The memo in one paragraph
Chief Counsel Memorandum 202323006 addressed a benefit design where employers ran a Section 125 election to fund a fixed-indemnity 'wellness' policy that then paid the employee a cash benefit each time they participated in a qualifying event (a telehealth visit, a health screening). Vendors argued the indemnity payments were tax-free reimbursements. The IRS concluded otherwise: the payments are taxable wages, the employer should have been withholding income tax and matching FICA on them, and the structure does not deliver the advertised tax savings.
Why this product still gets sold
Chief Counsel Memoranda are not binding precedent on courts or taxpayers. Vendors selling indemnity-structured products lean on this technicality - 'it's only a memo, not a regulation.' They may be technically correct that the memo isn't binding. They are not correct that audit risk doesn't exist; the IRS's published position is the starting point for any audit conversation.
What separates an indemnity plan from a SIMERP
- Indemnity: the employee receives a fixed cash payment when a specified event occurs (e.g., 'a telehealth visit happened').
- SIMERP: the employee receives a reimbursement for an actually incurred Section 213(d)-qualifying medical expense.
- Indemnity is paying for the trigger event. SIMERP is paying for the medical expense.
Questions to ask before signing
- Is this product structured as a SIMERP (reimbursement of incurred expenses) or as an indemnity plan (fixed payment on a trigger event)?
- Can I see the plan document and SPD before signing?
- How do you reconcile your tax treatment with Chief Counsel Memorandum 202323006?
- Do you carry an indemnification or hold-harmless provision if my employer faces an IRS challenge?
The takeaway
The federal preventative care tax-savings model is real and compliant when structured as a SIMERP. It is risky and against published IRS guidance when structured as an indemnity plan. The vendor difference matters - make sure you know which one you're signing.