Canada (EN)
Key takeaways When comparing benefits funding models, focus on value, not just cost. PEPM offers predictable budgeting and broad access. Utilization-based funding ties spending more closely to engagement. The best fit depends on workforce needs, communication, participation and goals. Success should reflect how well employee benefits support participants and business outcomes. |
For years, employers have relied on per-employee-per-month (PEPM) funding to provide broad access to benefits programs while maintaining predictable costs. That model continues to offer important advantages. But as pressure grows to manage spending, improve outcomes and demonstrate return on investment, employers are asking a more strategic question: does the way we fund benefits align with how we define value?
Why are employers reconsidering PEPM and utilization-based funding models?
Benefits strategies once focused heavily on access. Today, employees also expect experiences that are relevant and easy to navigate, while leadership teams want clearer evidence that investments improve workforce and business outcomes.
As a result, benefits leaders are being asked to answer more strategic questions:
- Are employees aware of the resources available to them?
- Are benefits reaching the people who need them most?
- Are investments driving meaningful outcomes?
- Are benefits supporting broader business objectives?
Together, these questions shift the conversation from “What does this program cost?” to “What value is this program creating?”
What is PEPM funding?
Per-employee-per-month (PEPM) funding is a pricing model in which employers pay a fixed monthly fee for each eligible employee, regardless of whether the employee uses the benefit.
What is utilization-based funding?
Utilization-based funding is a pricing model where employers pay based on actual employee usage of a program, service or benefit.
PEPM vs. utilization-based funding: what employers should consider
Interest in utilization-based funding reflects employers' desire to connect investment more directly with employee engagement. PEPM offers predictable costs and broad access regardless of participation, while utilization-based approaches tie fees more closely to actual use.
Under a utilization-based model, stronger engagement may increase participation and program costs, but also expand the opportunity to support employees and improve outcomes. For some organizations, this offers greater flexibility and visibility; for others, PEPM's simplicity and predictability may be the better fit.
Neither model is inherently better. The right approach depends on what the organization wants the program to accomplish, including workforce needs, expected participation, budget priorities and desired outcomes.
Funding alone does not create value; employees need timely, personalized guidance that connects them to the right benefits at the moments that matter.
In fact, Alight's 2025 Employee Mindset Study found that while 85% of employees report having access to at least one employer-sponsored wellbeing program, average utilization remains only 30%-35%. This suggests that availability alone does not guarantee engagement and highlights the importance of effective communication, benefits navigation and personalized support.
Comparing PEPM vs Utilization-based funding
| Factor | PEPM | Utilization-based |
| Cost predictability | High | Moderate |
| Budget planning | Easier | More variable |
| Access | Broad | Broad but usage-dependent |
| Financial risk | Lower | Can increase with participation |
Best for | Stable populations | Variable usage programs |
How should employers choose between PEPM and utilization-based pricing?
The right funding approach can look different depending on an organization's workforce, financial priorities, expected engagement and benefits strategy. The following hypothetical scenarios illustrate how those considerations may influence—but should not predetermine—the decision.
Hypothetical Company A: predictability and broad access
Profile: A stable manufacturing, retail and warehousing employer with 40,000 eligible employees is experiencing annual medical cost increases above 15%. The organization needs greater budget certainty and a clear way to explain projected program costs to financial leaders. Its benefits communications are broad rather than highly targeted, and workforce turnover is relatively low.
Priority: Address high-cost claims in an identified area of healthcare spend while giving all eligible employees access to support.
Illustrative cost comparison: At $1.50 PEPM, annual program fees would be $720,000 (40,000 × $1.50 × 12). Under a utilization-based arrangement charging $150 per visit, 20% participation with one visit per user would generate $1.2 million in annual fees (8,000 × $150).
Potential fit: Based on these assumptions, Company A may lean toward PEPM because it provides predictable costs, broad access and alignment with the organization's existing communication strategy. The comparison does not establish net savings; actual value would depend on engagement, outcomes and avoided medical costs.
Hypothetical Company B: flexibility and lower expected use
Profile: A technology employer with 20,000 eligible employees has a young, geographically dispersed workforce and elevated turnover. It is considering an enhanced program to support attraction, retention and employee experience. The employer expects relatively low initial participation and wants program spending to reflect actual engagement.
Priority: Expand access to an additional resource while preserving flexibility within a separate employee-experience budget.
Illustrative cost comparison: At $3.50 PEPM, annual program fees would be $840,000 (20,000 × $3.50 × 12). Under a utilization-based arrangement charging $250 per use, 5% participation with one use per user would generate $250,000 in annual fees (1,000 × $250).
Potential fit: Based on these assumptions, Company B may lean toward utilization-based funding because it aligns spending with employee engagement. However, lower utilization should not automatically be viewed as success; it may reflect lower need, but it can also indicate limited awareness, access barriers or an experience that is not connecting employees to support.
These simplified examples are directional rather than financial recommendations. A complete comparison should test multiple utilization scenarios and account for eligibility definitions, frequency of use, implementation and administrative fees, minimum commitments, price escalators, included services, engagement thresholds, clinical outcomes, employee access and experience, avoided claims and the methodology used to calculate savings. Employers should also consider whether the model creates the right incentives for sustained engagement and measurable value.
The bigger question: measuring value in the future
The future of benefits funding may be less about choosing one model and more about matching different structures to different goals. Some solutions may benefit from PEPM's predictability and broad access; others may be better suited to arrangements that connect investment with engagement.
The larger opportunity is to define value clearly and assess whether each investment advances workforce wellbeing, employee experience and organizational performance. Employers that align funding with employee needs, engagement strategies and measurable outcomes—not cost alone—will be better positioned to realize that value.
