Administrative Services Only

ASO or Administrative Services Only, sometimes called ASO insurance or an ASO service, is a funding model where employers self-finance employee benefits while outsourcing only the administration.

Instead of paying fixed premiums to an insurer (fully insured model), employers cover actual claims directly in a process called “claims funding”. A third-party administrator (TPA) manages enrollment, claims processing, reporting, and compliance – without the insurer taking on financial risk. An employer, for example, may budget $500,000 for claims in a year. If claims total $400,000, the employer keeps the $100,000 difference.

Using an ASO was fairly popular among large U.S. employers in the 1990s and 2000s with over 65% of large firms in using ASO or similar self-funded approaches, But starting in the 2010s – with new compliance demands, the rise of remote work, and the need for global hiring – many companies shifted toward PEOs and, more recently, EORs, which offer broader support and stronger compliance guarantees. Both EORs and PEOs typically offer more support, a better guarantee of compliance, and greater efficiency.

How Does an Administrative Services Only (ASO) Plan Work?

An ASO system or plan in action is simple. Employers pay claims directly while outsourcing the “paperwork.” In insurance and healthcare, the a/s/o meaning is exactly that – administrative services only!

Let’s take a look at how it would work step-by-step:

1. An employer designs a custom benefits plan (e.g., health, dental, wellness).
2. A TPA manages enrollment, claims, and reporting.
3. The employer funds claims directly from the company budget.
4. Stop-loss insurance is added to cap any financial risk.

If an employer budgets $400K for example, but the actual claims reach $500K, the $100K shortfall is their responsibility. With stop-loss coverage, catastrophic claims don’t break the budget.

This model gives transparency and plan design flexibility, especially in ASO healthcare where companies can add benefits like telehealth or wellness stipends.

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What Are the Benefits of Administrative Services Only (ASO) Plans?

The appeal of an ASO arrangement lies in its ability to give employers more control over costs and plan design without having to take on the heavy admin burden. Instead of paying fixed premiums to an insurer, your company would fund claims directly and only outsource the back-end administration to a third-party administrator (TPA).

An added advantage for enterprise-level companies, is the potential for significant cost savings through group rates. The result is a leaner, more transparent benefits model where surplus funds stay with the business rather than padding insurer margins.

• Cost Savings: Employers retain unused funds instead of paying insurer margins.
• Flexibility: Benefits can be tailored to workforce needs (e.g., telehealth or mental health stipends).
• Control & Transparency: Employers gain real-time insights into claims data for better decision-making.
• Compliance Support: TPAs take care of ERISA, ACA, and HIPAA reporting in the U.S.
• Cost Containment: ASO is often part of a broader employer strategy to control healthcare spend.
• Employee Retention & Engagement: Customizable benefits boost employee satisfaction and reduce turnover.

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What Are the Risks of Administrative Services Only (ASO) Insurance?

Like any funding model, ASO comes with trade-offs that you’ll need to weigh carefully before making the leap. While the potential for savings and flexibility is attractive, assuming responsibility for claims means greater exposure if things don’t go as planned.

• Financial Risk: Because the employer pays claims directly, high or unpredictable medical expenses can quickly blow past budget. One serious illness or a spike in utilization can mean six-figure costs that the company (not an insurer) must absorb.
• Added Costs: To mitigate that risk, most employers purchase stop-loss insurance, which caps exposure per claim or in aggregate. While essential, these premiums will eat into overall savings.
• Complexity: Running an ASO plan requires strong internal processes, disciplined budgeting, and a trusted TPA. For smaller businesses without scale or administrative infrastructure, the complexity can outweigh the benefits.
• Regulatory Responsibility: Employers are ultimately accountable for compliance with ERISA, ACA, HIPAA, and state mandates in the U.S. Globally, labor and privacy laws (like GDPR) add another layer of complexity. Even when a TPA handles the paperwork, the legal responsibility sits with the employer.

You may also come across terms like “ASO settlement” or “ASO amount in BCBS settlement.” These usually refer to the way claims are resolved or reconciled under ASO agreements with carriers such as Blue Cross Blue Shield. They highlight why careful contract review, legal safeguards, and a clear understanding of financial obligations are critical when adopting an ASO model.

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How Is ASO Different from PEO, Fully Insured, or Other Arrangements?

When evaluating benefits strategies, employers often compare ASO plans to alternatives like PEOs, fully insured policies, or broader self-funded models. An Administrative Services Only arrangement is unique because the employer takes on the financial responsibility for claims but outsources the day-to-day administration to a third-party administrator (TPA).

This makes it more customizable than a fully insured plan, less comprehensive than a PEO relationship, and more structured than managing a self-funded plan entirely in-house. The table below breaks down the key differences so you can see where ASO fits among the most common models:

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How ASO Compares to Alternatives

• PEO (Professional Employer Organization): Provides co-employment, handling HR, payroll, and compliance. Great for small to midsize firms, but less flexible than ASO since benefits are tied to the PEO’s master plan.
• Fully Insured Plans: Traditional insurance where the carrier assumes financial risk. Predictable premiums but less control and usually higher long-term costs.
• Self-Funded Plans (without TPA): Employers manage claims and compliance internally. Offers maximum control but requires significant in-house expertise.
• EOR (Employer of Record): Ideal for global workforces. An EOR like Playroll provides ASO-style flexibility and compliance coverage across 180+ countries, without needing to set up local entities.

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Is an Administrative Services Only (ASO) Arrangement Right for Your Business?

Deciding whether an ASO arrangement is the right fit depends on your company’s size, financial stability, and appetite for risk. ASO plans generally work best for organizations with 50 or more employees, consistent cash flow, and the ability to absorb fluctuations in claims costs.

If you’re a smaller company or startup, you might find the financial exposure and compliance complexity too heavy, making alternatives like fully insured plans or EORs a better fit.

Key Steps to Set Up an ASO Plan

1. Assess Benefit Needs: Define which benefits you want to cover (e.g., medical, dental, wellness).
2. Choose a TPA: Select a trusted partner to handle claims processing, reporting, and employee support.
3. Design Plan Details: Customize coverage, provider networks, and wellness programs to fit your workforce.
4. Add Stop-Loss Coverage: Protect against catastrophic or unexpected claim spikes.
5. Ensure Compliance Monitoring: Stay on top of ERISA, ACA, HIPAA, and reporting requirements.

Compliance and Global Considerations

In the U.S., employers are legally responsible for compliance under ERISA, ACA, and HIPAA, even if a TPA handles the administration. Globally, compliance becomes even more complex: countries may have strict healthcare mandates, tax rules, or privacy regulations like GDPR in Europe.

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Check out our country hiring guides for all the details.