How to Use PEPY Cost as a Benchmark for Your Employee Benefits Plan

smiling group


  • PEPY refers to your per-employee per-year cost, an important metric of your employee health benefits plan.
  • Your PEPY directly presents the cost by employee of your health benefits  plan.
  • Reducing your PEPY with cost-containment strategies lowers your overall health insurance costs and saves you money.
  • With a group medical captive plan from Roundstone, you have transparent access to your claims data, which allows you to analyze your PEPY and make changes to your benefits plan.



Annual family premiums rose 4% last year, reaching an all-time high average of $22,221. This increase in health insurance costs is leading many businesses to seek ways to lower their per-employee per-year cost (PEPY).


Why is PEPY an important indicator? Learn how PEPY affects the cost of your employee health benefits plan and how to reduce your PEPY.


What is PEPY?


Per employee per year (PEPY) is a metric that translates to how much your company spends on health insurance for each covered employee.


PEPY is useful because it allows you to analyze year-over-year trends for your company’s healthcare expenses. It also provides you with numbers that you can compare to claims data and health insurance industry benchmarks to identify company-specific trends and areas where you might be overspending.


medical icons


Why Does PEPY Matter for Healthcare Plans?


Generally, the higher your PEPY expenses, the more your overall healthcare plan is costing you. Alternatively, lowering your PEPY can decrease your overall health insurance costs.


However, this trend is affected by the 80/20 rule of healthcare, which says that roughly 80% of healthcare expenses are incurred by only 20% of the members. A Medical Expenditure Panel survey reported that 10% of people account for nearly 66% of medical expenditures when ranked by total healthcare expenses. The survey also found that of the bottom 50% of people accrued 2.8% of the total healthcare expenses.


Knowing your company’s PEPY helps you decipher your per-employee spend each year and identify trends like the 80/20 rule among your members. With a group medical captive plan from Roundstone, you can take this information to your advisor and look for cost-containment strategies to build into your insurance plan.


Gaining Control Over PEPY


Gaining control over PEPY is essential to remaining competitive by lowering your health insurance expenses. With Roundstone’s transparent approach to claims data, you can access every aspect of your self-funded plan’s costs through our CSI Dashboard.


The CSI Dashboard allows you to analyze your claims data throughout the year to calculate your total expenses and identify your company’s trends against national benchmarks. Armed with actionable insights from your claims data, you can begin investigating and implementing possible cost-containment strategies.


Calculating Your PEPY

To calculate your PEPY, divide your health insurance expenses for one year by your total number of covered employees. For example, if your plan costs were $250,000 last year and you had 20 enrolled employees, your PEPY is $12,500.


You can then compare this cost to national industry benchmarks to discover if you are paying at or below average. You can also use this number to set a PEPY goal and implement strategies to lower costs. Comparing this number to claim experience will also let you know whether you are overpaying for your health insurance.


woman cheering


Strategies for Beating the PEPY National Average With Your Benefits Plan


With the help of our CSI team, you can discover and implement cost-containment strategies to beat the national PEPY average. Possible strategies include working with a transparent pharmacy benefits manager (PBM) for prescription services and using high-quality, low-cost inpatient and outpatient services.


You can also use preventative approaches like implementing employee well-being and health management programs.


Prescription Services

By monitoring your plan’s pharmaceutical spending, you can significantly reduce your PEPY. Prescription drug costs account for approximately 21% of health insurance spending, so reducing this expense directly impacts your overall insurance costs.


When you switch to group captive insurance, you can change to a transparent or pass-through PBM. PBMs are responsible for negotiating prescription drug prices for your insurance plan.


Traditional PBMs work for fully insured insurance carriers and typically keep the savings they negotiate for themselves. With a pass-through or transparent PBM, those savings will go directly to you. The services of your PBM will be based on a predictable fee structure.


Inpatient Services, Outpatient Services, and Office Visits

With a fully insured plan, your employees must use whatever network providers and vendors are approved by the plan. With a group captive plan, you can contain costs by using high-quality, low-cost services at Centers of Excellence or implementing a direct primary care program.


These interventions keep costs down and improve the health of your employees by making visits more accessible and treatment more effective.




Employee Well-Being Programs

Building an employee well-being program into your group captive plan lowers your PEPY by improving the health of every employee on your team. Well-being programs encourage employees to be proactive about maintaining their health.


They also provide educational resources regarding conditions like diabetes, nutrition, weight management, and other issues that can affect your employees’ overall health and your bottom line.


Health Management Programs

Health management programs provide specific education and resources for employees who deal with chronic conditions, such as diabetes or dialysis. Giving your workers access to this type of program, along with specialized vendors or health services, gets them better care and helps them manage their conditions. This cuts down on costly emergency visits and other medical expenses.


Is Your Existing Health Insurance Plan Right for Your Business?


Under a fully insured healthcare plan, your PEPY will likely mimic the national average, which is predicted to continue its rise over the coming year. Unlike self-funded insurance, fully insured plans do not allow access to your claims data, making it impossible for you to analyze whether you are overpaying or make changes to your plan.


If your PEPY is at or above the national benchmark, it may be time to consider switching to group medical captive insurance that allows you to implement cost-containment strategies and reduce your PEPY.


Medical Plan Benchmarks: Is Your Current Plan Competitively Priced?


When compared to the national averages for employer-covered health insurance, how does your current plan stack up? If you’re at or above the national benchmark, your plan is not competitively priced and is likely costing you thousands of extra dollars every year.


Without insight into your claims data, it is impossible to know where that extra money is going. With a self-funded group captive plan from Roundstone, you can access your claims data and measure your plan against national benchmarks. This enables you to make changes to your plan and start saving.


Get Your PEPY Down to Less Than the National Average With Roundstone


With a self-funded group captive plan from Roundstone, you can work with your advisor and our Cost Savings Investigators to implement cost-containment strategies that reduce your PEPY to below the national average.


Save thousands on your health insurance expenses with a self-funded group captive plan from Roundstone. Contact us to find out how to make the switch.





Subscribe to Our Newsletter

Stay in the know with monthly updates right to your inbox.

"*" indicates required fields

What is your role?*
This field is for validation purposes and should be left unchanged.

Hey! Want a round-up of stories, trends, and news on employee benefits? Subscribe to our monthly newsletter today!

"*" indicates required fields

What is your role?*
This field is for validation purposes and should be left unchanged.