ASO vs. TPA: What Is the Difference?

The Ultimate Difference

While there are several things that separate ASO vs. TPA services, the main thing to remember is that ASO services are self-funded by employers tied to an insurance group, and TPAs are a separate entity. Many people decide to hand over the whole process to a TPA since it takes the weight of claims management off your shoulders.

ASO (Administrative Services Only)

ASO plans, also called Administrative Services Only plans, are self-funded health plans where the employer takes full responsibility and risk for paying employee health claims. In an ASO arrangement, the employer funds the plan and handles administration with the help of a third-party administrator (TPA).

ASO plans allow employers to design a plan specific to their workforce’s needs while also having more control over plan changes and costs since the employer is funding claims.

Overview of TPA (Third-Party Administrators)

Third-party administrators (TPAs) are companies that provide administrative services to group health plans, including ASO plans. TPAs handle functions like managing enrollment, processing claims, managing customer service needs, and ensuring adherence to regulations. Common services TPAs provide include:

Enrollment assistance and member services
Claims processing and adjudication
Managing customer service calls and inquiries
Providing access to PPO networks and prescription plans
Ensuring compliance with laws and regulations

By outsourcing administrative duties, plan sponsors can focus more on other business priorities. TPAs charge fees for services either on a per-employee-per-month basis or a percentage of claims processed.

Key Features of ASO and TPA

The key distinction between ASO and TPA is risk and funding responsibility. With an ASO-funded plan, the employer funds the plan and retains responsibility for paying employee benefit claims. A TPA provides these outsourced administrative services for a fee. By placing the responsibility on a TPA, a business can freely operate without the risks that come with ASO.

Looking to hand off your claims administration to a TPA? Take a look at this article that outlines the important factors to consider when choosing a TPA service provider.

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How ASO and TPA Operate

The differences in the operation of ASO vs TPA are minimal, yet they have a large impact on the risk for businesses. With ASO, businesses are ultimately taking on more risk as opposed to TPA solutions. Some of the details of the two services include:

Operational Mechanics of ASO

On the operations side, ASO plans function where the employer sets up a designated health benefit trust that serves as a “holding account” for funding plan expenses. Money deposited into this account is used to pay health claims as they come in.

The key responsibilities under an ASO model include:

Plan sponsorship: The employer sponsors and designs the group plan.
Plan funding: The employer is responsible for adequately funding the plan on an ongoing basis as claims come in.
Administrative outsourcing: A TPA handles administering the plan from enrollment to claims processing.
Stop loss insurance: Policies protect the plan sponsor from very large claims exceeding a set amount.

Having adequate cash flow and financial solvency to fund unpredictable health expenses is critical for successfully operating an ASO plan over the long term.

The Working Model of TPA

TPAs function by serving as outsourced administrative experts for health plans. They operate behind the scenes to handle critical duties that allow the health plan to run smoothly.

These administrative duties commonly include:

Adjudicating and processing claims
Paying claims from the plan trust account
Answering member inquiries and complaints
Managing enrollment and eligibility
Providing access to provider networks
Supplying plan documents and ID cards
Filing government reports for compliance

TPAs handle these administrative tasks for self-funded ASO plans, fully insured group plans offered through insurance carriers, and at times even individual health plans. They serve as an outsourced back office for health plans in exchange for a monthly service fee.

Evaluating ASOs vs. TPAs

When evaluating administrative services only (ASO) plans versus third-party administrator (TPA) models, it’s important to weigh the key advantages and disadvantages of each approach based on your organization’s specific needs and priorities.

ASO plans may provide employers with more control and flexibility to design customized benefit plans. However, ASO employers are responsible for funding claims costs, which introduces financial uncertainty.

Key advantages of TPAs include fixed administrative pricing, compliance expertise, and risk transfer. When determining which model aligns better, it’s critical to objectively assess your organization’s priorities across factors like cost management, customization needs, appetite for risk, desire for compliance assistance, and capabilities for plan management.

Determining What Your Business Needs

Carefully examining your organization’s specific needs, resources, capabilities, and constraints allows you to determine whether an ASO or TPA makes the most strategic sense.

As you evaluate ASO vs. TPA models, consider questions such as:

What level of control do you want over plan design and funding levels?
How much financial risk are you willing to assume related to claims costs and liability?
What internal expertise and bandwidth exists to take on plan management?
How much assistance do you need managing plan compliance?
What degree of customization is needed to meet employee needs or attract talent?
What costs need to be balanced against desired plan richness and flexibility?

Document your responses to these strategic questions. This will provide clarity on where your organization’s needs align for critical factors like cost, control, customization, compliance, risk, and internal capabilities.

For example, smaller companies with limited risk tolerance and HR bandwidth may value the fixed admin pricing and compliance expertise of a TPA. Larger corporations needing tailored plans for attracting talent benefit more from the increased customization and control of larger TPAs.

It’s also important to assess the financial stability and transparency of potential ASO repayment terms or TPA partners during any RFP process. Requiring details like financial statements and bank references helps validate stability for the length of a multi-year contract.

When Deciding ASO vs. TPA, Turn to GGA Solutions

No matter what the situation is, GGA Solutions has comprehensive claims services that can ease the burden of your claims management. By letting us handle your overflow claims, you never have to worry about missing any deadlines or making mistakes. Don’t let claims work pile up–Contact GGA Solutions for a free consultation today.