Fully insured funding buys certainty; ASO funding buys transparency and keeps the surplus. This article covers a regulated subject and is not published until a licensed advisor has reviewed it. It is excluded from search indexing until then. Fully insured funding buys certainty; ASO funding buys transparency and keeps the surplus. Under a fully insured arrangement you pay a premium and the carrier bears the claims risk. Under administrative services only, you pay actual claims plus an administration fee, and carry the volatility yourself. The right choice is mostly a question of size and risk appetite. Industry context in this article draws on the Canadian Life and Health Insurance Association.
What is the difference between fully insured and ASO benefits?
Under a fully insured plan you pay a set premium and the insurer pays claims, keeping any surplus and absorbing any deficit. Under ASO you fund claims as they are incurred and pay the carrier an administration fee, so a good claims year stays with you and a bad one is yours to fund.
Fully insured is the default for most Canadian employers and is what a small business almost always starts with. The premium is known, budgeting is simple, and a catastrophic year is the insurer's problem.
ASO changes the relationship: the carrier becomes an administrator rather than a risk-taker. You gain visibility into where money actually goes and you stop paying a risk margin on benefits whose claims are largely predictable — but the volatility is now on your balance sheet.
| Factor | Fully insured | ASO |
|---|---|---|
| Who bears claims risk | The insurer | The employer |
| Cost pattern | Level premium | Varies with actual claims |
| Good claims year | Insurer keeps the surplus | Employer keeps the saving |
| Bad claims year | Insurer absorbs it | Employer funds it |
| Reporting detail | Limited | Detailed claims reporting |
| Typical suitability | Any size | Larger groups with stable claims |
| Usual benefits covered | All | Health and dental; rarely life or disability |
At what size does ASO start to make sense?
ASO becomes worth modelling when a group is large enough that its health and dental claims are reasonably predictable year to year. Below that, a single bad year can cost more than several years of the administration savings, which defeats the purpose.
There is no single headcount that switches the answer, and any advisor quoting one precise threshold is oversimplifying. What matters is the stability of your claims pattern, your tolerance for a bad year, and whether you have the cash flow to fund a spike without difficulty.
A practical test: model your worst plausible claims year under ASO, including stop-loss recovery, and ask whether the organization could absorb it without distress. If the answer is no, the funding model is wrong regardless of the average-case saving.
What is stop-loss cover and do you need it?
Stop-loss is insurance that caps your exposure under ASO, reimbursing claims above a set threshold — either per claimant or in aggregate across the plan. In practice ASO without stop-loss is an unhedged liability, and most employers purchase it as a matter of course.
Two forms are common. Individual stop-loss caps what any single claimant can cost you, which is the protection that matters when one employee develops a condition requiring high-cost therapy. Aggregate stop-loss caps total plan claims for the year.
The threshold is the real decision. A low threshold costs more in premium and returns you toward fully insured economics; a high one retains more risk and more saving. Setting it is a modelling exercise against your own claims distribution.
Before moving to ASO, confirm you have
- Enough claims history to model a realistic worst case
- Cash flow that can absorb a bad claims year without strain
- Stop-loss cover with a threshold matched to that tolerance
- Internal capacity to review monthly claims reporting
- A clear view of which benefits stay fully insured
Which benefits should stay fully insured under an ASO arrangement?
Group life, AD&D, critical illness and long term disability almost always remain fully insured. Their claims are infrequent but severe, and self-funding a disability claim that runs for years is a liability few employers should hold.
The logic is the same one that governs the whole decision. Self-fund what is frequent and predictable; insure what is rare and catastrophic. Health and dental generally fit the first description, and the long-tail benefits the second.
Long term disability deserves particular emphasis. A claim can persist for decades and creates a reserving obligation most organizations are not equipped to carry. It is the benefit we would most strongly recommend leaving with a carrier.
How to evaluate a funding change
- Gather three years of claims experience split by benefit.
- Model ASO costs against those years, including administration and stop-loss.
- Stress-test the worst year, not the average.
- Decide which benefits move and which stay insured.
- Confirm cash-flow arrangements and reporting cadence with the carrier.
- Review annually — the right model changes as the group changes.
Frequently asked questions
Is ASO the same as being self-insured?
Broadly yes for the benefits placed under it — you are funding claims rather than transferring the risk. The distinction is that the carrier still administers the plan, adjudicates claims and provides the network and reporting. You are buying administration without the insurance risk transfer.
Will ASO definitely save us money?
No. It removes the insurer's risk margin from the benefits placed under it, which is a saving in a normal or good claims year. In a bad year ASO costs more than a fully insured premium would have. The expected saving is real but it is an average across years, not a guarantee in any single one.
Can a 30-person company use ASO?
It is possible but often unwise. At that size a small number of claimants drive most of the cost, so year-to-year swings are large relative to the saving. Most employers of that size are better served by examining plan design and marketing the group than by changing the funding model.
How does ASO affect employees?
It should be invisible to them. Employees carry the same cards, claim the same way and receive the same coverage as defined in the plan. What changes is who ultimately funds the claim, which is an employer-side arrangement rather than a change to the employee's benefit.
What happens to our reserves if we switch back to fully insured?
Moving from ASO back to fully insured requires settling any outstanding claims incurred but not yet reported, and the treatment of that run-off liability should be agreed in writing before the change. It is a routine part of a funding transition, but it is also a place where employers get surprised if it is not addressed upfront.
Do ASO plans still need a pooling arrangement?
They need the equivalent, which is stop-loss cover. Pooling under a fully insured plan and stop-loss under ASO serve the same purpose — capping what any single high-cost claimant can cost the plan. Operating ASO without that protection leaves an uncapped liability.
Is ASO available for dental only?
Yes, and dental is often the first benefit an employer moves. Dental claims tend to be frequent, moderate in size and relatively predictable, which makes them well suited to self-funding. Starting with dental alone is a reasonable way to test the model before extending it.
What to do next
If any of the above applies to a plan you are responsible for, the fastest way to get a specific answer is to have someone read your actual documents. We review current plans and renewal reports at no charge and with no obligation to proceed.
Request a complimentary plan review →References
- Canadian Life and Health Insurance Association — CLHIA
- Benefits and allowances — Canada Revenue Agency
- Insurance Council of British Columbia — Insurance Council of British Columbia
- Statistics Canada — Statistics Canada
All references verified August 15, 2026. Links are re-checked at each scheduled review.