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In Finance, what is Administrative Services Only?

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  • Written By: Jennifer Voight
  • Edited By: Jacob Harkins
  • Last Modified Date: 29 November 2016
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    Conjecture Corporation
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Administrative services only are third-party health insurance plans that provide assistance in healthcare polices for large employers. These services generally provide underwriting, accounting, and administrative services while the employer assumes all the financial risk and pays the claims.

In an effort to control rising group health insurance costs, large employers are increasingly turning to these administrative services only plans through to insure employees. These plans are gaining popularity because the employer essentially self-insures and pays the third party only for administrative costs.

Insurance companies and administrators who offer administrative services only plans are also known as third party administrators (TPAs). Health and dental insurance are the most common services offered by TPAs. Larger companies sometimes use administrative services only plans for disability and pension policies. As their popularity grows, TPAs are beginning to offer services to medium and smaller companies.

Administrative services only plans typically handle processing claims, billing, preparing benefits payments, communications with employees, providing manuals, statements, and reports, tax withholding, and government reporting services. Since it charges a fixed fee for these services, companies save on some of the other charges traditional health insurance plans include in premiums. To minimize financial risk associated with paying claims, companies may purchase a stop-loss policy that requires the TPA to pay claims that exceed a set amount.

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When companies use administrative services only plans, they save money on mark-up fees usually included in traditional premiums. Insurance companies charge for profit, risk management, sales commissions, claims, reserves, inflation factors, and rate adjustments. When companies don’t pay these fees in premiums, they may choose to pass savings on to employees or increase coverage benefits. These plans allow companies to customize coverage to reflect the needs of the particular company, rather than an entire industry. For example, the company can set limits on coverage when certain categories are more costly or used more by employees.

administrative services only plans eliminate the need for the annual premium renewal process with a traditional group insurance plan. This can be a stressful time for companies because insurance premiums tend to rise while benefits tend to decrease each year. Since these plans are less cost-driven, costs stay relatively constant and may include benefits that traditional insurance plans may exclude, like cosmetic surgery and alternative health care provider services.

There are some disadvantages when using an administrative services only. A company can experience greater financial risk if a stop-loss plan or maximum coverage limit is not in place. Claims can fluctuate over time and exceed budget amounts, especially for smaller companies who are less able to absorb the loss.

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