Two medical benefits. Two funding sources. One coordinated employee experience.
Most employers ask the same question: how can ESPA provide meaningful benefits, create payroll-tax savings and still keep the tax functions separate?
The answer is that ESPA does not ask one transaction to do everything.
The employee elects an Employer-Sponsored Medical Benefit
The employer establishes a defined medical benefit consisting of qualifying medical services.
Eligible employees may prospectively use the employer’s Section 125 cafeteria plan to satisfy their required share of that benefit.
Section 106 addresses the federal income-tax treatment of employer-provided accident or health coverage.
The employer separately funds the SIMRP
The employer also maintains a Self-Insured Medical Reimbursement Plan, or SIMRP.
The SIMRP is funded separately by the employer and may reimburse eligible qualifying medical expenses under Section 105(b), subject to the Plan’s rules and limits.
The two transactions stay separate
The employee’s Section 125 election does not fund the SIMRP.
The SIMRP does not reimburse the employee’s Section 125 election.
The SIMRP reimbursement is not calculated as a return of the employee’s election.
That separation is intentional.
Published IRS guidance has specifically considered situations in which salary-reduction-funded health coverage operates alongside a separately employer-funded medical reimbursement arrangement. The analysis focuses on whether the two arrangements are genuinely separate in their funding and economics.
ESPA is structured to preserve that separation.
BizPower Benefits coordinates compliance work with:
Many CPAs have not seen this structure before. We are happy to coordinate a joint call with your CPA during setup so they can review the plan documents and ask questions directly.
