This is a different way of funding your benefits plan. Essentially, you self-insure the day-to-day expenses (like drugs, dental, and other small health expenses) and insure the big stuff (like life insurance and long-term disability). With a traditional style plan, if you use 40% of premium you don’t get that 60% back at the end of the year. With ASO, you do. Your essentially giving the company your own money to pay claims, and if there is money left over you’re able to do whatever you want with it. But what if an employee gets very sick, and requires thousands of dollars of drugs every year? You will self-fund that employees drug costs up to a certain point (for example $4,000/person/year), and then what we call a Stop Loss Insurance Plan will kick in. The employee will see no difference in coverage, but you will no longer self-fund their drug costs anymore, the insurance plan will. This ensures that you won’t have an open-ended liability if someone were to need a high cost drug.