Two plans arrive with SIMERP on the proposal. Only one is what the IRS memos were about.
Two plans arrive with SIMERP on the proposal. The first pays an employee fixed cash for completing an activity, whether or not there was a medical expense, and every IRS memo on this category is about that one. The second, the SIMERP methodology, reimburses real medical care, delivered by licensed physicians and valued by an independent actuary.
Which two plans, and what should I call them?
Call the first one the indemnity plan: a pre-tax payroll election paired with an insurance policy, or a fixed cash payment for an event or an activity, whether or not there was a medical expense. Call the second the SIMERP methodology: the same election paired with real medical care, reimbursed at the value an actuary set, with every interaction documented.
Indemnity is an insurance word. It means a payout: cash paid when something happens, such as a hospital stay, an office visit, or, in the versions sold this way, completing a wellness activity. The amount is fixed in advance and has nothing to do with what any care cost.
In the SIMERP methodology there is no insurance policy and no carrier. Licensed physicians and clinicians deliver primary care, urgent care, mental health care, prescriptions and weight health to the employee and their family, continuously, the way an on-site company clinic would. An independent actuary values that care, the reimbursement is tied to the value the actuary set, and every interaction carries CPT and ICD codes.
| What to look at | The indemnity plan | The SIMERP methodology |
|---|---|---|
| What the payment is | A fixed amount of cash, paid on an event or an activity, whether or not there was a medical expense. | A reimbursement tied to the value an independent actuary set for the medical care. |
| What is inside the plan | An insurance policy that pays the cash, or a fixed cash payment on an activity. | No policy and no carrier. Primary care, urgent care, mental health, prescriptions and weight health. |
| Who delivers care | Nobody has to. A questionnaire, a video or a screening is enough. | Licensed physicians and clinicians, available continuously, the way a company clinic would be. |
| The record | An activity log, if anything. | CPT and ICD codes on every medical interaction. |
| Where the number comes from | A fixed amount unrelated to any medical expense. | An independent actuary’s valuation of the care. |
Which sentence in the tax code separates them?
Treasury Regulation §1.105-2. Section 105(b) keeps a payment out of an employee’s income when it reimburses medical care. The regulation adds the limit: the tax break doesn’t apply to money an employee would get whether or not they had a medical expense. Cash paid for completing an activity is that kind of money.
“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.”
People in this business call it the irrespective test. The regulation says both halves in its own words: the tax break is for money paid specifically to reimburse the employee for medical care, and money that would arrive anyway isn’t reimbursing anything. The SIMERP methodology reimburses the value of medical care that is always available to the employee, as an independent actuary values it. The indemnity plan pays a fixed amount whether or not there was a medical expense.
What did the IRS memos describe?
Three memos from the IRS Office of Chief Counsel, from 2016, 2017 and 2023. The first taxed cash rewards for taking part in a wellness program. The second and third taxed payments from fixed-indemnity insurance policies bought with pre-tax pay. In every one, the employee got a fixed amount of cash even though there was no medical expense to reimburse.
The 2016 memo answered whether an employer could keep cash rewards out of an employee’s income:
“An employer may not exclude from an employee’s gross income payments of cash rewards for participating in a wellness program.”
The 2017 memo defined the product at the center of the category’s bad reputation:
“A fixed indemnity health plan is 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. The amount paid is not related to the amount of any medical expense incurred or coordinated with other health coverage.”
The 2023 memo is the one that gets quoted most. Employees lowered their pay before tax to buy a fixed-indemnity policy that paid a set amount each month for completing health or wellness activities, some of them preventive care. The IRS taxed the payments because the employee had no unreimbursed medical expense behind them: the activity cost nothing, or other coverage had paid for it. The payment was cash, not a reimbursement.
What does the indemnity plan look like in a proposal?
There is an insurance policy inside the plan, and the word indemnity is in the paperwork. The payment is a fixed amount that arrives on an event or an activity: a questionnaire, a video, a screening, one wellness task a year. The payment doesn’t depend on any medical care being delivered. The pitch says cash back, IRS-approved, or guaranteed.
The first three of those marks are the ones the IRS used in its memos and the Treasury Department used when it asked Congress to change the law. The pitch words are ours; they are what the proposals we have seen say.
What does the SIMERP methodology look like?
Licensed physicians and clinicians deliver medical care to the employee and their family, available around the clock, with every interaction documented in CPT and ICD codes. An independent actuary values that care, and the reimbursement is tied to the value the actuary set. There is no insurance policy, no carrier, and no cash for completing an activity.
Section 213(d) says medical care means amounts paid “for the diagnosis, cure, mitigation, treatment, or prevention of disease.” The care here is primary care, urgent care, mental health, prescriptions, and weight health, and every interaction carries the CPT and ICD codes a doctor’s office would use.
It is a subscription model of care, closer to an employer’s on-site clinic than to a claim form. The value is in continuous availability of care by licensed professionals. The plan document also carries a documentation requirement for each participant, and provides that reimbursements to someone who doesn’t meet it become taxable income at year end.
The payroll side is the same for both plans, which is why they get confused. An employee makes a pre-tax election under Section 125, taxable wages go down, and the company’s share of Social Security and Medicare tax goes down with them. The IRS describes the result in its own employer’s tax guide:
“Generally, medical care reimbursements paid for an employee under an employer’s self-insured medical reimbursement plan aren’t wages and aren’t subject to social security, Medicare, and FUTA taxes, or federal income tax withholding.”
What is the Green Book, and why does it matter here?
The Green Book is the Treasury Department’s annual wish list: the tax changes it would like Congress to make. It is not law, not a regulation and not IRS guidance. Nothing in it changes anyone’s taxes unless Congress passes it. Treasury used it twice to ask for a change aimed at fixed-indemnity cash, and Congress never took it up.
Treasury asked in the FY2023 Green Book (March 2022, pages 104 and 105) and again in the FY2024 Green Book (March 9, 2023, pages 204 and 205), under the title “Clarify tax treatment of fixed indemnity health policies.” Treasury called the change a clarification: its Current Law section says amounts that exceed an employee’s medical expenses are already income under longstanding IRS guidance, and its stated problem was that insurers, employers and employees fail to track the expenses tied to a fixed payment. The proposal:
“Any fixed payment (in the form of a direct payment, reimbursement, loan, or advance reimbursement) to an employee under a fixed indemnity arrangement that is paid without regard to the actual cost of the medical expenses the employee incurred would not be excluded from gross income and would be treated as wages subject to FICA and FUTA taxes.”
Read that description again: a fixed payment, under a fixed indemnity arrangement, paid no matter what the medical care actually cost. That is the indemnity plan, in the same words the IRS memos use. Here is what happened next.
- Congress never took it up. We searched for a bill that would have made it law and found none. That is a search result, not proof.
- Treasury then tried the other route. On July 12, 2023 it proposed writing the same position into the regulation itself. When the final rule came out on April 3, 2024, that part wasn’t in it. Treasury said it wanted more time to study the concerns people had raised, that nobody should read anything into the decision, that the IRS would keep enforcing the existing rule, and that more guidance is coming.
- The next Green Book, for FY2025, didn’t mention it, and no Green Book has been published since.
To be fair about what this proves: a proposal that never passed isn’t an endorsement of anything, and Treasury’s own view is that the law already taxes a fixed payment that goes beyond what an employee actually spent on care. What the record does show is simpler. The plan the government described, twice, was the fixed-indemnity plan, and the rule it wanted to rewrite still reads as it did.
Why do both plans carry the same letters?
Because the letters describe a tax structure. The IRS’s phrase is self-insured medical reimbursement plan, and Treasury Regulation §1.105-11 defines it as a written plan that reimburses employee medical expenses under Section 105(b). SIMERP, with the E for expense, is our name, and the SIMERP methodology is our way of running that structure. The letters alone tell you nothing.
“A self-insured medical reimbursement plan is a separate written plan for the benefit of employees which provides for reimbursement of employee medical expenses referred to in section 105(b).”
The warnings written about fixed-indemnity wellness plans are what a search engine still finds. They describe fixed payments and activity gates. They do not describe a clinic.
How do I tell which plan I’m being offered?
Ask three questions. Is there an insurance policy inside the plan, or a fixed cash payment for an event or an activity? Who delivers the medical care, and does every interaction carry CPT and ICD codes? Where does the monthly number come from: an actuary’s valuation of the care, or a fixed amount with no medical expense behind it?
The ten-question version, with what a good answer sounds like for each, is at how to check a proposal that says SIMERP.
SIMERP, as we run it, is the SIMERP methodology. It isn’t insurance and doesn’t replace your health plan. The company keeps up to $640 per enrolled employee per year, and every enrolled employee plus up to 6 dependents gets urgent care around the clock, primary care appointments in days, mental health support from licensed clinicians, and over 1,000 medications at no cost, with no copay, deductible or fee.
References
- 26 CFR §1.105-2, “Amounts expended for medical care,” Legal Information Institute, Cornell Law School, checked September 11, 2026. https://www.law.cornell.edu/cfr/text/26/1.105-2
- 26 CFR §1.105-11, “Self-insured medical reimbursement plan,” Legal Information Institute, Cornell Law School, checked September 11, 2026. https://www.law.cornell.edu/cfr/text/26/1.105-11
- 26 U.S.C. §213(d), “Medical, dental, etc., expenses,” Legal Information Institute, Cornell Law School, checked September 11, 2026. https://www.law.cornell.edu/uscode/text/26/213
- IRS Office of Chief Counsel, CCA 201622031, dated April 14, 2016, released May 27, 2016. https://www.irs.gov/pub/irs-wd/201622031.pdf
- IRS Office of Chief Counsel, CCA 201703013, dated December 12, 2016, released January 20, 2017. https://www.irs.gov/pub/irs-wd/201703013.pdf
- IRS Office of Chief Counsel, CCA 202323006, dated May 9, 2023, released June 9, 2023. https://www.irs.gov/pub/irs-wd/202323006.pdf
- U.S. Department of the Treasury, “General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals,” March 2022, pages 104 to 105; “Fiscal Year 2024,” March 9, 2023, pages 204 to 205; “Fiscal Year 2025,” March 11, 2024. https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf, https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf, https://home.treasury.gov/system/files/131/General-Explanations-FY2025.pdf
- Proposed rule REG-120730-21, 88 FR 44596, July 12, 2023. https://www.govinfo.gov/content/pkg/FR-2023-07-12/pdf/2023-14238.pdf
- “Short-Term, Limited-Duration Insurance and Independent, Noncoordinated Excepted Benefits Coverage,” final rule, 89 FR 23338, April 3, 2024. https://www.govinfo.gov/content/pkg/FR-2024-04-03/pdf/2024-06551.pdf
- Internal Revenue Service, Publication 15 (Circular E), Employer’s Tax Guide, 2026 edition, section 5, page 20. https://www.irs.gov/pub/irs-pdf/p15.pdf
Questions this page answers
Which plan did the IRS memos address?
The indemnity plan. The 2016 memo taxed cash rewards for taking part in a wellness program, and the 2017 and 2023 memos taxed payments from fixed-indemnity insurance policies bought with pre-tax pay. In every one, the employee got a fixed amount of cash even though there was no medical expense to reimburse. None of them describes a plan that reimburses real medical care, delivered by licensed physicians and valued by an independent actuary.
What is the irrespective test?
The sentence in Treasury Regulation 1.105-2 that decides this category: the tax break in Section 105(b) doesn't apply to money an employee would get whether or not they had a medical expense. Reimbursing medical care the employee received is what the section was written for. A fixed payment for an activity, made whether or not there was a medical expense, fails it, whatever it is called.
Does the SIMERP methodology pay cash for completing an activity?
No. There is no insurance policy and no cash for completing an activity. The plan reimburses real medical care, delivered by licensed physicians and clinicians, as defined in Section 213(d), valued by an independent actuary, and documented with CPT and ICD codes on every interaction. The plan document also sets a documentation requirement, and it provides that someone who doesn't meet it has their reimbursements become taxable income at year end.
Is the Treasury Green Book law?
No. The Green Book is the Treasury Department's annual wish list of tax changes it would like Congress to make, and nothing in it changes the law unless Congress passes it. Treasury asked twice, in its FY2023 and FY2024 editions, to tax fixed-indemnity cash payments no matter what the actual medical costs were. Congress never acted, the FY2025 edition dropped the request, and no Green Book has been published since.
Disclaimer: This article is provided for educational purposes only and does not constitute legal or tax advice. SIMERP LLC is not a law firm or accounting firm. The information presented here reflects our understanding of relevant tax codes and regulations based on research and experience helping businesses implement SIMERP programs. Every business situation is unique, and tax laws can be complex. You should consult with your own qualified tax and legal advisors to determine if SIMERP is appropriate for your specific circumstances.
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