PEPM (Per Employee Per Month)

PEPM stands for per employee per month, and it's the standard unit for pricing administrative services on a health plan. A TPA might charge $25 PEPM to process claims, a navigation vendor $6 PEPM, a PBM $2 PEPM. PMPM is the same idea counted per member (including dependents) instead of per employee.

PEPM fees look small on the page and add up on the invoice. A 400-employee company paying $25 PEPM for administration, $8 PEPM for stop-loss administration, $6 PEPM for navigation, and $4 PEPM for a wellness program is paying $43 PEPM, or about $206,000 a year, before a single claim. Total plan cost is also often quoted PEPM: a typical self-funded plan runs $1,000 to $1,400 PEPM all in, with claims making up 85 to 90 percent of that. The unit is useful because it lets you compare vendors and years on the same footing, and it's dangerous because fees quoted PEPM hide the fees that aren't: pharmacy spread, network access charges as a percentage of savings, and rebates the vendor keeps.

The takeaway: ask every vendor for total compensation, not just the PEPM fee. If the answer includes "a percentage of savings" or "retained rebates," the PEPM number is only part of what you're paying.