The rules
Let’s talk about the IRS warnings first.
Most vendors bury this page. We lead with it, because our favorite subject is the difference between what the IRS targets and what SIMERP is.
01 · The test
The test the IRS actually applies.
The IRS has warned against wellness programs that pay employees cash regardless of whether any medical care was received. That warning is correct, and the dividing line comes straight from the regulations.
SIMERP passes that test by design. Reimbursements are tied directly to the actuarially determined value of comprehensive service-based medical care: primary care, urgent care, mental health, and pharmacy. Every medical interaction is tracked with CPT and ICD codes, creating a documented audit trail that actual Section 213(d) medical care occurred.
The question
Is SIMERP legal, or does it invite an IRS audit?
SIMERP is built to comply with existing IRS regulations rather than work around them. Treasury Regulation §1.105-2 draws the line: reimbursements must be tied to actual medical care, never paid whether or not care happens. Every interaction is delivered by licensed physicians and documented with CPT and ICD codes.
Section 105(b) does not apply to amounts a taxpayer would receive “irrespective of whether or not he incurs expenses for medical care.”
One sentence decides the whole category. Programs that pay irrespective of care fail it. A plan that reimburses only documented medical care passes it, and can prove it in an audit.
02 · The line
What the IRS targets, next to what SIMERP is.
The question
Is SIMERP the thing the IRS warned about?
No. IRS warnings target programs that pay employees cash whether or not medical care happened. SIMERP reimburses only actual medical care as defined in IRC Section 213(d), documented with CPT and ICD codes, which is exactly the line Treasury Regulation §1.105-2 draws between the two designs.
| Design test | Targeted design | SIMERP |
|---|---|---|
| Funded through an employee pre-tax election | ✓ | ✓ |
| Paid irrespective of whether medical expenses are incurred | ✓ | ✗ |
| Reimburses only actual Section 213(d) medical care | ✗ | ✓ |
| Every medical interaction documented with CPT and ICD codes | ✗ | ✓ |
| Benefit valued by independent professional actuaries | ✗ | ✓ |
| Passes the §1.105-2 “irrespective” test | ✗ | ✓ |
The first row is the point: both structures use a pre-tax election. The rows below it are where compliant and non-compliant designs part ways.
03 · The skeptics
Four questions every skeptic asks.
Answered the way we answer them on the assessment call, with the citations attached. Bring your own reviewer; we would rather answer hard questions early than easy ones late.
The question
“My broker says it's too risky.”
Most “too risky” feedback traces back to fixed-indemnity wellness products that pay cash for an event or a low-effort activity. That is not SIMERP. SIMERP's core is a self-insured medical reimbursement plan under IRC Section 105 that reimburses only medical care as defined in Section 213(d). The reviewer is evaluating a different design than ours.
The question
“This is a double dip, a wage conversion scheme.”
The IRS is not opposed to pre-tax salary reductions combined with tax-free reimbursements. It is opposed to doing so without actual medical care. Under IRC Section 125, when an employee makes a pre-tax election, those amounts are treated as employer contributions. The tax code explicitly permits this, and it has been a cornerstone of employee benefits for decades.
The question
“Why hasn't my CPA mentioned this?”
SIMERP requires expertise at the intersection of tax law, employee benefits law, and healthcare policy. Most CPAs focus on standard tax compliance, exactly as they should. Your primary care doctor doesn't perform heart surgery either. That is why SIMERP specialists exist.
The question
“Can you provide a formal legal opinion or IRS ruling?”
The full statutory and regulatory framework is published here, in the open. Sections 105, 106, 213(d) and 3121 have been law since 1954, and Section 125 since 1978. The statute itself is the highest authority, and every line of it is public.
See it for yourself first.
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