Caitlin Clement|1/11/2024|4 min read

How a Per Employee Per Month (PEPM) Model Benefits Employers

7 reasons to consider PEPM for your employee benefits

small wooden blocks being stacked in a pyramid with healthcare icons on them

In the evolving landscape of employee benefits, businesses are turning to innovative solutions to ensure the well-being of their workforce. According to Mark Cuban, Billionaire entrepreneur and co-founder of Cost Plus Drugs, businesses are bleeding money from their less than superb healthcare benefit plans. However, this passivity among employers is poised for change.

One such approach gaining traction is the PEPM benefits model, or Per Employee Per Month. This model represents a departure from traditional insurance plans, offering employers a more flexible and cost-effective alternative. Let's dive into the benefits of the PEPM model and explore how it stands out in comparison to its counterpart, PMPM (Per Member Per Month).

What’s the difference between PEPM and PMPM? 

It’s likely you’ve also heard of PMPM, or Per Member Per Month, in addition to the PEPM model. While two have quite a few similarities, it’ll help to know how they differ.

First, what is a PEPM Model?

At its core, a PEPM model is an approach to employee benefits that centers around individual employees rather than a group. Per Employee Per Month refers to a payment structure where employers contribute a fixed amount for each employee's insurance coverage every month. 

Unlike traditional plans that often treat all covered individuals as a collective unit, the PEPM model tailors benefits to the unique needs of each employee. This customization allows for a more personalized and employee-centric approach to healthcare coverage.

PEPM vs PMPM: How are they different?

In comparing PEPM and PMPM, the primary distinction lies in their focus on individual employees versus a collective group. PMPM, or Per Member Per Month, operates on a broader scale, considering the entire group of covered individuals (children, spouses) as a unit. On the other hand, PEPM takes a more granular approach, treating each employee as a distinct entity with specific needs and preferences.

The differences between PEPM and PMPM extend beyond payment structures, however. PEPM emphasizes customization, allowing employers to tailor benefits to individual employees, fostering greater engagement. In contrast, PMPM provides a more standardized approach, potentially overlooking the diverse needs of employees within the group.

Understanding these differences is helpful for employers seeking a benefits model that aligns with their organizational culture and the well-being of their employees. The shift towards PEPM reflects a strategic move to a more individualized, employee-centric approach, redefining how businesses view and manage employee benefits.

Benefits of the PEPM Model

Whether you’ve been following along or simply skipped to this section (we get it), let’s dive into the benefits employers could enjoy with a PEPM model. 


1. Greater cost management and efficiency

In the realm of employee benefits, managing costs is a main concern for businesses of all sizes. The PEPM model addresses this concern by providing employers with a predictable and stable financial outlook. With fixed monthly payments, businesses can better budget and plan for their healthcare expenses. This predictability enables a smoother financial journey, reducing the stress associated with unexpected fluctuations in healthcare costs.

2. Employee customization and quality healthcare

One of the standout benefits of the PEPM insurance model is its inherent flexibility. Employers can tailor coverage based on the unique needs of individual employees. This customization can foster a sense of empowerment among employees, as they can choose benefits that align with their personal circumstances. Thus, this personalized approach enhances employee satisfaction and loyalty, contributing to a more engaged and motivated workforce.

3. Risk mitigation

Predictability is a powerful tool in risk management. The PEPM model, by offering consistent and transparent monthly payments, reduces financial risks for employers. This stability allows businesses to navigate unforeseen circumstances with greater ease, as they can anticipate and manage potential challenges without the fear of sudden spikes in healthcare costs. In essence, the PEPM model provides a robust foundation for effective risk mitigation.

4. Increased employee engagement and recruitment

Employee engagement is a cornerstone of organizational success yet often falls short in traditional insurance plans. These older models tend to lump a predetermined set of benefits together without thinking of the individual employee, many of whom will never utilize the benefits. A high cost for employers for such little return.  

The PEPM insurance model supports greater engagement by placing a premium on the well-being of individual employees. When businesses invest in personalized insurance plans, employees feel valued and cared for, fostering a positive work environment. The resulting increase in morale and productivity is a tangible benefit that goes beyond traditional insurance offerings. It’s also a great recruitment tool to differentiate yourself in the hiring market and attract more talent.


5. Health and wellness incentives

PEPM extends beyond mere healthcare coverage; it opens the door to incorporating wellness programs. Encouraging preventive healthcare measures not only leads to healthier employees but also contributes to reduced long-term medical costs. By aligning incentives with healthier lifestyles, businesses can proactively address preventative health issues, creating a win-win situation for both employers and employees.

6. Simplified administration

No one likes paperwork, and while we can’t get rid of it entirely, PEPM may help lessen the burden. Administrative efficiency is a key component for HR teams managing employee benefits. The streamlined nature of the PEPM model simplifies administrative processes, including billing and paperwork. This efficiency translates to time savings for HR professionals, allowing them to focus on strategic initiatives rather than being bogged down by administrative complexities.

7. Long-Term cost savings

While the initial costs of PEPM and traditional models may appear comparable, the true advantages of PEPM emerge over time. The combination of better cost control, risk mitigation and a focus on preventive healthcare measures results in long-term cost savings for employers. Choosing PEPM is an investment in the financial health of the business, with dividends paid in sustained cost efficiency.

Powering smarter healthcare solutions

The benefits of the PEPM insurance model could be transformative for employers seeking a modern and employee-centric approach to benefits. The growing popularity of PEPM is a paradigm shift in the way businesses perceive and manage employee benefits. From cost management and employee customization to risk mitigation and long-term savings, the advantages of PEPM may extend far beyond the capabilities of traditional insurance plans.

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