What is a SIMERP? A Beginner's Guide to Self-Insured Medical Expense Reimbursement Plans
In today's changing healthcare landscape, businesses of all sizes are seeking innovative ways to offer employee benefits without incurring additional costs. Enter SIMERP: Self-Insured Medical Expense Reimbursement Plans. If you're a business owner or HR professional interested in additional health and financial protection coverage options, this beginner's guide simplifies the concepts. We'll explore the basics, history, eligibility, how it works, and real-world examples to help you determine if a SIMERP suits your needs in 2026.
What Exactly is a SIMERP?
A SIMERP, or Self-Insured Medical Expense Reimbursement Plan, is an employer-sponsored program that offers additional wellness and financial protection benefits to employees with zero net change to their paychecks.
It is an IRS-approved additional benefit plan that combines a §125 cafeteria plan and a §105 reimbursement plan.
Unlike traditional group health insurance, where premiums are paid to an insurer, SIMERPs allow businesses to fund the reimbursements directly. This arrangement often emphasizes wellness by covering costs that insurance does not, including dental, vision, telehealth, preventive care, accident payments, and life insurance.
At its core, a SIMERP is a written plan that complies with all IRS rules and uses tax codes to generate savings for employers. These tax codes are designed to take stress off the healthcare system. The costs for these additional coverages are offset by reductions in the employee's payroll taxes.
There is a net savings for employers who must match employees' FICA taxes. This is because the employee is paying less FICA, so the employer pays less FICA as well.
A Brief History of SIMERPs
The roots of SIMERPs can be traced back to the broader evolution of health reimbursement. In 1954, an amendment to the Internal Revenue Code allowed employers to deduct contributions toward employee health coverage, laying the groundwork for tax-advantaged plans. By the 1960s, informal "healthcare arrangements" emerged to cover out-of-pocket costs not covered by basic insurance.
HRAs, the precursors to modern SIMERPs, gained popularity around 2001 when employers paired them with high-deductible plans to manage rising costs. The Affordable Care Act (ACA) in 2010 further influenced these plans, introducing QSEHRAs in 2017 for small businesses exempt from employer mandates. SIMERPs evolved as a wellness-focused variant, gaining traction post-pandemic as remote work and flexible benefits surged. By 2025, adoption among small employers had grown due to economic pressures and tax incentives.
Eligibility for SIMERPs
Who can set up a SIMERP? Primarily, small businesses with fewer than 50 full-time employees are often exempt from ACA mandates. However, companies of all sizes can benefit, especially those with W-2 employees who work at least 30 hours per week.
Key requirements:
- Business Structure: Eligible for corporations, LLCs, partnerships, and sole proprietors with employees.
- Employee Criteria: Participants must have ACA-compliant health plans or individual coverage. Part-timers or gig workers may qualify if they meet the hours threshold.
- Plan Document: A formal written plan is required, outlining reimbursable expenses, reimbursement processes, and compliance with IRS rules, including Section 105.
- Nondiscrimination: Benefits must be offered uniformly to avoid IRS penalties.
Self-employed individuals without employees typically can't participate, but they may deduct personal health premiums separately. Consult a tax advisor to ensure eligibility, as rules can vary by state.
How SIMERPs Work: Step-by-Step
- Setup: The employer drafts a plan document and establishes a reimbursement budget for all employees.
- Employee Enrollment: Workers opt in and get additional benefits at no net cost. These benefits are IN ADDITION to existing health plans.
- Employees use all additional benefits at no charge.
- Tax Benefits: Reimbursements are deductible for the business and nontaxable for employees, reducing FICA and income taxes.
Real-World Examples of SIMERPs
- Retail Business: A Midwest retailer implemented a SIMERP to reimburse employee premiums and wellness expenses. They saved $25,560 in FICA taxes and cut workers' comp premiums by 20%.
- Manufacturing Firm: A small manufacturer implemented a SIMERP to address vision and dental coverage gaps, boosting employee satisfaction while reducing overall benefit costs by 15-20%.
- Tech Startup: With a remote team, a startup reimbursed individual marketplace plans, attracting talent without the overhead of group insurance.
These examples highlight SIMERPs' versatility for cost control and employee retention.
In summary, SIMERPs provide an accessible and customizable approach to affordable health benefits. As healthcare expenses are expected to increase in 2026, they represent a prudent option for small businesses.
For information on our upcoming SIMERP webinars visit: https://www.kajmst.com/services/simerps