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What is value-based benefits design (VBBD)?

Health Benefits • June 6, 2023 at 8:38 AM • Written by: Holly Bengfort

Value-based benefits design (VBBD), also called value-based insurance design (VBID), is a cost-saving strategy that piques the interest of many employers who want to control their healthcare costs.

VBBD takes a proactive approach to your employees’ health outcomes. Through incentives, you can encourage your employees to live healthier lifestyles that could ultimately lead to fewer medical bills down the line.

In this article, we'll explain how VBBD works, its benefits, and ways you can support the health and wellness of your employees.

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How does VBBD work?

Instead of focusing on reactive employee health benefits alone, VBBD promotes proactive healthy behaviors that could prevent or manage employees’ chronic conditions. This, in turn,helps your company save money on health insurance premiums while improving your employees’ quality of care.

VBBD addresses the way health benefits are structured and utilized by employees. The focus is broader than health insurance design and usually includes other types of incentives.

Your approach to benefit design should follow this incentive structure:

  • Promote individual health competency. Reward your employees who actively participate in the management of their care. This includes incentives for employees who participate in health risk assessments, biometric screenings, and wellness programs.
  • Promote condition management. Create incentives that reward compliance with condition-specific programs. You can remove cost barriers that would otherwise prevent your employees from appropriately managing their condition.
  • Promote utilization of the most efficient care. Encourage certain providers either through designations or reduced cost sharing. You can also set incentives for provider use, such as utilizing a clinic instead of an emergency room.

The goal of VBBD is to manage the most expensive health conditions. You can bring your employees of concern out of the most expensive insurance category and keep your healthy employees going strong so they don't move up to that expensive category.

How VBBD benefits employers

VBBD offers health solutions to employers of all sizes. By providing incentives, you can successfully encourage healthy employee behaviors.

Here are a few examples of incentives you could offer:

  • Low or no-cost co-pays for preventive medicines: This includes things like high blood pressure or high cholesterol medication.
  • Reduced or free registration for smoking cessation or weight-loss classes.
  • Free or low-cost nutrition counseling, fitness classes, or gym memberships.
  • Transportation vouchers or reimbursement for employees who need to travel for care

On top of reducing healthcare costs and improving health outcomes for your employees, you'll notice positive changes in absenteeism and workplace productivity. Employees who take care of their health use fewer sick days. Plus, when employees feel their best, they're able to give their best effort at work. It also means they'll spend less time worrying about medical problems or financial issues while they're on the clock.

Overall, happy and healthy employees are good for business. When you show your employees that you care about their well-being, they feel like valued members of the team. With a VBBD approach, it's easier to attract and retain top talent at your organization. MetLife’s 2022 U.S. Employee Benefit Trends Study1 found that holistically healthy employees are 74% more likely to be satisfied with their current job.

Additional ways to support employee health and wellness

Most employers interested in VBBD offer traditional group health insurance. Creating incentives for wellness can create lower premiums and savings for the employer and employees.

But where do you turn when you want to take the next step in cost savings? Let's explore how health reimbursement arrangements (HRAs) and health stipends can encourage your employees to live happier, healthier lives.


An HRA is often used as an alternative to group health insurance, although you can use it to supplement existing health coverage depending on the type you offer. It's an IRS-approved, tax-advantaged, and employer-funded health benefit. With an HRA, you reimburse your employees for their healthcare expenses, such as their individual health insurance premiums or out-of-pocket medical costs. There are more than 200 eligible expenses for reimbursement outlined in IRS Publication 502.

An HRA gives your employees the freedom to choose the health plan, providers, and services that fit their unique needs. According to our 2022 Employee Benefits Survey Report, 65% of employees value being able to choose their own benefits. Additionally, 87% of employees said they value employer-sponsored health benefits.

Here are the three most popular HRAs:

  • Qualified small employer HRA (QSEHRA): A QSEHRA is an excellent alternative to group health insurance. It’s designed for small businesses with fewer than 50 full-time equivalent employees (FTEs).
  • Individual coverage HRA (ICHRA): An ICHRA is available to organizations of all sizes. It gives employers the flexibility to offer different benefits to different employee classes.
  • Group coverage HRA (GCHRA): Also known as an integrated HRA, organizations must offer a group health plan to qualify for a GCHRA. Employers use their GCHRA to supplement their existing group health insurance policy.

HRAs are easy to set up and manage, especially when you work with benefits administration software like PeopleKeep. Our team of experts handles your legal plan documents, verifies employee expenses, and automatically sends required notices so you don’t have to. With our support, you can manage your benefit in just a few minutes each month. We give you back precious time that you can devote to other aspects of your business.


Stipends are another way you can foster a culture of health at your organization. A stipend is a set amount of money you give to your employees to use for specific expenses.

With a health stipend, you reimburse your employees for healthcare costs such as out-of-pocket expenses and individual insurance premiums. A health stipend also has fewer restrictions than an HRA since you can reimburse items not listed on IRS Publication 502. But, a health stipend is taxable. You would pay taxes on the reimbursement amount, and your employees have to pay income taxes on the amount they receive. A health stipend also doesn’t satisfy the Affordable Care Act (ACA)’s employer mandate for organizations with 50 or more FTEs.

Like a health stipend, a wellness stipend is a taxable benefit that helps employees cover expenses related to their physical and mental well-being. This type of perk is a great addition to any competitive benefits package since wellness stipends generally cover expenses that a group health plan, health stipend, and HRA do not.

With a wellness stipend, you can reimburse things like:

  • Gym memberships
  • Fitness classes
  • Wearable fitness trackers
  • Home exercise equipment
  • Mental health apps
  • Meditation programs

With WorkPerks by PeopleKeep, you can offer customized perks such as health and wellness stipends to your employees with ease. Plus, you can add on other stipends for remote work, professional development, meals, transportation, and more.


In the constant quest to manage healthcare spending, a VBBD strategy can save you money with positive health outcomes and fewer expensive healthcare services. By offering incentives to your employees who take the initiative to manage their care, you ultimately improve their overall health and well-being.

If you're working with a tight budget, HRAs and stipends can also provide health solutions to your team. When you reimburse your employees for their out-of-pocket expenses, you give them a better quality of life by removing the cost barriers to care.

Ready to offer customized employee health and wellness benefits through an HRA or stipend? Schedule a call with a personalized benefits advisor now!

This blog article was originally published on January 23, 2014. It was last updated on June 6, 2023.

1. https://www.metlife.com/content/dam/metlifecom/us/noindex/pdf/ebts-2022/MetLife_EBTS_2022.pdf

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Holly Bengfort

Holly is a content marketing specialist for PeopleKeep. Before joining the team in 2023, Holly worked in television news as a broadcast journalist. As an anchor and reporter, she communicated complex stories to the vast communities she served on a daily basis. Her background has given her a greater understanding of people and the issues that affect our lives. When Holly isn’t writing, she enjoys reading, exercising, and spending time at the beach.