The structural difference, in one paragraph
An indemnity plan pays the employee a fixed cash amount when a triggering event occurs - typically a telehealth visit, a health screening, or participation in a wellness activity. The vendor's argument is that this fixed payment is a tax-free reimbursement.
A SIMERP reimburses the employee for an actually-incurred Section 213(d) qualified medical expense. The reimbursement amount is tied to a real expense documented per IRC rules.
The IRS treats these structures differently. The Chief Counsel's 2023 memorandum (CCM 202323006) concluded that the indemnity structure's fixed payments should be treated as taxable wages, with FICA and income tax withholding due. The SIMERP structure - reimbursement of incurred 213(d) expenses - is not affected by that memo and remains consistent with the IRS's published treatment of medical expense reimbursement.
What the IRS actually said
Chief Counsel Memorandum 202323006, issued in 2023, addressed a benefit design where a wellness plan paid the employee a fixed indemnity benefit each time the employee participated in a triggering event, funded through a Section 125 cafeteria plan election. The memorandum concluded:
- Fixed indemnity payments to the employee, even if labeled as "wellness benefits," should be treated as taxable wages.
- Employers running this structure should have been withholding income tax and matching FICA on the indemnity payments.
- The structure does not deliver the tax savings vendors had advertised.
Side-by-side comparison
| Aspect | EHP SIMERP | Indemnity-style plans |
|---|---|---|
| Tax structure | Section 125 + 105(b) + 213(d) reimbursement | Section 125 + fixed indemnity payments |
| IRS position (2023+) | Consistent with published guidance | Subject to CCM 202323006 |
| Payment trigger | Actually-incurred qualified medical expense | Fixed payment on event participation |
| Healthcare delivery | Integrated telehealth network with real clinicians | Often white-labeled vendor network |
| Employee customer service | Direct from plan operator | Often outsourced to a third party |
| Documentation requirement | Per-expense 213(d) documentation | Trigger-event log only |
| Audit risk profile | Standard SIMERP / Section 105(b) posture | Elevated since CCM 202323006 |
Why indemnity plans still exist in the market
Indemnity-structured preventative care plans are cheaper for a vendor to set up because they don't require a self-insured plan document with full Section 105(b) machinery - they ride on top of an off-the-shelf fixed-indemnity insurance policy. Many of these vendors entered the market before 2023 and have continued operating. A new SIMERP requires substantially more compliance and plan-document infrastructure, which is part of why it's a smaller market.
The fact that they're still sold isn't evidence they're compliant. It's evidence that IRS Chief Counsel Memoranda don't have the immediate market-clearing effect that, say, a final regulation would have.
When an indemnity plan might actually be the right choice
We try to be honest about edge cases. Two situations where an indemnity plan might be a reasonable choice:
- Ultra-small employers (under ~10 W-2 employees) where the per-employee admin overhead of a true SIMERP doesn't pencil out and the audit-risk exposure is modest in absolute dollar terms.
- Short-term tactical use where the employer plans to discontinue the benefit within a year and the regulatory risk is acceptable given the short window.
For most employers - especially those with audit-aware CFOs, board oversight, or public-sector exposure - the SIMERP structure is the safer and more durable choice.
Common questions
No. Chief Counsel Memoranda are not binding precedent on taxpayers or courts. They are the IRS's published interpretive position. That said: the memo is the starting point for any IRS audit conversation on this category of product, and a Chief Counsel position is the strongest signal taxpayers get short of a regulation.
Ask one question: does the plan reimburse me for an actually-incurred Section 213(d) qualified medical expense, or does it pay a fixed dollar amount when a trigger event (a telehealth visit, a screening) happens? Reimbursement of incurred expenses is a SIMERP. Fixed payment on a trigger is an indemnity plan.
They can be sold under state insurance laws as fixed-indemnity policies, and the marketing claims about pre-tax treatment are technically debatable until a court or regulation makes it clearer. Vendors who started these products before 2023 are continuing to sell them. The 2023 IRS memo did not stop the market - but it did meaningfully raise the audit risk profile.
No. The SIMERP structure has been operating since the 1980s. The IRS's published guidance on Section 105(b) reimbursements and Section 125 pre-tax elections has been consistent. The 2023 Chief Counsel Memorandum was specifically about indemnity-structured fixed-payment products, not reimbursement-structured plans like the EHP SIMERP.