Defining Employer Health Plans: PEPM vs. PMPM
How PEPM and PMPM differ and the benefits of each
As you search for the right benefits structure for your employees and organization, it’s likely you’ve come across the PEPM and PMPM billing models. On the surface, they seem pretty synonymous to each other—so what exactly is the difference between the two? To make sure you have the full picture, we’ll break down both models and clarify their unique benefits.
What to expect:
What is PEPM billing?
What is PMPM Billing?
The benefits of PEPM and PMPM plans
Individual benefits for PEPM and PMPM
The challenges of PEPM and PMPM
Employer health plans: PEPM vs. PMPM
PEPM and PMPM are both financial models that healthcare payers and providers may use to bill for health services. Yet, their payment structures, customization and approaches differ.
What is PEPM billing?
PEPM stands for Per Employee Per Month. This payment model centers around customizing benefits based on individual employee needs rather than as a collective unit. The PEPM approach aims to offer greater flexibility and options that reflect the miscellaneous needs of a workforce.
What is PMPM billing?
The PMPM model, also known as Per Member Per Month, assigns a fixed monthly fee to each enrolled member regardless of the type and amount of services they need. Instead, the fee is based on the anticipated cost of issuing healthcare services to the member. This approach provides organizations with stability, as they know what to expect each month cost-wise and can plan accordingly.
The benefits of PEPM and PMPM plans
Now that we’ve defined these two employee health plans, it’s time to reveal their shared benefits.
Monetary predictability
PEPM and PMPM employee health plans both offer financial predictability. With fixed monthly payments, employers can more effectively budget their healthcare spending. They allow businesses to plan their expenses better, as they don’t have to worry about unforeseen changes in healthcare costs.
May reduce administrative complexity
According to JAMA, administrative expenses account for 15% to 25% of national healthcare expenditures annually. In addition, many administrative tasks are wasteful, costing the nation about $265.6 billion per year. PEPM and PMPM employee health plans may help reduce administrative complexity and allow HR teams to focus on more essential tasks like launching new employee benefit programs.
PEPM and PMPM plans also offer unique benefits
While both plans allow employers to improve cost management and streamline administrative functions, they also have their own advantages.
PEPM permits greater employee customization
The Per Employee Per Month model allows employers to customize coverage to align with their employees' needs. Allowing employees to choose benefits that match their individual circumstances is one way to improve employee satisfaction and retention. In fact, a Pew Research Center survey found that 43% of people left their jobs in 2021 due to poor benefits.
PMPM may enhance quality of care
The Per Member Per Month approach aligns well with managed care organizations with a value-based care approach. This model encourages providers to enhance patient outcomes instead of just providing healthcare services. By incentivizing quality instead of volume, it shifts the focus on improving the overall quality of care while also lowering costs. Implementing telehealth services into both models could help you provide even more value to your employees through access to specialized care.
PEPM may improve employee recruitment
Employers can attract and retain good talent by offering personalized insurance plans. It makes employees feel like their health and wellness needs matter, which could pay off in the long run. For instance, the Integrated Benefits Institute found that poor worker health costs employers almost $600 billion annually. When employees miss work or show up to work but aren’t fully engaged, productivity is lost.
The PEPM model allows for more employee-centric healthcare options that may help combat productivity issues. Employers may notice a healthier workforce and decrease employee absenteeism by offering programs that address top health concerns, like weight management and mental health.
PMPM promotes efficient resource use
Capitation models, like PMPM, prioritize preventative care and discourage unnecessary treatment. Healthcare providers are incentivized to manage costs and properly utilize healthcare services efficiently. This differs from the fee-for-service model, which focuses on the quantity of services delivered and often leads to unnecessary testing and treatment. The value-based approach encourages improved quality of care and better patient outcomes while maximizing efficiency.
The challenges of PEPM and PMPM
We’ve addressed some of the benefits associated with PEPM and PMPM, but each of these employer health plans has challenges, too.
PMPM may lead to under-use of health services
Physicians experience greater levels of personal financial risk with the PMPM model, so they may reduce medical services and operational staff to save money. As a result, some patients may not receive the medical care they need. This could be problematic for patients with chronic conditions that require ongoing care, as they risk having their care deferred. From an operational standpoint, billing problems and claims errors may increase.
One way to mitigate these issues is to invest in telehealth solutions that improve operational tasks and promote disease prevention and early treatment.
PMPM and outdated technology compatibility
Legacy systems may not accurately count each member, and capturing incorrect data isn’t useful for billing purposes or measuring outcomes. Therefore, organizations may need to invest in new technology that’s more efficient and accurate.
PEPM fees and low employee engagement
The Per Employee Per Month model opens the door to health and wellness incentives that could lead to healthier employees. However, employers risk paying PEPM fees for services that aren’t fully utilized or valuable to their workforce. Fortunately, this potential issue could be minimized with proper preparation. Learn how to successfully launch a PEPM benefit program so you know what to expect before implementation.
Powering better employee wellness
Regardless of which employer health plan your organization takes on, some innovative solutions will be required to power it. For instance, the PEPM model offers greater customization and may boost employee satisfaction, but without appropriate support services, employers risk paying for something people don’t use. On the other hand, the PMPM model may encourage physicians to prioritize patient outcomes but may also lead to deferring necessary health services to save money.
At OpenLoop, we’re committed to helping you address those challenges by offering white-label telehealth support and digital health solutions to help your organization scale efficiently. Whether you choose the PEPM or PMPM model, we have resources, like a HIPAA-compliant EHR platform and access to 6,000+ NCQA-certified providers, that’ll help you seamlessly deliver quality care.
If you’re interested in learning more, click here to contact us!
Our full suite of white-labeled virtual care services includes: