Administrative services only (ASO) contracts have, for the past 10 years, been increasingly recommended to and adopted by smaller companies with as few as 25 employees. Splitting benefits contracts (placing pooled benefits with one supplier and cash flow benefits with another) affords plan sponsors with a customized solution that combines the best-in-class capabilities of two often for less than the price of one.

Once the consultant and the plan sponsor have determined the suitability of using an ASO benefits structure, then the task of selecting the right service providers and determination of rates begins. Since ASO plans are available from the industry’s leading insurance companies, third-party administrators and claims adjudication companies, the sponsor should seek only the most robust service platforms and/or combination of suppliers to ensure this result is achieved.

Consultants and sponsors alike will come to appreciate the balance of a split plan at renewal time. Renewals are often dreaded as adversarial events where carriers tend to conservatively estimate the trend and inflation causing the advisor to lobby against these excessive assumptions. A consultant that fights outrageous double-digit renewal increases, then claims victory for the client by carving out several percentage points from inflated trend and inflation projections, to end up with a rate well in excess of the true rate of inflation seems hardly reason to celebrate. The entire process is exhausting and largely avoidable.

Read more: Primed for ASO

It should also be considered that a single carrier holding all the benefits may have greater leverage and bargaining power at renewal time. While it might be possible for a consultant and sponsor to move their group plan should they receive an unfavourable renewal, frequent moves from one carrier to another are perceived negatively in the market. Splitting the plans benefits classes will help avoid any possible untoward leverage.

Health benefits ASO quotes are often guaranteed for two to three years, avoiding the need for the customary mortal combat during annual renewals. Imagine the savings in time and the increase in productivity for advisors and administrators if the days and weeks of preparation leading to renewal “season” could be all but eliminated.

Should it become necessary to review and possibly move the pooled benefits, the move can be considered and planned with minimal disruption to the members. Any decision to move a plan, in whole or in part comes with consequences. An entire communications plan must be designed and shared with the members. There may be a tendency for some members to continue using their old health cards, which creates confusion and transition nightmares for the administrator, advisor and members. Clearly the extra initial effort required to set up a split plan, which provides for this flexibility to make changes down the road, can be considered worthwhile.

Once the decision to move has been made then attention must be paid to the way an ASO account is set up and billed.

In most cases, billing options can be secured on a budgeted or paid-as-invoiced model. Certain minimum quantities in terms of numbers of lives or paid claims may be required as determined by the service provider. The sponsor and administrator simply must ensure they collect enough premiums from their members and their own account to be sure the funding model is appropriately established.

Many advisors promote the continuation of their current single and family rates for the first year to be sure enough money is collected to satisfy the billing and any uneven cash flow requirements. Any risk of high-priced drugs and hence untoward swings in cash flow requirements can be mitigated through the use of an adequate stop-loss policy or by use of caps applied to each benefit.

Sponsors will enjoy the fact that any built-up surplus remains their property and any decision as to the fate of that surplus is entirely theirs.

If any sized company has a track record of stable claims experience, then an ASO model is certainly worthy of consideration. The transition from an insured model to self-insured funding can be made gradually and with all appropriate protection set in place.

Bob Carter is regional vice-president, sales — specialty programs at Empire Life. These are the views of the author and not necessarily those of Benefits Canada or Empire Life.
Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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