ASOs vs. TPAs
Self-funded health insurance plans are a great option for employers looking to cut costs and design coverage options that are more customized to meet their benefits requirements. But most employers who opt for self-funding don’t have the administrative capacity to process their own claims in-house.
That’s why self-insured employers often utilize Administrative Service Only plans, (ASOs) or Third-Party Administrators (TPAs) to process and pay their claims. ASOs tend to be more automated in their administration of self-funded plans, whereas TPAs often offer greater flexibility.
ASO vs. TPA: What’s the difference?
ASOs and TPAs serve some of the same functions. Both will process and pay claims so that self-insured employers don’t have to undertake this work themselves.
Both ASOs and TPAs will handle functions such as:
• Adjudicating and paying claims
• Determining and reporting eligibility for enrollment
• Communication and customer service for employees
• Preparing relevant reports for recordkeeping and legislative compliance
• Assistance with stop loss coverage
Sometimes, ASOs and TPAs will also assume responsibility for additional tasks, such as COBRA administration, HIPPA compliance, claims reports, cost containment services, and more.
Yet there are several key differences between ASOs and TPAs.
Typically, ASOs are owned and operated by insurance carriers. As a result, ASO operations tend to look and act like traditional insurers. They usually use the same staff and legal compliance teams—even though the laws that regulate self-insurance plans are often very different from the laws that regulate traditional insurance. One way to think about it is that employers who work with ASOs are essentially contracting with an insurance carrier to handle claims administration.
By contrast, independent TPAs usually operate with a greater emphasis on customized administration pursuant to the needs of each customer, and provide services that are specifically designed for self-insurance plans.
Unbundled Vendor Plans
Both ASO carriers and TPAs allow employers to select customized health plans.
However, when working with an ASO, employers generally must select a pre-defined health plan from the carrier that they’re working with. Restrictions on plan design and contract provisions are common. That’s because the large insurance companies often want to administer their ASO services in a way that doesn’t disrupt their own operations.
Since TPAs generally aren’t under the control of large carriers or hospital systems, self-insured companies that opt for TPAs usually have more options for plan design and network development than an ASO can offer. For example, an employer might choose to contract with multiple providers that meet employees’ needs instead of being limited to a carrier’s preferred network only.
Many major carriers typically offer ASO services that are “bundled.” That means ASO clients will receive all major plan components from a single vendor: claims administration, stop-loss insurance, pharmacy vendors, managed care (PPO), and more. Although bundling has the advantage of simplicity, it’s not always the most cost-effective method.
Most TPAs, conversely, enable employers to unbundle different components of the health plan by giving employers greater discretion on how they allocate funds.
Hands-on Claim Adjudication
Perhaps the most important distinction between an ASO carrier and a TPA is the automated vs. more hands-on approach used to adjudicate claims. A TPA’s less automated process allows a claims handler to review claims in greater detail, and to identify any errors. This can save employers tens of thousands of dollars over the course of a year. Of course, this service can sometimes translate into higher administrative fees than would be charged by a more automated ASO carrier.
TPAs are usually better than ASOs at enabling employers to see their own claims data and conduct data analysis. A TPA provides data transparency, enabling employers to analyze information about service usage, diagnoses, expenses, and other critical factors. Such data is critical for designing and optimizing future health plans.
By contrast, when an employer works with an ASO, the ASO controls the data relevant to the employer’s health plan. In some cases, it can be very difficult–if not impossible–to view this data.
Expanded Reimbursement Options
In addition, ASOs reimburse providers at the same rates as the parent insurance company (although additional discounts are sometimes available). That doesn’t enable employers to explore new reimbursement methods that are becoming more prevalent in the healthcare industry, such as Cost+, which is a method that uses a negotiated percentage of Medicare reimbursement rates.
On a closing note, we should point out that one of the most important functions that an ASO or TPA performs is communicating with plan enrollees, including customer service and general communications to inform employees about their group health plan. In our experience, large carriers are slower than TPAs in adopting innovative customer service protocols. But there are exceptions, and employers considering self-funding for their group benefits would be well-served by asking their potential administrative partners–both TPAS and ASOs–about their approach to providing the service and customer care required by employers and employees.