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Is ASO worth the risk?

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Jacob A. Krahn:

You are in the realm of mystic life insurers. We have ASO’d for 20 years, as low as 5 employees, the savings are carmungis and the risk 0, if managed properly.

Monday, August 26 at 12:26 pm | Reply

Joe Nunes:

I have been a pension actuary my entire career but still think insurance is the best product ever designed by our profession.

I have never understood why people who buy insurance and don’t have a claim feel like they ‘lost.’ I am thrilled every year when I pay for car insurance and have no claims–it means no injury and no lost time even though I have paid for someone else’s accident instead of my own.

ASO has its merits, but as Ken points out, both the advantages and the risks need to be understood.

Monday, August 26 at 1:05 pm | Reply


This article explores a 50 life employer adopting ASO with no excess protection. Any employer adopting that approach IS taking on too much risk. I believe few would argue with that position.

That does not mean ASO for small business is a bad decision. ASO WITHOUT STOP LOSS protection is a bad decision for small employers. And there are options of ASO with stop loss for small employers that represent a reasonable risk to assume. Depending on the length of the plan, stability of the employee base, and nature of the benefits covered, ASO with stop loss could be a viable option for small business.

This article is extreme in its perspective and does not represent a rationed and reasoned approach to solving important benefit issues.

Monday, August 26 at 1:39 pm | Reply

Gordon Hart:

Working in this industry, I too am amazed by shortcuts taken by advisors and clients surrounding the decision to take more or less risk based on projections that are best case senario. While the worst case senario is entertaining, and I am not a big fan of ASO for small group, I think it would be more reasonable to point out differences in reserves (if any) and the use of trend and inflation on prospectively rated insured accounts. This does improve the outlook of ASO. But again, clients are hedging against actual lag and trend/inflation.

Monday, August 26 at 3:10 pm | Reply

Alec Crossgrove:

It is hard to imagine a scenario where a properly designed dental plan utilizing an ASO funding arrangement could blow up even with as little as 5 employees.

Ken asserts that “that you are only ever responsible for the negotiated premium rates regardless of your actual claims experience”; however, this ignores the insured plan’s renewal (presumably coverage will be required beyond the initial rate guarantee period). The carriers are in the business to make money and over time (for groups over 50 lives) experience must necessarily dictate the rates.

Monday, August 26 at 3:52 pm | Reply

Brady Aarssen:

This article is wildly entertaining on the extreme end but there are some fundamentals that need to be acknowledged. If an under 100 life client is considering the merits of ASO or Insured they would need to do so under the following premise: the same plan design (including stop loss) and the same carrier. While the exact amount of claims in the future may not be known, we do know a couple of things with certainty. Those things are that the claims will be the exact same in both scenarios. The population would be the same, the carrier (way they adjudicate claims) would be the same, the stop loss protection would be the same and therefore the claims generated by those realities would be the same. If you change the carrier, plan design or stop loss then you aren’t just considering ASO you are considering multiple elements in addition to ASO which is a different conversation. Therefore, the only elements that will vary are the cost of administration and the applicable taxes. Taxes we can’t change (however we can control what the tax base is that they are applied to) and so really the only difference is the cost of administration for ASO and the negotiation of the insured rates in an insured model. If negotiated well, the insured rates including total cost of administration (stop loss, reserves, trends, fees) differential between Insured and ASO for an under 100 life client could be very marginal indeed and so the question does become is the risk worthwhile for what in most cases will be a couple of thousand dollars a year in administration savings? ASO funding does nothing to improve your claims results which are the largest cost element in any plan regardless of funding model.

Wednesday, August 28 at 1:10 pm | Reply

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