SIMRP Legal & Compliance Review
Understanding the Terminology: A Self-Insured Medical Reimbursement Plan (SIMRP) is frequently marketed under commercial names such as Preventive Care Management Program (PCMP), SMERP, Section 105 Pretax Plan, Pretax Wellness Program, or Employer-Sponsored Preventive Access (ESPA).
If you've been looking into any of of these programs, the obvious hesitations come to mind.
Are these types of arrangements legal?
What potential risks is my company exposed to?
How does this interact with our existing benefits and provider?
These types of arrangements, when structured properly, create a significant impact for your businesses's overall health through improved cashflow and increased employee appreciation and retention.
But that alone shouldn't stop proper scrutiny where it's due.
The only way to truly reduce risk is to ensure the regulatory framework in which they are founded, what plan documents outline, how the mechanics relate to IRS guidance, and specific 213(d) services covered by the plan.
At Thrive Benefits Group, we provide the legal, tax, and operational breakdown reviewing counsel requires to evaluate a Self-Insured Medical Reimbursement Plan (SIMRP) safely and compliantly
(Feel free to check out our other work on Broker & Coverage Compatability and Employee Communication and Enrollment Processes)
SIMRP Legal & Compliance Review
Is a SIMRP Pretax Wellness Program Legal?
SIMRP Required Plan Documentation
Regulatory Alignment & IRS Precedent
Is a SIMRP Pretax Wellness Program Legal?
Yes, a SIMRP-style pre-tax wellness program is legally defensible when pre-tax §125 elections fund a written §105 plan that reimburses substantiated §213(d) medical care.
It is not defensible when a pre-tax salary reduction is paired with a fixed cash payout for wellness participation where the employee incurs no underlying medical expense.
That non-compliant cash-return model is the exact fact pattern targeted in IRS Chief Counsel Advice (CCA 2023-23006).
For review here are the underlying statutes such programs are built on top of
Internal Revenue Code | Statutory Function & Governance |
Governs cafeteria-plan pretax salary reductions toward qualified benefits. | |
Excludes reimbursements for incurred medical care from gross income. | |
Enforces nondiscrimination rules for self-insured medical reimbursement plans. | |
Excludes employer-provided health and accident coverage from gross income. | |
Defines the scope of legitimate medical care expenses eligible for plan reimbursement. |
While vendor branding does not alter the underlying statutory framework, service delivery, plan documentation, and claims substantiation sift the wheat from the chaff.
At Thrive Benefits Group, we welcome the opportunity to review our structure directly with your legal counsel and CPAs to make this evaluation as clear and comfortable as possible.
SIMRP Required Plan Documentation
Common problems arise with these programs without proper documentation. Problematic set ups rely on generic, single plan documentation which capitalize on tax ambiguity.
To prevent tax ambiguity and satisfy ERISA governance requirements, Thrive Benefits Group supports the arrangement through three distinct plan documents.
Each of these perform a separate job while maintaining independent legal, administrative, and tax identities:
Document | What it governs |
|---|---|
Section 125 Cafeteria Plan | Employee pretax salary elections |
Self-Insured Medical Reimbursement Plan | Reimbursements that may be excluded from gross wages under § 105(b) |
Employer-Sponsored Preventive Access Plan | The welfare benefit that defines preventive-care engagement services |
Thrive Benefits Group provides and updates all of the required documentation its clients at no cost.
When those documents are administered as written: qualified reimbursements are excluded from employee gross income under § 105(b), and qualified pretax elections reduce the FICA wage base for the employer and the employee. If a payment fails substantiation, they're considered wages.
The Non-Negotiable Tax Rule: Reimbursements are not guaranteed payroll write-offs. If a payment fails IRC §213(d) substantiation, payroll rules mandate reclassifying that payout as taxable W-2 wages subject to FITW, FICA, and FUTA.
Regulatory Alignment & IRS Precedent
A quick review shows that the IRS does not challenge self-insured medical reimbursement plans in their entirety.
This would be contrary to the IRS's own words in their annual Employers Tax Guide (publication 15, circular E)
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
However IRS Chief Counsel Advice (specifically CCA 2023-23006) targeted promoter schemes that attempted to generate non-taxable cash payouts disguised as wellness programs.
The IRS focused on single-policy fixed-indemnity arrangements where employees paid pre-tax salary reductions and received fixed monthly payments ($1,000/month) simply for completing nominal tasks
Here's the fact pattern at play:
What CCA 202323006 reviewed | What to avoid | Written § 105 SIMRP |
|---|---|---|
A set wellness indemnity, even if the employee had no unreimbursed medical cost | Fixed cash for participation or non-medical “wellness” tasks | Reimbursement only after a verified § 213(d) medical expense |
Fixed-indemnity health policy; premiums paid pretax under § 125 | The same cash channel under a wellness or “Section 105” label | A written self-insured medical reimbursement plan under § 105 |
No claim tied to an incurred medical expense | Self-certification or an automatic payroll credit | Excludable under § 105(b) only when the expense is substantiated via third-party |
Under IRC § 6110(k)(3),a CCA is not binding precedent. It is the IRS’s analysis of one fact pattern. It does not outlaw § 105 reimbursement plans. It also does not endorse any vendors set up.
At Thrive Benefits Group, we welcome the opportunity to review our structure directly with your legal counsel and CPAs to make this evaluation as clear and comfortable as possible.
SIMRP & Scope of Reimbursable §213(d) Care
When reviewing these arrangements, the core question from the IRS and your legal team is straightforward: Is the plan funding real medical care, or is it just paying employees cash for clicking a box?
Schemes targeted under IRS guidance failed because they handed out fixed cash payouts for nominal, non-medical tasks.
A defensible SIMRP shows every dollar allocated supports access to active, legitimate "medical care" defined under Internal Revenue Code §213(d).
Rather than functioning as a cash-return loop, a compliant structure provides employees with direct access to specific, high-utilization preventive health services:
Virtual Medicine & Clinical Telehealth: Direct access to remote clinical consultations, virtual primary care, and preventive health evaluations.
Mental & Behavioral Health Counseling: Virtual therapy sessions, clinical stress management, and addiction counseling resources.
Chronic Disease Management: Structured preventive protocols targeting diabetes, hypertension, and cardiovascular health.
Preventive Health Evaluations & Coaching: Comprehensive health risk assessments, lifestyle modification programs, and ongoing clinical health tracking.
Employer Protection & Audit Defense
Thrive Benefits Group excels in our transparency, formal plan documentation, and administrative oversight.
To provide our clients with additional security against audit risk and regulatory scrutiny, we also deliver
Full Plan Governance: We manage complete plan administration—delivering written §105 plan documents, §125 cafeteria amendments, SPDs, HIPAA frameworks, and mandatory annual §105(h) nondiscrimination testing.
Employer Indemnification: A formal hold-harmless policy protecting client employers against legal defense costs and back-tax assessments in the event of a payroll tax audit.
Legacy TPA Remediation: We cure historical documentation gaps for employers switching from non-compliant vendors, establishing a clean, defensible baseline via updated Adoption Agreements and Corporate Resolutions.
Fiduciary Indemnification: Built-in plan provisions protecting Plan Administrators from legal liabilities, claims, and defense costs, provided there is no gross negligence.
If you have any questions about your current plan set up, are considering changing providers, or are looking into this for the first time, we'd be happy to have a discussion.
Conclusion: Moving Forward Safely
When structured properly, a Self-Insured Medical Reimbursement Plan (SIMRP) is a compliant way to improve company cash flow and enhance employee benefits without exposing your business to undue risk. The critical difference between a compliant plan and an "IRS CCA target" lies in the details: strict adherence to IRC §213(d) medical care definitions, proper plan documentation, and rigorous claims substantiation.
At Thrive Benefits Group, we provide the complete legal, tax, and operational framework that internal counsel and CPAs require. We welcome the opportunity to review our structure and documentation architecture directly with your team. If you are reviewing your current plan or considering this arrangement for the first time, reach out to schedule a technical breakdown.
Frequently Asked Questions
Q: Can S-Corporation 2% shareholders participate in a SIMRP?
A: No. Under IRS rules, 2% S-Corp shareholders are treated as partners rather than employees for fringe benefit purposes and cannot receive tax-free reimbursements under IRC §105.
Q: How does a SIMRP handle claims substantiation?
A: Every claim requires independent third-party substantiation proving an eligible §213(d) medical expense was incurred before any tax-exempt reimbursement is disbursed.
Q: Does a SIMRP replace our existing major medical health insurance?
A: No. A SIMRP sits alongside your primary group health coverage as an independent, self-insured benefit plan focused on preventive care and supplemental medical expenses.
Further Reading
Broker & Coverage Compatibility
Company Savings & Paycheck Impact Analysis
Citations
IRS Chief Counsel Advice (CCA 202323006). "Fixed Indemnity Health Plans and Wellness Programs." Internal Revenue Service, June 9, 2023. Available at:https://www.irs.gov/pub/irs-wd/202323006.pdf.
IRS Publication 15 (Circular E). "Employer's Tax Guide." Internal Revenue Service, 2024. Available at:https://www.irs.gov/pub/irs-pdf/p15.pdf.
IRC § 125. "Cafeteria plans." U.S. Code, Title 26. Available at: House.gov.
IRC § 105. "Amounts received under accident and health plans." U.S. Code, Title 26. Available at: House.gov.
IRC § 106. "Contributions by employer to accident and health plans." U.S. Code, Title 26. Available at: House.gov.
IRC § 213. "Medical, dental, etc., expenses." U.S. Code, Title 26. Available at: Cornell Law.
HealthCare.gov. "Medical Necessity." U.S. Centers for Medicare & Medicaid Services. Available at:https://www.healthcare.gov/glossary/medical-necessity/.
CDC.gov. "Prevention." Centers for Disease Control and Prevention. Available at:https://www.cdc.gov/prevention/index.html.
