Can I be rewarded for taking on more risk?
By Billi Moyer
The well known relationship between risk and reward applies to employee benefits plans. Employee benefits are group insurance programs. Insurance is protection against risk. So by taking on more risk you can be rewarded in the form of a lower premium.
Many companies are switching to Administrative Services Only, or ASO arrangements. This move saves the company the risk premium because, in effect, the company is acting as the insurer. The insurance company only administers your plan. But is the reward of lower premiums worth the associated risk?
There are three types of accounting arrangements for employee benefits—non-refund, refund and ASO.
At the risk of over-simplifying these arrangements, in non-refund your premium changes based primarily on your group’s claims. With refund accounting, if your claims are lower than the insurance company projected you are refunded a portion of your premium (and if they are higher your premium increases).
With ASO, you pay the insurance company to adjudicate your claims. Your company pays all the claims group members make. Many small companies are switching to ASO because they can save money up front. They are assuming more risk.
Drug costs are rising, and a large claim will affect the bottom line. With ASO you can purchase stop-loss pooling, which will limit your exposure to these catastrophic claims to between $7,500 and $25,000. (The lower the stop-loss the more expensive the premium is because you are putting more risk onto the insurance company.)
Switching to ASO may make sense for your company. It isn’t a decision that should be taken lightly or just to save some money at renewal. One catastrophic drug claim can wipe out years of premiums savings.
The only way to know if an ASO arrangement is appropriate for your business is to speak with an expert advisor. Call BHH Benefits to learn more.
Billi Moyer is a Managing Consultant at BHH Benefits in Stoney Creek. She can be reached at 1-800-514-4944 or at b.moyer@bhhbenefits.com
