SIMERP glossary: every term in a proposal, defined

Every SIMERP proposal uses the same thirty or so words, and most come from the tax code. Here is each one in plain English, with the statute or regulation it comes from where there is one. Read the irrespective test first. It decides which kind of plan you are looking at, and every other term is easier after it.

What is SIMERP?

Self-Insured Medical Expense Reimbursement Plan. An employer plan under Section 105(b) that reimburses employees for medical care, funded through a pre-tax election under Section 125 so that taxable wages and payroll taxes go down. The name describes the tax structure. Two plans arrive with those letters on them: the indemnity plan, which pays fixed cash whether or not there was a medical expense, and the SIMERP methodology, which reimburses real medical care at the value an independent actuary set.

What is SIMRP, and is it different from SIMERP?

The same structure without the E. Self-insured medical reimbursement plan is the phrase the IRS uses in Publication 15 and in Treasury Regulation §1.105-11. We added expense to make the acronym pronounceable. Proposals use both spellings, and the spelling tells you nothing about which plan you are holding; the questions on the proposal page do.

What is WIMPER?

Wellness Integrated Medical Plan Expense Reimbursement, a marketing name some administrators use for a Section 125 election paired with a Section 105 reimbursement plan and a wellness or care program. It isn’t a term in the tax code. Ask the same ten questions of a WIMPER proposal that you would of any other.

What is a preventative care management program?

PCMP for short. A program that delivers preventive and primary medical care to employees, usually virtually, and sits inside a Section 105 reimbursement plan. The phrase describes the care side of the plan. On its own it says nothing about whether the plan passes the irrespective test.

What is a MERP?

Medical expense reimbursement plan, the general term for any employer plan that pays employees back for medical expenses under Section 105. A health reimbursement arrangement is a MERP. SIMERP is a MERP that is self-insured and funded through a Section 125 election. The comparison is on the MERP versus HRA versus FSA page.

What is Section 105(b)?

The part of the Internal Revenue Code, enacted in 1954, that keeps out of an employee’s income amounts paid “to the taxpayer to reimburse the taxpayer for expenses incurred by him for the medical care” of the employee, a spouse or a dependent. It is the section every plan in this category runs on.

What is Section 106?

The 1954 Code section that says an employee’s gross income “does not include employer-provided coverage under an accident or health plan.” Section 106 covers the coverage itself; Section 105(b) covers the reimbursements paid under it. Revenue Ruling 2002-3 relied on both when it ruled that paying someone back for a pre-tax premium is taxable.

What is a Section 125 cafeteria plan?

A plan under Section 125 of the Code, added by the Revenue Act of 1978, that lets an employee choose to take part of their pay as a non-taxable benefit instead of cash. The premium-only plan most small companies have is one. In SIMERP, the Section 125 election is what lowers taxable wages and the payroll tax on them.

What is a premium-only plan?

The simplest Section 125 plan. Employees pay their share of health premiums before tax instead of after, so both the employee and the company stop paying Social Security and Medicare tax on those dollars. If your plan documents mention a POP, you already run a cafeteria plan. SIMERP uses the same mechanism for a different purpose.

What is Section 213(d) medical care?

The Code’s definition of medical care: amounts paid “for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.” A reimbursement is tax-free under Section 105(b) only if it is for care that fits this sentence. A questionnaire doesn’t. A physician visit does.

What is the irrespective test?

The sentence in Treasury Regulation §1.105-2 that decides this category: Section 105(b) “does not apply to amounts which the taxpayer would be entitled to receive irrespective of whether or not he incurs expenses for medical care.” Reimbursing medical care the employee received is what the section was written for. A fixed payment that would arrive whether or not there was a medical expense fails, whatever it is called.

What is Section 105(h) nondiscrimination?

The 1978 rule that a self-insured medical reimbursement plan must not “discriminate in favor of highly compensated individuals” in who is eligible or what they receive. A plan offered only to owners and managers fails it. Treasury Regulation §1.105-11, finalized in 1981, spells out the eligibility and benefits tests.

What is a fixed indemnity plan?

In the IRS’s words (CCA 201703013), a plan that “pays covered individuals a specified amount of cash for the occurrence of certain health-related events, such as office visits or days in the hospital,” where “the amount paid is not related to the amount of any medical expense incurred.” Two of the three IRS memos on this category concern a plan built on one; the third taxed cash rewards. All three are the indemnity plan.

What is substantiation?

The record that a reimbursed expense was really medical care. In the SIMERP methodology it is automatic: each interaction with a physician or clinician produces the same CPT and ICD codes any doctor’s office would file. In a plan that pays cash for an activity there is no medical care to record, only the activity.

What are CPT and ICD codes?

The two coding systems medical offices use. CPT codes describe the service the clinician performed. ICD codes describe the diagnosis. Together they are the standard record that a medical interaction took place and what it was for. A plan that reimburses care can show them for every interaction; a plan that pays for activities can’t.

What is an actuarial valuation?

An independent actuary’s calculation of what the medical care in the plan is worth. In the SIMERP methodology the reimbursement is tied to the value the actuary set, so the number comes from the care rather than from a fixed amount that has nothing to do with any medical expense. When you ask where the monthly number comes from, this is the answer you want to hear.

What are the plan document and the summary plan description?

The written plan, required by Treasury Regulation §1.105-11, which defines the category as “a separate written plan for the benefit of employees,” and the plain-language summary given to employees. The plan document is where the documentation requirement and its consequence are written.

What is a third-party administrator?

The company that runs the plan day to day: the plan documents, enrollment, the reimbursement processing, the records, and the coordination with the medical provider. A serious proposal names its administrator and says how long they have run plans of this design, and the plan documents are part of what the administrator provides.

What is a qualifying medical interaction?

A visit or consultation with a licensed physician or clinician that produces a medical record with CPT and ICD codes. The plan document sets a documentation requirement for each participant and provides that reimbursements to someone who doesn’t meet it become taxable income at year end. The requirement is a record of engagement, not the measure of the plan’s value.

What is FICA?

The Federal Insurance Contributions Act tax: Social Security and Medicare. The company pays 7.65% of wages and the employee pays a matching share. When a Section 125 election lowers taxable wages, both shares fall. That reduction is where the savings in SIMERP come from, up to $640 per enrolled employee per year for the company.

What are taxable wages?

The part of an employee’s pay that Social Security, Medicare and income tax are calculated on. A Section 125 election lowers taxable wages without lowering gross pay, which is why take-home pay doesn’t fall in the SIMERP methodology.

What is a W-2 employee, and why does the plan require one?

An employee whose wages are reported on Form W-2 and who has payroll tax withheld. Plans in this category are available to businesses with W-2 employees because the mechanism runs through payroll. Independent contractors paid on a 1099 have no employer payroll tax to reduce, so they can’t participate.

What is an HRA?

A health reimbursement arrangement, funded by the employer only, that pays employees back for medical expenses and premiums up to a set amount. An HRA is a MERP. Unlike SIMERP it isn’t funded by an employee election and it is usually tied to a health plan. The differences are on the MERP versus HRA versus FSA page.

What is an ICHRA?

An individual coverage HRA, created by 2019 regulations, through which an employer gives employees a set amount to buy their own individual health insurance instead of offering a group plan. Because the rules for stacking reimbursement arrangements are strict, ask any administrator how its plan treats employees who are in an ICHRA.

What is a QSEHRA?

A qualified small employer HRA, created in 2016 for employers with fewer than 50 employees and no group health plan, that reimburses individual premiums and medical expenses up to an annual cap. It is a substitute for a group plan. SIMERP sits alongside a group plan rather than replacing one.

What is an FSA?

A flexible spending account: an employee sets aside pre-tax pay under a Section 125 plan to pay for their own medical expenses during the year, up to an annual limit. The FSA and SIMERP share the Section 125 mechanism. They differ in what the account pays for and the caps that apply.

What is an HSA?

A health savings account under Section 223, which an employee can only contribute to while covered by a high-deductible health plan and no other disqualifying coverage. Whether a given reimbursement plan affects HSA eligibility depends on what the plan pays for, so ask the question directly before assuming either answer.

What is minimum essential coverage?

MEC, the Affordable Care Act’s term for health coverage that satisfies the law’s coverage requirement. Plans in this category are supplemental, and eligibility rules commonly ask that an employee have group health coverage. Whether a particular plan requires it, and what it does for employees who lack it, is a question for whoever sent the proposal.

What is Chief Counsel Advice?

A memo from the IRS Office of Chief Counsel answering an internal question about a specific set of facts. The 2016, 2017 and 2023 memos on this category are Chief Counsel Advice. Under Section 6110(k)(3), a written determination “may not be used or cited as precedent,” so they show how the IRS reads the law rather than changing it.

What is a Revenue Ruling?

An official IRS interpretation of how the law applies to a set of facts, published in the Internal Revenue Bulletin and citable. Revenue Ruling 2002-3 is the one that matters here: an employee can’t be reimbursed tax-free for a premium that was already excluded from income. Every later memo builds on it.

What is the Green Book?

The Treasury Department’s annual list of the tax law changes an administration asks Congress to make. The FY2023 and FY2024 Green Books proposed taxing fixed indemnity payments made no matter what the actual medical costs were. Congress didn’t act, the FY2025 edition dropped it, and none has been published since. The full account is on the history page.

What is the Federal Register?

The federal government’s daily journal of proposed and final rules. The 2013 wellness rule, the 2023 proposed rule on fixed indemnity taxation, and the 2024 final rule that left that proposal out were all published there. When a proposal cites a Federal Register page, you can read the page yourself.

References

• 26 U.S.C. §105, §106, §125, §213, §223 and §6110, Legal Information Institute, Cornell Law School, checked September 11, 2026. https://www.law.cornell.edu/uscode/text/26/105
• 26 CFR §1.105-2 and §1.105-11, Legal Information Institute, Cornell Law School, checked September 11, 2026. https://www.law.cornell.edu/cfr/text/26/1.105-2, https://www.law.cornell.edu/cfr/text/26/1.105-11
• IRS Office of Chief Counsel, CCA 201703013, dated December 12, 2016. https://www.irs.gov/pub/irs-wd/201703013.pdf
• Revenue Ruling 2002-3, Internal Revenue Bulletin 2002-3, January 22, 2002. https://www.irs.gov/pub/irs-irbs/irb02-03.pdf
• Internal Revenue Service, Publication 15 (Circular E), Employer’s Tax Guide, 2026 edition, page 20. https://www.irs.gov/pub/irs-pdf/p15.pdf