Mid-market employers that decide to self-insure their health benefits generally have two options for claims administration: An administrative services-only program that is similar to a “prix fixe” menu in a restaurant or a third-party administrator that is similar to an a la carte menu.

ASO programs are a suite of medical plan administrative services—claims administration, pharmacy benefit management, etc.—in a “bundled” format.

By contrast, a TPA approach allows employers to select the services required from multiple providers, with their coordination being managed by the TPA. This often is called an “unbundled” approach.

Each approach has distinct advantages and disadvantages, and an employer needs to determine which best suits the organization.

An ASO self-insured program is administered by an insurance company and has “prix fixe” medical plan components that are predetermined and administered by the insurer. Such bundled services include medical and pharmacy claims administration, medical case management, disease management, stop-loss insurance and customer service.

The biggest advantage of a self-funded ASO arrangement is that all services provided are integrated and “talking to each other” on behalf of the client. The administrative burden typically is less with an ASO arrangement because of the single point of contact and bundled approach.

A critical advantage in an ASO arrangement is the insurer's provider network. The “brand” element of the network can prove to be a major selling point for employers. It also might be preferable to a geographically diverse employer because large insurers generally have multistate networks. Brand-name networks also may be more appealing to employees because they already have some familiarity with the company.

As far as disadvantages, an ASO self-insured program many lack flexibility when it comes to plan design because the ASO insurer's administrative systems are not always able to accommodate plan designs that vary significantly from the fully insured plans they offer.

Some ASO insurers will allow an organization to “carve out” certain components of plan administration, such as stop-loss insurance or pharmacy benefit management. However, carving out these components doesn't always work cohesively, and the internal exchange of data may be compromised.

Furthermore, while claims data to which the employer has access is more robust in an ASO approach than when they were fully insured, it is generally much less than the information that is available via a TPA approach.

Lastly, if an employer doesn't like one of the key components of the ASO arrangement, it may have to move the entire program to another insurer.

With a TPA program, the employer can select all services to administer their medical plan on an a la carte basis, compiling the vendors that best align with its organizational structure and philosophy.

For example, an employer can select different companies to administer claims administration, pharmacy benefits, physician and provider networks, and stop-loss insurance.

In addition, TPAs can administer almost any type of plan design, ranging from traditional indemnity-based programs that provide percentage-based coinsurance above a deductible to the more advanced value-based insurance designs in which employers either waive or reduce deductibles and copayments for higher-valued medical services, such as screenings and prevention.

In a TPA program, the data collected generally is more comprehensive than in an ASO arrangement; if an employer doesn't like how one component is working, it can simply change that part without major disruption.

Disadvantages of a TPA platform include juggling multiple vendors, which can be challenging for the human resources or payroll staff who are usually charged with coordinating the different vendor contacts, billing, etc.

However, many TPAs also can coordinate outside providers often will help organizations create a cohesive feel, making this a la carte approach seem almost like a prix fixe menu.

Another drawback of using a TPA approach is having to work with independent provider networks rather than national insurance company-branded networks. Attempting to patch together several such provider networks, many of which are only regional, to meet the needs of a geographically diverse population can be frustrating, and it is possible that some employees in certain parts of the country might not have easy access to network providers.

Fortunately, national insurers recently have begun loosening the reins on their provider networks and “leasing” them to independent TPAs in certain markets.

The selection of a self-funding program will have a lasting impact on an employer's benefits funding strategy for years to come. That's why it is important that employers consider key factors including cost, management philosophy, group size and population footprint.

Kristi Gjellum is an account executive at IMA of Colorado Inc., www.imacorp.com, in Denver. She can be reached at Kristi.gjellum@imacorp.com and 303-615-7517.