Tired of rising group insurance premiums and limited control over your benefits plan? According to a recent report, a fully insured group benefits plan can cost up to 33% more to operate than an Administrative Services Only (ASO) plan. ASO plans offer a smarter, more flexible alternative, allowing employers to fund employee health and dental claims directly while avoiding insurer markups.

This self-funded employee benefits model is ideal for medium to large businesses seeking transparency, cost savings, and customization. In this guide, we break down how ASO plans work, what they cover, and whether they’re right for your organization.

What is an Administrative Services Only (ASO) plan in Canada?

An Administrative Services Only (ASO) plan in Canada is a self-funded employee benefits arrangement where the employer pays for the cost of health and dental claims out of pocket, rather than purchasing traditional insurance. 

However, the employer outsources the administration of the plan, including claims processing, reimbursements, and reporting, to a third-party benefits administrator or insurance company. Under this model, the employer assumes the financial risk for employee claims but avoids paying fixed premiums to an insurer. 

ASO plans are commonly used by mid-sized and large Canadian businesses looking for greater cost control, flexibility, and transparency in their employee health benefits.

What does an ASO plan cover?

Administrative Services Only plans in Canada offer a wide range of customizable health and dental benefits, allowing employers to tailor coverage based on the needs of their workforce. These benefits may also include wellness funds, HSAs, vision care, mental health benefits, and more.

• Prescription drugs: Employers can cover a wide range of medications, including chronic illness treatments, antibiotics, and specialty drugs
• Dental care: ASO dental benefits usually include basic dental services such as exams, cleanings, fillings, and extractions, major dental treatments like crowns, bridges, and dentures, orthodontic treatments including braces and clear aligners, etc
• Extended healthcare: Employers can include a variety of paramedical and therapeutic services, such as physiotherapy, massage therapy, chiropractic care, naturopathy, podiatry, acupuncture, etc
• Vision care: ASO plans commonly cover routine eye exams, prescription eyeglasses, and contact lenses. These plans may also cover laser eye surgery, depending on the coverage limits set by the employer
• Medical equipment and supplies: Employers may choose to cover medical devices and supplies such as custom orthotics and orthopedic shoes, mobility aids like walkers or crutches, CPAP machines, compression garments and diabetic care products
• Emergency travel medical coverage: Some ASO plans include out-of-country emergency medical benefits, covering urgent hospital or medical expenses for employees travelling abroad
• Health Spending Accounts (HSAs): Employers incorporate HSAs into an ASO plan to provide extra flexibility. These accounts allow employees to claim a broader range of eligible medical expenses under CRA guidelines, including dental, vision, mental health, and wellness services
• Employee and Family Assistance Programs (EFAPs): Employers can incorporate EFAPs to offer confidential support services. These may include counselling, mental health support, legal or financial advice, and wellness coaching
• Wellness funds or Lifestyle Spending Accounts (LSAs): Some ASO plans include LSAs to promote employee wellness. These accounts may reimburse costs related to gym memberships, nutrition services, meditation classes, or ergonomic equipment

How much do ASO plans cost in Canada?

The cost of ASO (Administrative Services Only) plans in Canada depends on two main components: actual claims paid and administration fees charged by the third-party provider. Since employers take on the financial risk, understanding how these costs work is crucial for budgeting and planning.

• Employers pay all health and dental claims directly: Under an ASO arrangement, you cover the full cost of your employees’ medical, dental, vision, or paramedical claims as they arise. These expenses vary year to year based on employee usage, making this portion of the ASO plan cost unpredictable and dependent on workforce health trends
• Administration fees typically range from 7% to 20% of paid claims. ASO administration costs cover services such as claims processing, reporting, and customer support. For small businesses, these fees typically range from 12% to 20%. Larger companies may negotiate lower admin fees, typically between 5% and 12%, depending on their plan size and complexity
• Stop-loss insurance adds protection but increases cost: Many employers purchase stop-loss insurance to protect themselves from high-cost claims. While this adds to the total ASO plan cost in Canada, it caps the employer’s risk and is especially valuable for small to mid-sized groups
• Setup fees and taxes may apply: New groups may face one-time setup charges, and applicable taxes such as premium tax (in some provinces) or HST/GST may be added, depending on your location and provider

Cost example

If your team incurs $100,000 in annual claims, and your administration fee is 10%, you’ll pay an additional $10,000 in admin costs. That brings your total base cost to $110,000, excluding stop-loss premiums or other incidental fees.

What factors affect the cost of an ASO plan in Canada?

Several key factors influence the total cost of an ASO (Administrative Services Only) plan in Canada, including company size, employee demographics, level of benefits provided, claims experience, stop-loss insurance, etc.

• Group size and employee demographics: The number of employees and their age distribution directly impact ASO costs. Larger groups with younger employees tend to have more predictable and lower claims
• Level of benefits provided: Offering richer benefits like extended health care, orthodontics, or vision coverage increases the total cost of your ASO plan. Basic coverage leads to lower claims and reduced employer expenses
• Claims experience and usage trends: Historical claims data plays a critical role. High past usage of health and dental benefits signals higher future costs and increased financial risk for the employer.
• Administrative fees charged by the TPA: Third-party administrators typically charge 7% to 20% of total claims. Small businesses often face higher admin rates due to a smaller group size and lower bargaining power
• Stop-loss insurance: Adding stop-loss insurance helps limit financial exposure from high-cost claims. While it raises total ASO plan costs, it adds stability and predictability to your benefit budget

Which are the best companies offering ASO plans in Canada?

Choosing the best ASO plan in Canada can significantly impact your employee benefits experience, cost predictability, and claims management. Some of the best companies in Canada that offer ASO plans include Sun Life, Canada Life, Desjardins, Equitable Life, Empire Life, etc.

• Sun Life: Sun Life offers customizable health, dental, drug, and wellness benefits. It is ideal for medium to large businesses looking for flexible ASO plan design, virtual care options, and high coverage ceilings
• Canada Life: It provides a wide range of group benefits, including health, dental, life, and disability. Known for its broad offerings and industry experience, Canada Life supports businesses of all sizes based on their unique requirements
• Desjardins: Desjardins is perfect for companies seeking holistic health solutions for the comprehensive needs of their employees. It specializes in offering life, AD&D, mental health, virtual care, and even gender affirmation coverage
• Equitable Life: It delivers ASO plans with health, dental, AD&D, and spending accounts. Known for its EZClaim mobile app, tiered plan options, and fraud detection systems, Equitable Life is a solid choice for small businesses across Canada
• Empire Life: Empire Life provides its 20Plus ASO plan for businesses with over 20 employees. It offers self-funded health and dental options suited for lower-risk benefit categories

How does an Administrative Services Only (ASO) plan work in Canada?

An ASO plan in Canada allows employers to self-fund health and dental benefits while outsourcing claims administration to a third-party provider. Here’s how an ASO plan works in Canada:

1. The employer creates a customized benefits plan by selecting which health, dental, vision, and paramedical services to include
2. The employer funds eligible claims directly instead of paying monthly insurance premiums
3. A third-party administrator (TPA) manages all administrative tasks, including claims processing, employee reimbursements, and recordkeeping
4. The employer pays a separate administrative fee to the TPA for handling day-to-day operations
5. Employees submit claims through the TPA, which reviews and processes them based on the plan’s design and limits
6. The TPA provides regular monthly reports on claim trends to the employer, offering insight into claim trends, cost patterns, and plan performance
7. Employers can include stop-loss insurance to limit financial exposure from large or unexpected claims
8. The plan can be adjusted annually based on employee usage, budget considerations, or workforce needs

Who administers ASO plans in Canada?

In Canada, third-party administrators (TPAs) and insurance carriers typically administer ASO (Administrative Services Only) plans on behalf of employers. These providers manage all administrative functions, including claims processing, employee reimbursements, reporting, and compliance. 

Employers work with TPAs to design the plan, set coverage limits, and establish funding arrangements. The administrator ensures that claims are reviewed, processed, and paid according to the plan’s terms. While the employer funds the claims, the administrator handles the day-to-day operations efficiently. 

Most of the leading insurance companies and independent TPAs across Canada offer ASO administration services to help businesses cost-effectively manage their group benefits.

How does an ASO plan differ from traditional group benefits?

While ASO plans offer employers the flexibility to have control over their employee benefits plan, traditional group benefits only allow employers to pay a fixed monthly premium. ASO plans provide more flexibility to employees, whereas traditional group benefits plans are fully taken care of by the insurance company. Here is a detailed comparison between an ASO plan and a group benefits plan for employers in Canada:

ASO plans vs. traditional group benefits: A comparison

What is typically excluded from an Administrative Services Only (ASO) plan?

While ASO plans in Canada offer flexibility and customization, certain health-related expenses such as cosmetic procedures, OTC medicines, minor surgeries, workplace injuries, etc, are commonly excluded from coverage. Employers must clearly define these exclusions in their plan documents to avoid misunderstandings and manage costs effectively. 

• Cosmetic procedures: ASO plans usually exclude treatments or surgeries performed solely for cosmetic or aesthetic purposes, such as plastic surgery not medically required
• Over-the-counter medications: Non-prescription drugs, vitamins, and supplements not prescribed by a licensed healthcare provider are typically not reimbursed
• Experimental or investigational treatments: ASO plans do not cover medical procedures, devices, or therapies not yet approved by Health Canada or considered experimental
• Procedures that are not medically necessary: Any treatment or service that is not deemed medically necessary by a qualified practitioner is generally excluded
• Expenses outside Canada (unless specified): Most ASO plans do not cover medical costs incurred outside of Canada unless the plan includes travel health benefits
• Workplace injuries: Medical costs related to workplace injuries are usually excluded, as these are covered under provincial workers’ compensation programs
• Third-party examinations: Medical exams required for employment, immigration, legal, or insurance purposes are typically not eligible under ASO plans
• Missed appointment fees: Charges for cancelled or missed medical appointments are not reimbursed
• Non-licensed provider services: Treatments provided by unlicensed or non-certified practitioners are generally not covered under the plan
• Late claim submissions: Claims submitted after the allowable deadline, as defined in the plan rules, are often denied

Can employers customize ASO plans based on their province?

Yes, employers in Canada can customize ASO plans based on their province to align with regional healthcare needs and provincial regulations. Since healthcare systems vary slightly across provinces, employers often adjust their ASO plan design to fill specific gaps in government health insurance plans. 

For example, an employer offering ASO plans in Alberta might include certain services already covered in Ontario’s provincial health coverage to ensure consistency for national employees. Customization of ASO plans also allows employers to meet local compliance standards, address workforce demographics, and manage costs effectively. Employers can select different coverage levels, eligible services, and maximum limits, depending on provincial requirements.

Is budgeted ASO the best option for small businesses in Canada?

A budgeted ASO plan is a group benefits arrangement where an employer pays a predictable, fixed monthly amount toward employee health and dental claims based on prior claims history.

Budgeted ASO plans offer small businesses in Canada the flexibility of self-funded benefits with fixed monthly costs. Unlike traditional ASO plans, where claims costs vary, budgeted ASO plans cap your financial exposure by setting a projected claims amount. This makes it easier for small businesses to manage employee benefits without financial surprises.

Here’s why budgeted ASO can be a smart choice for small businesses in Canada:

• Predictable monthly costs: Budgeted ASO lets employers pay a fixed monthly amount, making it easier to budget for group health and dental benefits
• Reduced financial risk: Employers don’t have to worry about sudden spikes in claims because the plan includes a pre-set claims fund and often stop-loss protection
• Surplus refunds: If actual claims fall below the estimated budget, the insurer may return the surplus to the employer, making the plan more cost-effective
• Customizable plan design: Small businesses can tailor their coverage, such as dental, vision, and drug benefits, to meet the unique needs of their workforce
• Insured plan with self-funded flexibility: Budgeted ASO plans combine the flexibility of self-funding with the administrative simplicity and peace of mind of insured plans

For small businesses with limited resources and a desire for cost control, budgeted ASO plans in Canada can offer the best balance of flexibility, affordability, and predictability. Working with trusted experts like PolicyAdvisor can help you compare top budgeted ASO providers and find the most affordable employee benefits solution for your team

Are ASO plans taxable in Canada?

Yes, ASO plans are generally taxable benefits in Canada. When an employer reimburses or pays for health or dental claims under an ASO arrangement, the Canada Revenue Agency (CRA) typically considers these reimbursements as non-taxable if they qualify as private health services plan (PHSP) benefits. 

However, any non-eligible medical expenses or taxable allowances included in the plan may be subject to income tax for the employee. Employers must structure ASO plans carefully to ensure compliance with CRA guidelines and maintain the non-taxable status of qualified benefits.

Can small businesses use ASO plans in Canada?

Yes, small businesses in Canada can use ASO plans, but they must assess their financial risk tolerance and cash flow. Unlike traditional group insurance, ASO plans require the employer to fund claims directly, which may lead to cost variability. However, small businesses with a healthy workforce and low claims volatility may find ASO plans more cost-effective than fixed premiums. 

Employers can also add stop-loss insurance to protect against high-cost claims. While larger companies more commonly use ASO plans, small businesses that want control over benefit design and cost management can also benefit from this model.

Is stop-loss insurance mandatory in ASO plans?

No, stop-loss insurance is not mandatory in ASO plans in Canada, but many employers choose to include it to manage the financial risk of potentially high claims costs.

Stop-loss insurance protects employers against any catastrophic or unexpected high claims. Employers can set a specific threshold, and any claim amount exceeding that limit is covered by the stop-loss insurer.

While stop-loss insurance brings added cost to the ASO plan, this coverage provides greater financial stability and protection, especially for mid-sized businesses with limited cash reserves. Including stop-loss insurance helps employers strike a balance between cost savings and risk control.

What are the common risks of offering ASO plans to employees in Canada?

Offering ASO plans to employees in Canada comes with several common risks that employers must carefully manage. These risks include unpredictable claims costs, financial risk exposure, employee dissatisfaction, regulatory compliance, and more.

• Unpredictable claims costs: Employers pay for claims as they arise, which can lead to unexpected financial strain during high-claim periods
• Cash flow pressure: Without fixed premiums, employers must ensure they have sufficient cash on hand to cover claim reimbursements at any time
• Financial risk exposure: In the absence of stop-loss insurance, employers bear full responsibility for catastrophic or unusually high-cost claims
• Administrative complexity: Managing an ASO plan requires coordination with a third-party administrator and more involvement in claims reporting and oversight
• Employee dissatisfaction: If coverage levels, exclusions, or reimbursement timelines are unclear, employees may feel underserved or confused
• Regulatory compliance: Employers must ensure the plan aligns with CRA guidelines and provincial health benefit regulations to maintain tax advantages

How to find the best ASO plan in Canada?

Finding the best ASO plan in Canada requires more than just comparing prices. Employers must consider plan flexibility, claims predictability, digital tools, and support. Here are a few essential steps to guide your decision:

• Compare quotes from at least 2–3 top ASO providers in Canada
• Evaluate admin fees, projected claims, and any hidden or add-on costs
• Research the provider’s claims-handling reputation and service responsiveness
• Choose providers that offer digital dashboards and transparent reporting tools

The easiest way to navigate these steps is by speaking with a licensed insurance advisor at PolicyAdvisor. We partner with 30+ top Canadian insurers to help you find the best ASO plan based on your company’s size, budget, and unique employee needs. Moreover, our experts compare quotes, explain fee structures, and ensure you lock in the most competitive rates with dedicated claims support and annual plan reviews.