Administration Services Only And Third Party Administration

 

Most companies, small or large, can save money by using Third Party Administration to self-fund insurance

  • Traditional Insurance Carriers offer Administrative Services Only programs to large corporations who self-fund their insurance
  • Third Party Administration companies now offer the same program benefits to small to mid-size companies
  • Benefits are the same or better, with greater employee service
  • Risk is eliminated using “stop loss” insurance
  • Cost is predictable and is based on actual experience
 
Advantages of Using A Third Party Administrator (TPA)
 
  • You will never re-enroll your employees again to take advantage of an opportunity as it presents itself.
  • Lower administration and transaction fees.  We use the collective buying power of our whole client base to negotiate administration/transaction fees.
  • By consolidating the administrative functions on behalf of our clients, we are able to negotiate broad-based programs with program providers, while providing our clients with access to these programs for free
  • Creates a multiple insurer environment that is consolidated into one seamless program with one billing statement, one booklet, one enrolment form and one point of contact.
  • Creates an environment for you where you can explore innovative ways of paying for employee benefits that result in PERMANENT COST REDUCTIONS! 
 
Understanding Third Party Administration and Administrative Services Only (AS0) Contracts
 
Administrative Services Only (ASO) contracts are an alternative arrangement for your experience-rated benefits (i.e. healthcare, prescription drugs, dental, visioncare and weekly indemnity), whereby you cover the cost of your actual claims plus a negotiated administrative fee.  It makes sense to self-fund these benefits as they are somewhat predictable in nature.
 
  • Your insurer is guaranteed to receive payment for your actual claims and administration fees.  Because they no longer need to protect themselves from a potential “contract termination” or “inflation risk”, they will:
    • Eliminate reserve adjustments.
    • Eliminate inflation/trend factor assumptions.
    • Eliminate any risk and profit charges thus reducing their administration fees charged.
  • You are protected against high or catastrophic claims
  • There is a possibility of an employee or dependant developing a major illness resulting in very high medical costs.  We protect you from this possibility with the implementation of an insurance contract called a “stop-loss”: \
  • Risk is mitigated by including a stop-loss provision
    • A STOP-LOSS PROVISION is included to mitigate any risk.  For example, establishing a $7,500/family “stop-loss” would protect your “self-funded” account from the financial risk of a family collectively claiming in excess of $7,500/yr for any combination of “extended healthcare” benefit claims.
  • Pooled Benefits remain fully insured
    • Life insurance, AD&D, Dep. Life, Long-term Disability, and Out-of-county benefits would remain as fully insured benefits as these benefits are catastrophic in nature and of large cost.  
 
Consider moving your group benefits to a self funded program using a Third Party Administrator.  We can show you how to save money on your benefits and help you develop a long term benefits strategy designed to help your employees.
 

ASO, Fully Insured or a bit of both?


If you’ve considered alternative funding models for your health & dental benefits – you’re part of a growing trend of Canadian employers seeking better ways to cut and control their rising employee benefits costs.  But what are your choices and how can you fully take advantage of your options?
 
Employee benefits plans are comprised of two categories; Pooled Benefits and Experience Rated Benefits.  The Pooled Benefits are your life, LTD, AD&D, Out of Country Travel and Optional Life coverage.  The Experience Rated benefits are your Health, Dental, Drugs, Vision and Weekly Indemnity (or Short Term Disability). 
 
What’s the difference? 
 
Your Pooled Benefits are the small part of your monthly bill and cover events that are fortuitous and unknown in nature.  You don’t know when your employee(s) may die, incur a disability or get hit by a bus…
 
Your Experience Rated benefits are the large part of your monthly bill and cover those events that are more repetitive and predictable.  Employees generally go to the dentist 9 months after the last check up.  We renew our prescriptions 90 days after the last script was filled.  We buy glasses about every 2 years.
 
Insurers look at these two categories differently.  For pooled benefits –the insurer ‘pools’ all their clients experience together and determine how much money they will need to pay all their life claims, LTD claims and other pooled benefits.  The average age of your employee demographic will also have an effect on your rate.
 
For pricing your Experience Rated benefits, the insurer only looks at your company’s experience to calculate your price.  The insurer considers your company’s utilization (or experience) and uses that consumption to build your premium after adding a few factors (including trends, inflation, profit charges, administrative fees, risk charges and reserves).
 
Seen graphically, an Experience Rated premium is built like this;
 
 
 
 
 
 
Many employers are looking at ways to reduce their administrative fees on their health and dental benefits.  Today – we see a large shift in employers considering ASO or Administrative Services Only for their health and dental coverage.
 

So what’s ASO?

 
ASO, or self-funding, is simply a way of funding your health and dental benefits whereby you, the employer, agree to pay for the costs of your health and dental consumption, plus an administration fee.  From the employee’s point of view – there is no change in coverage. But from your finance departments’ point of view – the way you’re paying for your coverage changes. You’re now paying on a claims + administrative fee basis.
 
In an ASO environment, your health & dental premium now looks like this;

 
 

A Stop Loss policy is purchased to ensure that the employer is not responsible for catastrophic risk (such as high drug claims or a spike in overall corporate health costs). Sound like insurance?  That’s because it is.

Having a proper Stop Loss policy in place is critical to a sound ASO strategy.

If you think about it – whether you’re insured or ASO, you’re paying for your health & dental claims no matter what.  The difference between the two funding models is that in an insured environment – you pay this year for what you used last year and in an ASO environment – you pay this year for what you used this year.

ASO may be one of the most misunderstood concepts in the employee benefits industry; but fully 50% of the market is already ASO and growing.

But ASO is not for every employer.  There are good reasons to remain fully insured and as many reasons to consider ASO.  We would be happy to conduct a ‘feasibility study’ on your health and dental experience to determine what’s right for your firm.  You can even self-fund your dental program first – and keep your health plan fully insured until you’re more comfortable with the concept.