What Is the Difference Between a TPA and an ASO?

Sometimes when associations are exploring third-party administrative (TPA) services, they come across an entity known as an “Administrative Services Organization,” or ASO, which offers services similar to a TPA. So what’s the difference between a TPA and an ASO?

Technically, there is no hard and fast distinction between the two. In some cases, a TPA and an ASO might offer the same services such as:

• Benefit design consultation
• Insurer analysis and negotiation
• Underwriting
• Health plan administration
• Claims processing & management
• Trust services
• Stop loss coverage procurement

While we might associate the above services with health insurance, a TPA or an ASO might provide many of the same services for dental insurance, vision insurance, disability insurance, or even life insurance.

As mentioned earlier in this article, there is no universally recognized distinction between TPA and ASO organizations. However, in real-world experience you may notice material distinctions between these organizations. According to the Society of Professional Benefit Administrators, ASOs are more likely to be under the control of a parent insurance company. Being under the control of a single insurer could potentially mean more restricted insurance options and less benefit customization. In other words, given an ASO’s exclusive relationship with a single insurer, it’s less likely the ASO would push back on the insurer in order to get greater benefit customization on behalf of its clients.

Likewise, if an ASO is restricted to a single insurer it’s not likely that the ASO would compare its insurer’s rates to those of other insurers. If your AHP is fully-insured and you wish to get the most competitive rate proposals, you should consider a TPA who works with a wide variety of insurers from which to receive competitive bids. One benefits consulting firm comparing TPA vs ASO costs has claimed, “I have empirical data that says that our independent third-party administrators run 10% or 12% better than my ASO contracts with the same plan design, claims and everything because we’re able to use best-in-class cost controls when an independent TPA allows us to do it.”

The reluctance of a single-insurer ASO to “rock the boat” can lead to other challenges. For example, a company’s access to its own medical claims data (properly anonymized) can allow it to reduce insurance costs by identifying:

• Wide disparities in costs for the same medical service within the health plan’s network of healthcare providers
• Billing errors
• Waste
• Fraud

Many insurance companies do not want to provide employers with access to their claims data. A single-insurer ASO is likely a poor advocate on behalf of a company that sees the strategic importance in analyzing this data, whether itself or through a third-party firm.

Should you care if your vendor for association health plan administration services calls itself a TPA or ASO? Not necessarily. The name does not matter as much as the organization’s qualifications and services provided. As we have pointed out in this article, single-insurer ASOs do have their drawbacks and should been reviewed very carefully if one is to be used instead of an independent TPA who works with multiple insurers.

Most states have a licensure or registration requirement for third-party administrators. Any vendor providing these services (whether called a TPA or an ASO) should have the appropriate licenses in the state or states where you intend to operate your association health plan. When considering the services of a TPA or ASO, you can reach out to your state’s Department of Insurance to inquire about any complaints that have been recorded for the entity. You can also check to see if there is any data on the organization at the Better Business Bureau.

After confirming the presence of appropriate licensure or registration, an association should investigate the reputation of the TPA or ASO it is considering. Your questions should include:

• Can the entity provide client references?
• Are there any complaints against the organization recorded by the Department of Insurance or the Better Business Bureau? If “yes,” how were they resolved?
• Are any of their staff recognized as industry experts in trade magazines?