EHP Frequently Asked Questions

The annual pre-tax deduction amount represents the actuarially-determined fair market value of comprehensive medical care and wellness services, calculated using professional actuarial methodology following HHS federal standards under 45 CFR 156.135.

Professional actuaries certified by the American Academy of Actuaries conduct this valuation using the same federal frameworks required for health insurance plans.

The calculation uses a conservative 75% methodology, meaning employees receive reimbursements for only 75% of the calculated full market value, creating a substantial compliance buffer.

This approach follows identical methodology to dozens of accepted IRS standardized valuations like business mileage rates and per diem allowances, where the IRS accepts professional valuations regardless of individual actual costs.

SIMERP's pre-tax salary reduction is fundamentally different from insurance premium payments because it operates under IRC Section 125 cafeteria plan authority rather than IRC Section 106 premium exclusion rules.

Insurance premiums pay for coverage that might provide benefits if claims occur, while SIMERP's pre-tax deduction funds actual medical care and wellness services that are guaranteed to be provided.

This distinction is critical because it allows SIMERP to operate as a medical expense reimbursement arrangement under IRC Section 105(b) rather than insurance, avoiding complex insurance regulations while providing immediate, tangible value to all participants.

The pre-tax deduction creates the funding mechanism for services that employees actually receive, not coverage for potential future benefits.

The legal authority comes from IRC Section 125's broad grant of authority for pre-tax salary reductions to purchase qualified benefits, combined with IRC Section 213(d)'s definition of medical care and extensive IRS precedent supporting standardized valuations.

The IRS has consistently approved standardized amounts for various benefits (mileage rates, per diem, auto lease values) based on professional valuations rather than individual actual costs. SIMERP follows this identical precedent with professional actuarial certification determining the fair market value of medical care and wellness services.

Recent IRS Chief Counsel Advice 202323006 (June 2023) specifically approves service-based reimbursement models under IRC 105(b), providing current regulatory support for SIMERP's approach.

SIMERP operates as a reimbursement arrangement under IRC Section 105(b) rather than an indemnity arrangement, which is the key to tax exclusion eligibility. This distinction is critical because it determines both tax treatment and compliance requirements.

Reimbursement arrangements exclude payments from gross income when they reimburse employees for medical care expenses or services actually incurred, requiring a direct connection between the payment and medical care received.

Indemnity arrangements, by contrast, provide predetermined payments based on specific events (like hospital stays or diagnoses) regardless of actual medical expenses incurred. While indemnity benefits can sometimes be tax-free under IRC Section 105(b) if properly structured, they create significant "double dipping" compliance risks when combined with pre-tax salary reductions. The IRS specifically prohibits arrangements where employees receive both pre-tax treatment for premiums AND tax-free indemnity benefits, as this would provide double tax benefits for the same coverage.

SIMERP avoids this compliance trap entirely by operating as a pure reimbursement model - employees receive reimbursements that correspond to the fair market value of medical care and wellness services actually provided through the platform, not predetermined indemnity payments.

The actuarial certification establishes that the annual reimbursement amount represents legitimate service value rather than arbitrary indemnity amounts, and the annual engagement requirement maintains the essential connection between reimbursements and services actually received, ensuring full compliance with IRC Section 105(b) reimbursement requirements.

SIMERP's reimbursement methodology follows extensive IRS precedent for professional valuations and standardized amounts. The IRS routinely accepts professional valuations for business mileage (70¢/mile), per diem rates ($178/day), auto lease values ($6,850/year), and commuting values ($1.50/trip) regardless of individual actual costs.

SIMERP uses identical methodology with American Academy of Actuaries members certifying the fair market value using HHS federal standards (45 CFR 156.135) - the same professional foundation the federal government requires for health insurance plans.

The conservative 75% methodology ensures reimbursements remain well below full market value, demonstrating that amounts are tied to actual service values rather than designed to maximize tax benefits.

SIMERP satisfies all IRC Section 105(b) requirements through its service-based reimbursement structure.

The statute requires that reimbursements be for "medical care" as defined in IRC Section 213(d), which includes services for "prevention of disease" and affecting "any structure or function of the body" - clearly covering SIMERP's virtual primary care, behavioral health, and wellness services.

The reimbursements must be tied to medical care actually provided, which SIMERP ensures through the annual engagement requirement and comprehensive service delivery tracking.

The plan operates as an employer-sponsored arrangement with proper plan documents and administration, and reimbursements correspond to the actuarially-determined value of services provided rather than arbitrary amounts.

SIMERP's service-based structure provides superior compliance and value compared to traditional insurance models.

Rather than paying for coverage that might provide benefits, SIMERP reimburses employees for the value of medical care and wellness services actually delivered through the platform. This ensures that every participant receives tangible value equal to their reimbursement amount, satisfying IRC Section 105(b) requirements that reimbursements be tied to medical care actually provided.

The service-based model also avoids complex insurance regulations, state insurance law complications, and ACA insurance requirements while providing immediate, guaranteed value to all participants through virtual primary care, behavioral health services, pharmacy benefits, and wellness coaching.

SIMERP avoids cash scheme classification through its genuine service delivery model and professional actuarial foundation.

Cash schemes typically involve arbitrary amounts designed to maximize tax benefits without corresponding value, while SIMERP provides actual medical care and wellness services worth the reimbursement amount.

The actuarial certification by American Academy of Actuaries members establishes that the $14,460 annual amount represents legitimate fair market value of services provided, not an arbitrary tax-motivated amount.

The conservative 75% methodology demonstrates that reimbursements are tied to actual service values rather than designed to maximize tax benefits, and the annual engagement requirement ensures ongoing connection between reimbursements and services received.

SIMERP integrates seamlessly with existing IRC Section 125 cafeteria plans as an additional qualified benefit option.

The medical care and wellness services qualify as medical care under IRC Section 213(d), making them eligible for pre-tax salary reduction through cafeteria plans. SIMERP must be offered uniformly to all eligible employees to satisfy nondiscrimination requirements, and proper plan documents must include SIMERP as a qualified benefit option.

The integration actually enhances cafeteria plan compliance by providing an additional valuable benefit that helps satisfy nondiscrimination testing requirements. Employees make their SIMERP election during regular open enrollment periods, and the pre-tax salary reduction is processed through existing payroll systems using standard procedures.

SIMERP must comply with IRC Section 105(h) nondiscrimination requirements, which prohibit discrimination in favor of highly compensated individuals in eligibility, benefits, or operation.

Employers can establish reasonable eligibility requirements such as full-time status (typically 30+ hours per week), minimum service requirements, or excluding seasonal/temporary employees, as long as these requirements are applied uniformly and don't disproportionately favor highly compensated employees.

SIMERP satisfies nondiscrimination requirements through uniform eligibility criteria (same requirements for all employee classes), uniform benefits (same $14,460 annual amount for all participants), and uniform operation (same services and requirements for all participants).

The plan's broad-based eligibility among eligible employee groups and valuable benefits actually help employers pass nondiscrimination testing by providing attractive benefits that encourage participation among non-highly compensated employees, while reasonable exclusions for part-time, seasonal, or temporary workers are permissible under standard employee benefit plan design.

Supplemental benefits available through SIMERP are purchased by employees with after-tax dollars, typically funded by the employees' tax savings generated by the SIMERP program.

Enrolled employees save approximately $2,136-$5,124 annually in taxes through SIMERP, and a portion of these savings can be used to purchase additional voluntary benefits like enhanced life insurance, disability coverage, or critical illness insurance.

These supplemental benefits are treated as taxable compensation to employees but provide valuable additional protection funded by their own tax savings rather than additional out-of-pocket costs. The result is that these supplemental benefits are funded by the employee with post-tax dollars.

While employers could choose to fund supplemental benefits using their $1,120 per employee payroll tax savings, the typical SIMERP structure allows employees to use their substantial tax savings to enhance their benefits package, creating a comprehensive protection portfolio with improved net financial position.

SIMERP qualifies as a participatory wellness program under HIPAA regulations, which provides significant compliance advantages.

Participatory programs require only that employees have the opportunity to participate, not that they achieve specific health outcomes, eliminating complex accommodation requirements and outcome-based testing that apply to health-contingent programs.

This classification allows SIMERP to provide uniform benefits to all participants without regard to health status, medical history, or claims experience.

The participatory classification also eliminates ACA reward limitations (30% of premium differential caps) and reasonable alternative standards requirements that create compliance complexity for outcome-based programs.

SIMERP enhances rather than complicates ACA compliance by operating as a supplemental medical care and wellness benefit that complements ACA-compliant health coverage.

SIMERP does not affect employer shared responsibility compliance because it provides supplemental services rather than insurance coverage that would satisfy ACA requirements.

The program operates independently of ACA affordability and minimum value calculations, allowing employers to maintain their ACA compliance through primary health plans while providing additional value through SIMERP.

SIMERP's participatory wellness classification automatically ensures ACA wellness program compliance by incorporating HIPAA regulations that the ACA references, avoiding complex outcome-based wellness program requirements.

Medicare-eligible employees create no complications and actually receive enhanced value from SIMERP participation. Because SIMERP provides medical care and wellness services rather than insurance coverage, Medicare Secondary Payer rules, coordination of benefits requirements, and other Medicare coordination complexities simply don't apply.

Medicare covers medical treatment when employees become sick, while SIMERP provides proactive medical care and wellness services to help prevent health problems. These are complementary rather than competing benefits, with no coordination required.

Medicare-eligible employees receive the same tax benefits as other employees ($14,460 annual tax savings) while accessing medical care and wellness services that enhance their Medicare coverage value through preventive care, care coordination, behavioral health support, and pharmacy management.

SIMERP operates as a compliant employee welfare benefit plan under ERISA, which provides comprehensive federal law protections while simplifying administration through ERISA preemption of conflicting state laws.

The plan satisfies ERISA fiduciary requirements through professional administration by qualified service providers who maintain prudent fiduciary standards and comprehensive participant protections.

ERISA classification provides significant advantages including federal preemption from state insurance laws, uniform national administration, and comprehensive participant rights including appeals procedures and enforcement mechanisms. Professional administration ensures compliance with all ERISA reporting, disclosure, and operational requirements while providing ongoing fiduciary protection for plan sponsors.

SIMERP implementation requires minimal ongoing operational burden due to comprehensive professional administration and automated systems.

Employers must integrate SIMERP with existing payroll systems for pre-tax deductions and post-tax reimbursements, provide employee access for enrollment and education, and maintain basic documentation of employee elections.

SIMERP provides automated compliance monitoring, employee engagement tracking, and regular reporting to employers showing compliance status. The annual engagement requirement is managed through automated reminder systems and year-end compliance reviews, with professional support available for all administrative questions.

Most operational requirements are handled by SIMERP's professional administration, leaving employers with minimal ongoing responsibilities beyond standard payroll processing.

SIMERP includes comprehensive fail-safe mechanisms that automatically correct any compliance issues without creating problems for employers or employees.

If an employee fails to complete the annual engagement requirement, the system automatically adds the $14,460 annual reimbursement to their taxable income through W-2 correction or supplemental payroll processing, ensuring full IRS compliance.

The technology-driven compliance system typically achieves 95%+ engagement rates through user-friendly design, valuable services, automated reminders, and multiple engagement options.

Professional support helps employers encourage employee participation, and comprehensive documentation ensures audit readiness. The automatic correction procedures protect against any penalties or additional liability while maintaining full regulatory compliance.

SIMERP presents minimal risk due to its conservative structure, extensive IRS precedent foundation, and comprehensive professional administration.

Regulatory risk is minimal because SIMERP follows identical methodology to dozens of accepted IRS standardized valuations and operates well within established precedent with professional actuarial certification.

Operational risk is low due to technology-driven compliance systems and automatic correction procedures. Financial risk is minimal due to the conservative 75% methodology, professional liability coverage, and comprehensive indemnification protections.

The overall risk assessment is minimal across all categories, with SIMERP's structure providing exceptional protection for both employers and employees while delivering substantial value through tax-efficient medical care and wellness benefits.