Executive Summary: Pricing the Tiers: PMPM Economics, Margin Structure, and the Math That Makes Each Tier Viable
LFP-15.06, The Product Architecture#
The pricing framework for the three tiers establishes economic relationships and margin logic rather than specific dollar figures. Core competes on price in the existing TPA administrative market. Plus competes on demonstrated value through cost management that pays for itself. Black competes on capability with no equivalent in the current small group TPA market. The framework specifies how each tier’s economics work, what the margin structure requires at each level, and what variables determine whether the pricing holds.
Core PEPM reflects the aggregate cost of delivering standard level funded administration: claims processing, eligibility, compliance documentation, technology, network access fees, stop loss coordination, and margin. TPA administrative fees across the market range from $5 to $60 PEPM, with fees below $20 frequently indicating hidden revenue streams, claim savings percentages, PBM overrides, vendor markups, that compromise the transparency a level funded product promises. Core pricing lands in the market mid-range, competing on execution quality rather than a race to cross-subsidization that the transparency commitment forecloses. Margin at Core is modest by design. The business case is market entry, reputation building, and data generation, not margin extraction per covered life.
Plus PEPM equals Core PEPM plus the delivery cost of the bundled cost management programs plus incremental technology cost plus additional margin. The economic argument is that savings exceed the PEPM differential. Domestic facility steering through programs comparable to Carrum Health reduces unnecessary procedures by up to 30% and saves up to 45% per steered surgical episode. Maternity management through programs comparable to Maven Clinic produces average savings of $9,600 per birth, with NICU avoidance savings reaching $50,000 to $200,000 per avoided admission. MSK pathways produce average savings of $2,343 to $2,387 per engaged member per year. Chronic disease programs for diabetes reduce medical spending by approximately $88 PMPM for engaged members. At conservative engagement rates and conservative savings-per-engagement assumptions, Plus delivers net value to the employer who upgrades. Margin at Plus is higher than Core because the capability is differentiated and measurable.
Black PEPM equals Plus PEPM plus the cost of geographic arbitrage infrastructure plus concierge staffing plus advanced technology plus additional margin. The savings magnitude justifies the premium: 40% to 70% on steered international procedures, 50% to 90% on international pharmacy purchasing for high-cost specialty drugs. A single international procedure shifted from a $50,000 US facility to a $25,000 JCI-accredited alternative saves more than the annual Black premium differential for a typical group. Concierge staffing represents the largest variable cost component, with panel size decisions creating tradeoffs between service quality and unit economics. Black margin is the highest across tiers, reflecting both capability differentiation and the infrastructure investment required to deliver it.
The stop loss credit variable is critical to Plus and Black viability over time, though not at launch. Stop loss carriers price plans on demographic factors and prior claims experience. At launch, no performance history exists to support credit for cost management effectiveness. As Plus and Black accumulate claims history showing lower-than-projected utilization, carriers can reduce expected claims assumptions and lower stop loss pricing. Independent stop loss carriers typically target loss ratios of 70% to 80%; a carrier that credits cost management is effectively recognizing that Plus and Black produce lower claims experience and adjusting accordingly. This improvement compounds across years two through five, progressively strengthening Plus and Black economics at the point of sale. The go-to-market sequencing accounts for the absence of this credit at launch.