These types of self-funded benefits plan are very common in Canada. In fact, the tax laws also allow for something called a Health Spending Account, which is a tax efficient, self-funded plan for health and dental expenses.
What is an Administrative Services Only Plan (ASO)?
An Administrative Services Only Plan is an agreement between a company and an administrator where the company will fund the claims made under the plan but leave all claims administration to a separate vendor.
For example, a company can self-insure by contracting an insurance company to review claims made by employees while reimbursing the eligible claims with their own company funds. In this case, the insurance company provides administrative services only. The same type of situation can work for a benefits plan. A company can self-fund their benefits while a third-party administrator ensures claims are eligible.
Traditional Fully Insured vs. Administrative Services Only
While both a traditional insurance plan and an ASO can solve the same equation, the two are better suited for different financial purposes.
When to use ASO services
In general, ASO plans are utilized for short term disability, health and dental, or other forms of insurance with low cost or "day to day" claims. For example, routine events like your (semi) annual dentist appointment. Vision, drug, and paramedical services fall under this category because the claims are low cost and won't cause financial catastrophe for the employee or the company funding the claims.
Long-term policies come with higher financial risk/claim payoff, which leads companies to go with traditional insurance.
When to use traditional insurance
In traditional insurance plans, employees are pooled and protected from catastrophic financial or medical events. This is useful for life insurance, accidental death and dismemberment and typically insurance that combats high claim cost events. Fortunately, in Canada, our public healthcare system covers most life-threatening medical events.
There are also budgeted ASO plans available from third party administrators, which allow the company to customize and limit spending. One such plan in Canada is the Health Spending Account.
How does an ASO plan work?
The reimbursement process and steps may vary based on the administrator and agreement, but the overall process will be similar:
Employee makes claim
Administrator reviews the claim
Eligible claims are reimbursed by the company
Some plans will have the company pre-fund so that employees are faster reimbursed, whereas, others may have the company pay after the claim has been processed and reviewed. In a budgeted plan, the employer will typically pre-fund.
Administrative Services Only Health Insurance
Health Spending Accounts are a type of budgeted ASO for health and dental coverage. The ASO billing process varies based on the provider/administrator, but here’s how things work at Olympia Benefits:
Employer establishes employee classifications and limits and pre-funds the account
Employee pays medical expenses
Employee submits claim online
Olympia pulls funds from the employer funding account
Olympia reimburses the employee directly
As Health Spending Accounts abide by the CRA, the reimbursements are 100% tax free to the employee and a business expense for the company, which makes the plan a cost-efficient choice. Furthermore, the versatile nature of the plan allows employees to spend on a wide range of eligible medical expenses while allowing the employer to customize and limit spending.
For single-person businesses where there are no arm’s length employees, Olympia employer pre-funding is not required. Since the owner is the sole employee (beside spouse – if applicable), this allows the owner to have more control over their budgeting. They pay while submitting the claim. For more information, visit our health and dental plans.