What Is Administrative Services Only (ASO)?

Administrative services only (ASO) refers to an agreement that companies use when they fund their employee benefit plan but hire an outside vendor to administer it. For example, an organization may hire an insurance company to evaluate and process claims under its employee health plan while maintaining the responsibility of paying the claims itself. An ASO arrangement contrasts with a company that purchases health insurance for its employees from an external provider.

Understanding Administrative Services Only (ASO)

Plan specifics for administrative services only (ASO) vary depending on the agreement a company establishes with insurance companies and third-party administrators (TPA). In ASO arrangements, the insurance company provides little to no insurance protection, which is in contrast to a fully insured plan sold to the employer.

As such, an ASO plan is a type of self-insured or self-funded plan. The employer takes full responsibility for claims made to the plan. For this reason, many employers using ASO plans also establish aggregate stop-loss policies in which the insurance company takes responsibility for paying claims that exceed a certain level—for example, $10,000 per insured person in exchange for a premium.

ASO insurance plans typically cover short-term disability, health, and dental benefits. Occasionally, they cover long-term disability for larger employers. ASO services are gaining popularity as many employers, particularly larger ones, explore the potential financial advantages that this type of plan can provide. An ASO may allow an employer to take greater control of benefit costs to meet the organization’s needs. However, ASO arrangements may not be suitable for all companies, and they come with certain risks. 

Traditional Administrator vs. Administrative Services Only (ASO)

A traditional administrator agreement is an arrangement whereby an insurance company fully administers claims. The insurance company is responsible for the services to maintain and manage plans, including making decisions on and covering the costs of claims.

Alternatively, under the ASO, the insurance company only provides administrative services for plans. The insurer serves as a third-party administrator to the employer, who assumes the duty to cover claim costs.

Under the traditional administrator agreement, premiums are fixed and reviewed annually. This arrangement makes it difficult for employers to know the impact of claims until premiums are assessed for the next year. With ASO arrangements, employers can, in real-time, keep track of fluctuating costs and plan accordingly.

Considering costs, when they exceed what was expected, premiums increase the following year with the traditional administrator. If costs are less than expected, the surplus remains with the insurance company. On the other hand, with an ASO agreement, the surplus is reinvested with the employer.

Advantages and Disadvantages of Administrative Services Only (ASO)

The costs for fully insured plans depend on an insurer’s evaluation of anticipated claims for a given year. For an ASO, however, annual funding levels are based on actual paid claims. If there are fewer claims than anticipated, then employers keep the surplus and reinvest the reserves. The surplus can translate into employers offering additional benefits, many of which would not be ordinarily covered by conventional health plans.

The total costs for an ASO are typically lower than those for a traditional administrator as the employer pays a negotiated fee to the third party rather than salaries and benefits to dedicated staff. These cost savings can offset rises in claims and be used to help the company grow. Alternatively, if claims consistently exceed forecasts, the cost for ASO may exceed that of a traditional administrator plan.

On the other hand, employers would be responsible for any deficit if claims exceed budgeted amounts. Catastrophic claims or sudden and unexpected events are of particular concern as they can exceed projected budgets and erode profits. Employers often invest in a stop-loss insurance policy to provide an additional level of protection in the event of these cases.

In some cases, an ASO arrangement may not be suitable for life insurance and extended healthcare benefits. Employers need to weigh the risks and benefits of how different ASO arrangements might affect their organizations.

Administrative Services Only FAQs

What Is a Recommended Stop Loss Level for an ASO Plan?

A common stop loss level for an ASO plan is $10,000 per eligible employee.

Is Self-Funded Healthcare the Same as Administrative Services Only?

Self-funded healthcare and administrative services only (ASO) are the same. These terms indicate an insurance arrangement in which the employer or organization assumes full responsibility for the cost of covered claims.

Who Keeps the Profits in Fully Insured Coverage?

Under a fully insured plan, the insurance company retains profits.

What Are Administrative Expenses?

Administrative expenses are expenses an organization incurs that are not directly tied to a specific core function such as manufacturing, production, or sales. These overhead expenses are related to the organization as a whole, as opposed to individual departments or business units.

Understanding Administrative Expenses

Administrative expenses may include salaries of senior management and the costs associated with general services or supplies; for example, legal, accounting, clerical work, and information technology. These costs tend not to be directly related to the production of goods or services of a business and are usually excluded from gross margins.

Companies incur administrative expenses in order to perform basic operations (e.g., administer payroll or healthcare benefits), increase oversight and efficiency, and/or comply with laws and regulations. On the income statement, administrative expenses appear below cost of goods sold (COGS) and may be shown as an aggregate with other expenses such as general or selling expenses.

Some administrative expenses are fixed in nature, as they are incurred as part of the foundation of business operations. These expenses would exist regardless of the level of production or sales that occur. Other administrative expenses are semi-variable. For example, a business will always use some minimum level of electricity to keep the lights on. Beyond that point, it can take measures to reduce its electric bill.

Because a business can eliminate administrative expenses without a direct impact on the product it sells or produces, these costs are typically first in line for budget cuts. Management is strongly motivated to maintain low administrative expenses relative to other costs, as this allows a business to utilize leverage more effectively. The sales-to-administrative expense ratio helps companies to measure how much sales revenue is being portioned to covering administrative costs.

Companies can deduct from their tax returns administrative expenses that are reasonable, ordinary, and necessary for business operations. These expenses must be incurred during the usual course of business and deducted in the year they are incurred.

Other Types of Administrative Expenses

Wages and benefits to certain employees, such as accounting and IT staff, are considered administrative expenses. All executive compensation and benefits are considered an administrative expense. Building leases, insurance, subscriptions, utilities, and office supplies may be classified as a general expense or administrative expense.

Depending on the asset being depreciated, depreciation expenses may be classified as a general, administrative, or selling (marketing) expense. Organizations may choose to include consulting and legal fees as an administrative expense as well. However, research and development (R&D) costs are not considered administrative expenses.

To get the full picture of the costs associated with running certain business units, a company may allocate out administrative expenses to each of its departments based on a percentage of revenue, expenses, square footage, or other measures. Internally, this allows management to make decisions about expanding or reducing individual business units.

Example of Administrative Expenses

For example, if XYZ Company spends $4,000 monthly on electricity and records this as an administrative expense, it might allocate the cost according to the square footage each individual department occupies. Assume:

• The production facility is 2,000 square feet
• The manufacturing facility is 1,500 square feet
• The accounting office is 750 square feet
• The sales office is 750 square feet

The company occupies 5,000 square feet. The electric bill could be allocated as follows:

• Production: $1,600 or (2,000 / 5,000) x $4,000
• Manufacturing: $1,200 or (1,500 / 5,000) x $4,000
• Accounting: $600 or (750 / 5,000) x $4,000
• Sales: $600 or (750 / 5,000) x $4,000

What Is Average Outstanding Balance?

An average outstanding balance is the unpaid, interest-bearing balance of a loan or loan portfolio averaged over a period of time, usually one month. The average outstanding balance can refer to any term, installment, revolving, or credit card debt on which interest is charged. It may also be an average measure of a borrower’s total outstanding balances over a period of time.

Average outstanding balance can be contrasted with average collected balance, which is that part of the loan that has been repaid over the same period.

Understanding Average Outstanding Balance

Average outstanding balances can be important for several reasons. Lenders often have a portfolio of many loans, which need to be assessed in aggregate in terms of risk and profitability. Banks use the average outstanding balance to determine the amount of interest they pay each month to their account holders or charge to their borrowers. If a bank has a large outstanding balance on its lending portfolio it could indicate that they are having trouble collecting on their loans and may be a signal for future financial stress.

Many credit card companies also use an average daily outstanding balance method for calculating interest applied to a revolving credit loan, particularly credit cards. Credit card users accumulate outstanding balances as they make purchases throughout the month. An average daily balance method allows a credit card company to charge slightly higher interest that takes into consideration a cardholder’s balances throughout the past days in a period and not just at the closing date.

For borrowers, credit rating agencies will review a consumer’s outstanding balances on their credit cards as part of determining a FICO credit score. Borrowers should show restraint by keeping their credit card balances well below their limits. Maxing out credit cards, paying late, and applying for new credit increases one’s outstanding balances and can lower FICO scores.

Interest on Average Outstanding Balances 

With average daily outstanding balance calculations, the creditor may take an average of the balances over the past 30 days and assess interest on a daily basis. Commonly, average daily balance interest is a product of the average daily balances over a statement cycle with interest assessed on a cumulative daily basis at the end of the period.

Regardless, the daily periodic rate is the annual percentage rate (APR) divided by 365. If interest is assessed cumulatively at the end of a cycle, it would only be assessed based on the number of days in that cycle.

Other average methodologies also exist. For example, a simple average may be used between a beginning and ending date by dividing the beginning balance plus the ending balance by two and then assessing interest based on a monthly rate.

Credit cards will provide their interest methodology in the cardholder agreement. Some companies may provide details on interest calculations and average balances in their monthly statements.

Consumer Credit

Outstanding balances are reported by credit providers to credit reporting agencies each month. Credit issuers typically report a borrower’s total outstanding balance at the time the report is provided. Some credit issuers may report outstanding balances at the time a statement is issued while others choose to report data on a specific day each month. Balances are reported on all types of revolving and non-revolving debt. With outstanding balances, credit issuers also report delinquent payments beginning at 60 days past due.

Timeliness of payments and outstanding balances are the top factors that affect a borrower’s credit score. Experts say borrowers should strive to keep their total outstanding balances below 30%. Borrowers using more than 30% of total available debt outstanding can easily improve their credit score from month to month by making larger payments that reduce their total outstanding balance.

When the total outstanding balance decreases, a borrower’s credit score improves. Timeliness, however, is not as easy to improve since delinquent payments are a factor that can remain on a credit report for seven years.

Calculating Average Outstanding Balance

Lenders typically calculate interest on revolving credit, such as credit cardsor lines of credit, using an average of daily outstanding balances. The bank adds all the daily outstanding balances in the period (usually a month) and divides this sum by the number of days in the period. The result is the average outstanding balance for the period.

For loans that are paid monthly, such as mortgages, a lender may instead take the arithmetic mean of the starting and ending balance for a statement cycle. For instance, say a home borrower has a mortgage balance of $100,000 at the start of the month and makes a payment on the 30th of the same month, reducing the outstanding principal amount to $99,000. The average outstanding balance for the loan over that period would be ($100,000-99,000)/2 = $99,500.

Frequently Asked Questions

What is an outstanding balance?

An outstanding balance is the total amount still owed on a loan.

What is an outstanding principal balance?

This is the amount of a loan’s principal amount (i.e. the dollar amount initially loaned) that is still due, and does not take into account the interest or any fees that are owed on the loan.

Where can I find my outstanding balance?

Borrowers can find this information on their regular bank or loan statements. They can also usually be pulled up from a lender’s website for viewing at any time.

What is the difference between outstanding balance and remaining balance?

Outstanding balance refers to the amount still owed on a loan from the perspective of a borrower or lender. Remaining balance instead refers to how much money remains in an account after spending or a withdrawal, from the perspective of a saver or savings bank.

What percentage of an outstanding balance is a minimum payment?

Some lenders charge a fixed percentage, such a 2.5%. Others will charge a flat fee plus a fixed percentage, such as $20 + 1.75% of the outstanding balance as the minimum payment due. Penalty fees like late fees, as well as past due amounts, will typically be added to the calculation. This would increase your minimum payment significantly.

What Is the Asian Development Bank?

The Asian Development Bank’s primary mission is to “foster economic growth and cooperation” among countries in the Asia-Pacific Region. Founded in 1966 and based in Manila, Philippines, the ADB assists members and partners by providing loans, technical assistance, grants, and equity investments to promote social and economic development.

The ADB has been responsible for major projects in the region and raises capital regularly through the international bond markets. The ADB also relies on member contributions, retained earnings from lending, and the repayment of loans for the funding of the organization.

How the Asian Development Bank Works

The Asian Development Bank provides assistance to its developing member countries, the private sector, and public-private partnerships through grants, loans, technical assistance, and equity investments to promote development. The ADB regularly facilitates policy dialogues and provides advisory services. They also use co-financing operations that tap official, commercial, and export credit sources while providing assistance.

Membership in the ADB is open to members and associate members of the United Nations Economic Commission for Asia and the Far East. It’s also open to other regional countries and non-regional developed countries that are members of the U.N. or of any of its specialized agencies. 

Financing Provided by the Asian Development bank

The ADB provides both private financing and sovereign (public) financing. Private sector efforts focus on projects that help promote private investments in the region that will have significant development impact and will lead to accelerated, sustainable, and inclusive growth. Public-sector financing provides funding for member countries with flexibility in determining how they can achieve development goals.

In 2021, the ADB committed nearly US$13.5 billion to help its developing member countries address the impacts of the COVID-19 crisis and address vaccination needs, and has mobilized a further $12.9 billion in co-financing from partners. Through a $9 billion Asia Pacific Vaccine Access Facility, or APVAX, announced in December 2020, the ADB provided funding for vaccine procurement, logistics, and distribution.

The total private financing portfolio consisted of $14.2 billion at the end of 2021. In terms of sovereign financing, ADB’s portfolio stood at $104 billion by the end of 2021, consisting of 713 loans, 392 grants, 915 TA projects, one guarantee, and 1 equity investment.

Structure of the Asian Development Bank

According to ADB’s website, “the Agreement Establishing the Asian Development Bank, known as the ADB Charter, vests all the powers of the institution in the Board of Governors, which in turn delegates some of these powers to the Board of Directors. The Board of Governors meets formally once a year during ADB’s Annual Meeting.” The ADB’s highest policy-making body is its Board of Governors, which comprises one representative from each member.

The two largest shareholders of the Asian Development Bank are the United States and Japan. Although the majority of the Bank’s members are from the Asia-Pacific region, the industrialized nations are also well-represented. Regional development banks usually work in harmony with both the International Monetary Fund (IMF) and the World Bank in their activities.

Asian Development Bank Country Relationships

When ADB was founded in 1966, it consisted of 31 members. Since then, membership has grown to 68 members, which is made up of 48 regional and 19 non-regional members. Membership as of 2022 includes: