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Administrative Services Only (ASO)


Administrative Services Only (ASO) refers to an agreement that companies use when they fund their employee benefit plan but hire an outside firm to administer it. In this agreement, the firm only provides administrative services such as processing claims, providing network management and performing cost control measures. Therefore, the company retains the financial responsibility for paying claims, while the ASO firm handles the administrative tasks.


The phonetic pronunciation of Administrative Services Only (ASO) is:1. Administrative: /ədˌmɪnɪˈstreɪtɪv/2. Services: /ˈsɜːrvɪsɪz/3. Only: /ˈəʊnli/4. ASO (spoken as individual letters): /ˌeɪ esˈəʊ/

Key Takeaways

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  1. Self-funded Insurance: ASO is a type of insurance arrangement often adopted by businesses. In this set-up, the employer takes on the financial risk of insurance coverage for their employees. Unlike a fully insured plan, in an ASO arrangement, the organization funds the plan, paying for health care costs out-of-pocket as they are incurred.
  2. Role of Insurance Providers: In an ASO agreement, while the financial risk is carried by the employer, the insurance provider often handles the administrative tasks. This includes processing and paying claims, securing network discounts, and managing legal, regulatory, and compliance issues.
  3. Cost Savings: One of the main advantages of ASO is cost-saving. Employers can save significantly by not paying a fixed premium to an insurance company. Additionally, any funds allocated towards the plan that are not spent by the end of the year can be retained by the employer, rather than being kept by an insurance company as profit.



Administrative Services Only (ASO) is an important term in business and finance as it pertains to a form of self-insurance model that companies can employ for their healthcare plans. Instead of paying premiums to an insurance carrier, firms can choose to take on direct financial responsibility for their employees’ medical claims while hiring a third party to administer the healthcare plan, namely carrying out tasks like processing claims and providing customer service. This arrangement can prove critical for businesses as it offers potential cost savings, greater flexibility and control over the company’s healthcare benefits, and better cash flow since firms only pay for actual claims incurred. However, it also entails higher risk as the company is directly responsible for paying out claims. Therefore, understanding ASO is key for businesses in making strategic decisions related to employees’ healthcare benefits.


The purpose of Administrative Services Only (ASO) is to allow businesses to essentially outsource tasks related to the administration aspect of their operations, particularly in areas such as healthcare benefits. The business pays a fee to an ASO provider, who then administers certain services on behalf of the company. Not only does this help the business focus on core competencies, it can also result in cost savings, as it eliminates the need to maintain an in-house team for these administrative tasks.The ASO arrangement is particularly beneficial in the management of employee benefits programs. Companies often find it costly and time-consuming to administer these programs internally. By resorting to ASO, they can access specialized administrative services, like processing employee claims and maintaining employee benefits data. This arrangement allows businesses to maintain control over the cost, design, and service levels of their benefits programs, providing them with an effective tool for employee engagement and satisfaction.


1. Health Insurance: A corporate organization could work through an Administrative Services Only (ASO) agreement with their health insurance provider, where instead of paying a fixed premium to the insurance company, they only pay for the administrative services for processing insurance claims. The business takes on the risk itself, paying for all the medical claims of the employees out of its funds.2. Retirement Benefit Plans: In some cases, organizations will hire a third-party administrative services provider to manage their retirement benefit plans under an ASO contract. This is common with pension plans, where the provider manages key administrative tasks such as enrollment, benefits disbursement, ensuring compliance with regulations, and record-keeping.3. Human Resource Management: Larger corporations often involve a lot of human resources management tasks, including payroll, labor management, and hiring. With a Human Resources ASO contract, a third-party provider handles the administrative tasks, allowing the company to focus on their core operations. For example, an IT company could have an ASO agreement with a HR service provider for the administrative tasks related to their employees.

Frequently Asked Questions(FAQ)

What is Administrative Services Only (ASO)?

Administrative Services Only (ASO) is a financing arrangement where an organization funds its own employee benefit plan such as health and dental coverage, but contracts with an external specialist to administer it.

How does an ASO arrangement work?

The contracted company will handle administrative tasks such as claims processing, enrollment, developing employee communication materials. However, the client company is responsible for funding the claim payouts.

When might a company choose ASO plan?

Larger companies with a significant number of employees might choose an ASO plan. These organizations often have a lower overall risk due to the size of their workforce and can afford to fund their employees’ claims.

How does an ASO plan differ from traditional insurance?

While traditional insurance involves the payment of premiums to an insurance carrier who assumes risk, ASO funding requires an organization to retain its risk and pay for benefit claims as they are incurred.

Is an ASO plan cheaper than insurance?

Cost-effectiveness of an ASO can vary depending on a company’s situation. ASO fees can be less predictable than premiums of traditional insurance since it depends on employee’s claims, but it offers potential savings if claims are lower than expected.

What are some potential downsides to an ASO plan?

One potential downside is that ASO plans come with financial risks. If a company has high claims in any given year, it could pay more than it would have under a traditional health insurance setup.

What does the ASO provider do?

ASO providers are responsible for handling administrative tasks like processing claims, providing customer service, managing provider networks, and ensuring compliance with regulatory requirements.

Can small businesses benefit from ASO plans?

While typically a solution for larger organizations, small businesses may benefit from individual components of an ASO plan, such as third-party administration for specific benefits like retirement plans. However, they may not have the financial capacity to manage the variability in costs.

Related Finance Terms

  • Third-Party Administrator (TPA)
  • Self-Funded Health Plan
  • Risk Management
  • Cost Containment
  • Claims Processing

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