Health Benefits: Death by PEPM

Written by: Phillip Berry

If the title of this post caught your eye, you are likely in the employee health benefits space. The crowded world of high costs, fuzzy measures, and a barrage of messages. A world daunting in its complexity. If you are an employer, you wrestle with this complexity as you seek to balance your sense of duty to your employees, the competitive nature of attracting talent, and your financial goals and obligations. If you are providing products and services to this market, you wrestle with the congestion of the roadways leading to those who could potentially purchase your offering. Daunting.

The notion of “death by PEPM” recently occurred to me as I participated in a supplier session focused on collaboration and joint selling. Each vendor had a few minutes to pitch his or her solution and after a few presentations, the PEPM term became a monotonous pejorative echoing across the benefits-sphere. PEPM or “per employee per month” references the standard approach to pricing for benefits and grew out of a need to provide purchasers a reference point to determine relative costs for different solutions. Like so many good ideas turned into acronyms, PEPM or PMPM (per member per month) has been twisted and warped to be yet another reflection of the pain points associated with escalating costs in the world of employer health benefits.

Overwhelmed by Health Benefits Options

Listening to that group of vendors, there were no less than fifteen different services across the health benefits spectrum. All had solid value propositions. All had decent market representation. And all were competing for the same finite pool of dollars available to address the wide world of employee health costs. I wondered, if all of these solutions are so effective, why doesn’t everyone have each one of them? The answer is, of course, there is only so much time, attention, and money to go around. For employers seeking solutions and investing in health benefits, it must become almost laughable at some point when they hear yet another PEPM-based option promising to solve their problem, decrease their costs, and bring them to employee health Utopia.

Considering the potential for death by PEPM, walk through the myriad options available:

  • Health insurance
  • TPA services
  • Population health solutions
  • Analytics platforms
  • Wellness programs
  • Chronic disease management offerings
  • Behavioral health
  • Physical therapy
  • Direct primary care
  • Worksite clinic options
  • Advisors/brokers/consultants
  • Labs

No wonder we’re overwhelmed. No wonder we’re confused. No wonder we pay for help. No wonder we get disappointed and keep searching for new options.

Helping Employees Thrive

As an employer and a solution provider in this complex world, I get it and ask myself: How do I help my employees thrive? Thrive in their jobs. Thrive in their health. Thrive in their personal lives. As the CEO of a company that is helping employers answer that question, I wonder:  What can we do to help our clients optimize health investments in employees? How do we help our clients avoid the pitfalls of the complexity? How do we help our clients understand the benefits of our solution relative to all of the other solutions competing for their time, attention, and money?

The problem isn’t PEPM or too many solutions or ineffective solutions. Every available option has evolved to meet a need. Someone at some point asked for help with a problem and someone else came up with a way to solve it. The problem is the bureaucracy of the machine that has grown up to fulfill the myriad issues that need to be addressed. Over time, every bureaucracy expands to become bloated and inefficient, eventually becoming ineffective. This is why government-driven healthcare is inherently a problem. The bureaucratic machine expands and consumes. The benefits turn to barriers.

Take a moment to consider the health benefits machine. Many of the current mechanisms now holding the machine in place started out as a creative way to address a particular problem. The PEPM pricing model was originally adopted as a mechanism for transferring risk from employer to insurer to help create some financial predictability. Now, it’s become a metaphor for the relentless escalation of costs associated with subsidizing healthcare for employees. The issue comes over time when once helpful innovations lose their original effectiveness and become mechanisms for maintaining the status quo or they evolve to obfuscate other issues. Often, they are held in place by simple inertia and we forget why we adopted them in the first place as we wrestle with the new challenges they engender.

Finding Firm Ground

In the face of the overwhelming, mysterious, or confusing, we need to find firm ground and a frame of reference. The issue for us is not a lack of options but the sheer volume of options and the risk of a wrong decision. What if I miss something? What if my choice doesn’t produce the desired results? What if the chosen direction causes unseen problems? What if a change in direction causes disruption? Will I look foolish? Will I lose my job? Might I fail? Such are the unspoken questions that haunt the steps of major decisions at pretty much any level. In the face of such doubts, the likely course becomes to stay the course. Stick with the status quo. Make incremental change. Make “safe” choices. Don’t question the normal path – keep the lower profile of the usual and expected.

Of course, we can’t solve the problems we face at the same level of thinking we were at when we created them. If these mechanisms of onetime innovation have become newly constrictive remnants of past thinking, how do we fix them by thinking the same way? Ultimately, the status quo is not the safe choice because it has become unsustainable. In a recent conversation about new approaches, a person declined to meet until their supplier of ten years came in to present new ideas. My response: Wow! Ten years is a long time to wait for new ideas. I wonder what change in the status quo they proposed?

For a self-funded employer sifting through the noise of the employee health benefits marketplace, the status quo may look safe, but it really isn’t as the stakes get higher and higher. Rising rates of obesity, diabetes, and hypertension, an aging workforce, the challenge of attracting talent, global competitiveness, economic uncertainty, and the threat of extraordinary health events require new thinking. We have to wade into the expanse of new ideas and approaches in order to find the path ahead. We may even have to invent our own paths.

What to do?

How do we bring some order to the chaos and avoid “death by PEPM”? Here are some ideas:
  1. Begin with the end in mind. As competitors in our respective markets, we have to make go-to-market decisions on a daily basis. These typically begin with a vision for our products, customers, and company as we look into the distance. When we start focusing internally, we can lose sight of the elegant simplicity of our external vision. Translate your broad, external vision into an internal vision by asking: What is our vision for the things we offer our employees? Why do we offer them? If we were to view our health benefits program as a strategic weapon, what would we want it to do? Offense or defense? How far do we take it? What are you willing to invest? For what outcome? What do your employees really need and or want?
  2. Redeploy your spend. What are you spending today to meet employee health and wellness needs? What is that getting you? If the structure in which you are investing your money disappeared tomorrow, what would you do to address the need? What is necessary and what isn’t? What do employees use and what don’t they use? Is your approach to health and wellness spending something like subscribing to cable; like paying for a bunch of channels that you don’t watch? Do you understand how those dollars work for you and your team today? Imagine being able to target those same dollars to the most effective programs or approaches. Where would you start?
  3. Consider your source. When it comes to health benefits advice, who do you trust? In this world, everyone with whom you deal makes his or her living based on where you decide to spend your money. How do you evaluate them, their priorities, and their solution? Would you trust them with your own money? Why or why not? We want to trust data. We want to trust facts. Whose facts are you trusting? We get concerned about our decisions here because we know that data can be presented in many ways. Do we stay our course because we trust the path, the facts, and the advice or because it is an easier path?
  4. Follow the money. Still feeling a bit uncertain on who to trust? Then, trust your gut. Why do you feel hesitant? One way to ameliorate your hesitation is to understand how others make their money. Ask them. Undocumented side deals give the health benefits business a bad name. If someone makes a recommendation, you need to understand their level of attachment. You cannot prevent someone from being dishonest. However, their response or lack of response may tell you all you need to know. If there IS a problem, you can look the other way or call it out. The goal is not to eliminate someone else’s ability to make money, but to make sure there is integrity and value in the transaction and that you are clear on where your money is going.
  5. Map it out, break it down. When faced with complex decisions, our tendency is to seek simplicity by narrowing-in on a few key elements of the decision. Large, complex proposals fuel this tendency which clouds details. Anyone who has dealt with attorneys on complex issues of law understands the problem. Even the summary analysis can be so complex as to cause eyes to glaze over. One approach is to get on a whiteboard and map it out. I like to mind-map by putting elements in their own circles and then drawing lines between related items. Regardless, you will have to break it down in a fashion that is relevant and digestible.
  6. Go transactional. In the spirit of breaking it down, consider looking for pricing models that are transactional. In other words, pay for what you use. Coming from the world of distribution, the PEPM subscription model seems fuzzy because it does’t account for utilization. Granted, there are benefits to structuring some services in a flat monthly fee arrangement, but should that be the defacto standard for everything?

Ultimately, the goal is to create sustainable systems for procuring, maintaining, and optimizing our healthcare investment. We all want to get the most for our money. However, we need to resist the tendency to keep doing the same things. The status quo is not solving the bigger problems. The system we’ve created to provide healthcare to our employees needs work and we will all be better served if we, rather than the government, find a way to address it. I’ve seen enough creative thinking from our clients to know that smart, innovative things are being done to improve the situation. Good ‘ole American ingenuity from our country’s most creative players can help us avoid “death by PEPM.”

Summary

  • Avoid death by PEPM
  • Consider how you help employees thrive
  • Align your external and internal vision
  • Follow the money
  • Map it out and simplify
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