level of legal protection as fully-insured plans in the event of a lawsuit or compliance issue.

Overall, ASO contracts can be a valuable tool for companies looking to customize their employee benefits programs and control costs. However, it’s important to carefully weigh the risks and benefits before entering into an ASO agreement and to work with a reputable TPA with experience in managing such contracts.