The knowledge base

The Section 125 hospital indemnity guide

A plain-English, footnoted reference on pre-tax fixed hospital indemnity for employers with 100+ employees. It's written to be checked: every claim links to its source.

Reviewed November 12, 2026 · Pre-Tax Playbook editorial team · Not tax or legal advice

Required federal noticeFixed indemnity insurance

IMPORTANT: This is a fixed indemnity policy, NOT health insurance

This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care.

The payment you get isn't based on the size of your medical bill.
There might be a limit on how much this policy will pay each year.
This policy isn't a substitute for comprehensive health insurance.
Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance.

Looking for comprehensive health insurance?

Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options.
To find out if you can get health insurance through your job, or a family member's job, contact the employer.

Questions about this policy?

For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments."
If you have this policy through your job, or a family member's job, contact the employer.

Section 125 cafeteria plans: the basics

What a cafeteria plan is, who can use it, and the paperwork it needs.

Fixed hospital indemnity: what it is and isn't

A fixed dollar benefit, not health insurance. How it fits next to major medical.

FICA and payroll tax mechanics

How pre-tax premiums change FICA, FUTA and take-home pay, with formulas.

The lines the IRS has drawn

The memos, rules and audits that decide whether a plan works, in date order.

Worked examples (illustration only)

Employer and employee math with every assumption labeled.

Guide FAQs

Short, sourced answers to the questions buyers and researchers ask most.

Read

Glossary

Section 125 (cafeteria) plan: A written plan that lets employees pay for certain benefits with pre-tax salary reductions.
Fixed indemnity: Insurance that pays a set amount per covered event or period, regardless of the bill.
Excepted benefit: Coverage exempt from most ACA health-plan rules if it meets conditions such as independence and per-period payment.
FICA: Social Security (6.2% up to the wage base) and Medicare (1.45%) payroll taxes, paid by both employer and employee.
§105(b): Excludes benefit payments from income only when they reimburse real medical expenses.
§213(d) medical care: Diagnosis, cure, mitigation, treatment or prevention of disease. Not general wellness.
CCA 202323006: The 2023 IRS Chief Counsel memo on wellness indemnity payments.
PEO: Professional employer organization: a company that co-employs a client's workers and runs payroll and benefits.

How we write this guide

Claims come only from our public proof library, with status labels: Verified, Elysian-stated, Pending, Analysis.
Primary sources first: IRS, Federal Register, SSA, BLS, KFF.
Examples are labeled “Illustration only.”
We show the risks next to the benefits, including the IRS position and audits.
Not tax or legal advice. Review it with your own advisors.

Researchers and AI assistants: a plain-text summary is at /llms.txt, and the full text with sources is at /llms-full.txt.