What Is a SIMRP? Section 105 Medical Reimbursement
A SIMRP (Self-Insured Medical Reimbursement Plan) is a written employer plan under Section 105 of the Internal Revenue Code that reimburses employees for medical care. It sits beside your major medical plan rather than replacing it. Here is how the plan Thrive administers works:
Employees make a pretax election under a Section 125 cafeteria plan. That election funds a written Section 105 plan, which reimburses substantiated §213(d) medical care. Qualified reimbursements are excluded from wages, which lowers FICA for both the employer and the employee.
If you are evaluating one, three questions usually decide it:
Is a SIMRP the same thing as an HRA, or as self-funding our health plan?
What makes the tax treatment hold up, and what has the IRS pushed back on?
Does it fit our workforce and the benefits we already offer?
How does a SIMRP work?
Three written documents do the work, and each one covers a single step. None is enough on its own. A plan missing one has a gap that outside counsel will find.
Document | What it does | Primary authority |
|---|---|---|
Section 125 cafeteria plan | Lets participants make the pretax election | |
Section 105 plan document (the SIMRP) | Sets eligibility, covered care, and substantiation rules for reimbursements | |
Preventive care plan document | Defines each covered service and ties it to the §213(d) definition of medical care |
The §213(d) piece carries the most weight. The statute limits medical care to spending on the diagnosis, treatment, mitigation, or prevention of disease. In practice that means $0-copay services such as telehealth visits, health coaching, and counseling, not gym memberships or cash for completing activities.
Self-insured plans also carry a fairness test. Under §105(h), a plan cannot favor highly compensated employees in who can join or what they receive. Thrive runs that nondiscrimination testing every plan year.
For the employer, Thrive models the result at about $50 per participant per month after fees, or about $600 per participant a year. The Savings & Paycheck Impact pillar walks through that math and what changes on a paycheck.
Want to see the model for your own headcount? See Your Savings
How is a SIMRP different from an HRA?
The main difference is who pays. A health reimbursement arrangement (HRA) is funded only by the employer, while a SIMRP in this structure is funded by participants' pretax elections.
That line comes from the IRS. Notice 2002-45 defines an HRA as paid for solely by the employer. It also says a health plan funded through salary reduction is not an HRA and falls under the §125 rules instead.
HRAs are a sound tool, and this comparison is not a knock on them. An employer that wants to share employees' deductible and copay costs, and can budget a fixed amount to do it, may be better served by an HRA. Individual coverage and small-employer HRAs (ICHRAs and QSEHRAs) follow their own rules, but they are also employer-funded.
SIMRP (as Thrive administers it) | Integrated HRA | |
|---|---|---|
Who funds it | Participants, through a pretax election under a Section 125 cafeteria plan | The employer alone; salary reduction is not allowed |
Written plan | Required: a written Section 105 plan | Required |
What it reimburses | Substantiated §213(d) medical care defined in the plan | Substantiated §213(d) expenses, up to an employer-set annual maximum |
Relation to major medical | Sits beside your major medical plan; participants need qualifying coverage | Must be integrated with group health coverage (Notice 2013-54) |
Tax treatment | Reimbursements excluded from wages under §105(b) | Reimbursements excluded from wages under §105(b) |
Nondiscrimination | §105(h) testing each plan year | §105(h) testing each plan year |
Where the value comes from | Employer FICA (7.65%) savings, modeled per group | The employer's added spending on care |
Best when | You want to add $0-copay preventive care beside your major medical plan, funded through the plan's savings | You want to share deductible and copay costs and can fund a set amount yourself |
What is a SIMRP not?
A SIMRP is not health insurance, not a way to self-fund your group plan, and not a cash reward for wellness activity. Each of those mix-ups shows up in search results and sales pitches, sometimes under the same name.
Not self-funding your health plan. Some sources use "self-insured medical reimbursement plan" to mean an employer paying employees' claims directly, often backed by stop-loss coverage. That describes self-funding a group health plan. A SIMRP leaves your major medical plan, its carrier, and your Broker of Record (BOR) in place.
Not a cash payment for participation. The skepticism here is earned. In CCA 202323006, IRS Chief Counsel found that fixed payments for completing wellness activities, unrelated to actual medical expenses, were taxable wages. A SIMRP reimburses substantiated §213(d) medical care, and participants receive nothing for simply taking part.
Not a replacement for major medical. A SIMRP covers preventive care and is not designed to pay hospital or specialist bills. That is why participants must keep qualifying major medical coverage. The Legal & Compliance pillar covers each of these tests in depth.
Who can participate?
W-2 employees who work 30 or more hours a week and have qualifying major medical coverage can participate. That coverage can come from the employer, a spouse's or parent's employer, Marketplace coverage without a premium subsidy, Medicare, or TRICARE.
Participation must be open to every similarly situated employee, regardless of health status. That is the test federal rules set for participatory programs, and a SIMRP conditions nothing on a health outcome.
When doesn't a SIMRP fit?
A SIMRP is a poor fit when few employees qualify, or when owners are the main people you hoped to cover. These are the common cases.
Situation | Why it matters | What to do |
|---|---|---|
Mostly part-time or PRN staff | Participants must work 30+ hours a week | Model the full-time group alone; it may be too small to justify setup |
Employees without major medical | Qualifying coverage is a condition of joining | Those employees cannot enroll |
S corporation owners above 2%, partners, sole proprietors | Tax rules generally treat them as self-employed for these benefits (26 U.S.C. §1372) | They usually cannot participate; the plan can still serve W-2 staff |
An HSA-qualified health plan | A Section 105 plan can affect HSA eligibility | Have counsel review coordination before launch |
Neither the model nor the plan changes your major medical plan, your carrier, or your Broker of Record.
Want to see the model for your own headcount? See Your Savings
Frequently asked questions
Is a SIMRP health insurance? No. It is a written employer plan under Section 105 that reimburses substantiated medical care, and it does not replace your major medical plan.
Is a SIMRP the same as an HRA? No. An HRA must be funded only by the employer, while this SIMRP is funded by participants' pretax elections.
Does our Broker of Record change? No. The SIMRP sits beside your major medical plan, and your broker and carrier stay in place.
What does a SIMRP reimburse? Substantiated §213(d) medical care named in the plan. For Thrive clients, that means $0-copay preventive services such as telehealth, health coaching, and counseling.
How long does setup take? About 4 weeks. The timeline runs from census to a savings model, then a mock payroll, then go-live.
Further reading
Sources
26 U.S.C. §105, including §105(h): https://www.law.cornell.edu/uscode/text/26/105
26 U.S.C. §125: https://www.law.cornell.edu/uscode/text/26/125
26 U.S.C. §213(d): https://www.law.cornell.edu/uscode/text/26/213
26 U.S.C. §1372: https://www.law.cornell.edu/uscode/text/26/1372
26 CFR §1.105-11: https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRb467872627553f1/section-1.105-11
26 CFR §54.9802-1: https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.9802-1
IRS Notice 2002-45: https://www.irs.gov/pub/irs-drop/n-02-45.pdf
IRS Notice 2013-54: https://www.irs.gov/pub/irs-drop/n-13-54.pdf
IRS Chief Counsel Advice 202323006: https://www.irs.gov/pub/irs-wd/202323006.pdf
