Optimizing Employee Health Benefits: Strategies to Lower PEPY and Control Costs

Understanding where your benefits stand in comparison to your competitors is essential for maintaining long-term financial stability, attracting and retaining top talent, and fostering growth within your organization. One effective way to assess your benefits is by looking at your PEPY, or per-employee-per-year cost, especially if you’re a data-driven person. PEPY is a critical metric for managing employee health benefits, representing the annual cost of the health plan per employee. For business owners, HR professionals, CFOs, and employees alike, having a clear grasp of your PEPY is vital. By using cost-containment strategies to lower it, you can reduce overall health insurance costs, ultimately leading to significant savings.

For reference, the average PEPY for groups across the country, spanning various industries with 100-500 employees, is provided above.

As shown, the average PEPY for a single member is approximately $8,460 ($750 a month), and for a family, it’s around $22,719 ($1,893.25 a month). These figures encompass all funding models, including fully-insured, level-funding, and alternative funding. If your PEPY is higher than the average, it may be time to explore strategies to control this significant expense.

There are several strategies to manage this expense, with unbundling and alternative funding approaches being among the most effective, particularly for organizations of your size. In a fully-insured model, you're locked into 100% fixed costs, leaving little room for savings. The opportunity to create variability and potential savings arises when you shift away from paying the maximum funding under a fully-insured plan. By transitioning to an alternative funding model, you can better manage risk and unlock cost-saving potential.

Another effective strategy is implementing a prescription services solution. Monitoring and managing your plan's pharmaceutical spending can significantly lower your PEPY. In 2021, brand-name prescription drugs made up as much as 72% of drug spending, so reducing this cost can have a major impact on your overall insurance expenses.

By transitioning to group captive insurance as part of a self-funded plan, you can switch to a transparent or pass-through Pharmacy Benefits Manager (PBM). PBMs are responsible for negotiating prescription drug prices on behalf of your health plan.

Traditional PBMs, often tied to fully insured carriers, typically keep the savings they negotiate. However, with a pass-through or transparent PBM, those savings are passed directly to you. The PBM’s services are based on a clear, predictable fee structure, ensuring greater transparency and control over costs.

The final strategy is to leverage a capitated virtual service like First Stop Health. This not only enhances access for members, improving their experience, but also helps shift some of your claims costs. While there are many other strategies to explore, the first step is always to assess your current spend and evaluate your available options.

If you'd like a more detailed benchmark report tailored to your industry and region, I'd be happy to create one for you.