The Pre-Tax PlaybookThe employer's briefing on Section 125 benefits
Read it asOwnersCFOs & shareholdersHR & recruitingPEOs & brokers

Guide

The lines the IRS has drawn

Every memo, rule and audit report that matters, in order, with links to the originals.

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.

The IRS hasn't banned hospital indemnity plans, and it hasn't issued a final regulation on this exact design. It has published clear positions on what doesn't work, and it's enforcing them.[2, 6, 8] Chief Counsel memos aren't binding precedent, but they show how the IRS reads the law, and auditors follow them.[2]

Timeline

  1. 2016–2017

    IRS Chief Counsel memos (CCA 201622031, 201703013, 201719025)

    Payments under employer fixed indemnity or wellness arrangements paid pre-tax can't be excluded from income and wages. One memo describes promoters whose fee is about equal to the FICA saved.[1, 2]

  2. Jul 12, 2023

    Proposed regulations (REG-120730-21)

    Would deny the §105(b) exclusion for amounts paid without regard to incurred medical expenses and require substantiation. Not finalized.[3]

  3. Released Jun 9, 2023

    CCA 202323006

    Wellness indemnity payments are taxable wages if the employee has no unreimbursed medical expense, including when premiums are paid through §125.[4]

  4. Mar 6, 2024

    IR-2024-65

    General health and wellness expenses aren't medical care, and payments from a non-qualified plan are income.[5]

  5. Apr 3, 2024

    Final rule, 89 FR 23338

    Treasury and IRS concern “recently escalated” over fixed indemnity cash payments, and compliance efforts continue. The federal fixed indemnity notice is required from 2025 plan years.[6, 7]

  6. Sep 29, 2026

    Law-firm report of IRS audits

    The IRS has begun auditing fixed indemnity health/wellness plans marketed on payroll tax savings.[8]

The tests that matter

LineWhat it means in practice
Unreimbursed §213(d) expensePayments are tax-free only when they repay real medical costs the employee actually paid and nobody else reimbursed.[9, 10, 4]
No pay for activitiesPayments for simply completing health-related activities are taxable.[6]
Insured, not self-fundedSelf-funded “fixed indemnity” arrangements were the target of earlier memos.[1, 11]
Per period, not per service (group market)To stay an excepted benefit, group fixed indemnity pays per day or other period.[7]
Fees vs. FICA savedIRS memos treat a fee that roughly equals the FICA saved as a promoter red flag.[1, 12]

How Elysian says it stays inside the lines

Elysian's counsel says claims require a provider code showing medical care and that the plan is not a wellness program. Elysian's marketing has also described payments for participation. That is the core conflict, and we've asked Elysian to resolve it in writing.[13, 14, 15] Our full guardrail map, with the strength of the evidence for each line, is on the Proof page.

Sources & footnotes

  1. Verified 2016–2017 IRS memos. IRS CCA 201703013; IRS CCA 201719025; IRS CCA 201622031. Proof library P-56
  2. Verified Chief Counsel memos aren't binding — but they show the IRS view. IRS CCA 201719025. Proof library P-55
  3. Verified 2023 proposed regulations (not finalized). Treasury/DOL/HHS final rule, 89 FR 23338. Proof library P-57
  4. Verified CCA 202323006 — the key IRS memo. IRS CCA 202323006. Proof library P-58
  5. Verified IR-2024-65 — general health and wellness isn't medical care. IRS news release IR-2024-65. Proof library P-59
  6. Verified April 2024 final rule — IRS concern “recently escalated”. Treasury/DOL/HHS final rule, 89 FR 23338. Proof library P-60
  7. Verified Fixed indemnity rules: excepted benefits and the required notice. Treasury/DOL/HHS final rule, 89 FR 23338; Evidence request E-2 (group vs. individual policy form). Proof library P-52
  8. Verified The IRS has begun audits (law-firm report). Morgan Lewis — ML BeneBits. Proof library P-61
  9. Verified Section 105(b): benefits are tax-free only to reimburse real medical expenses. Treasury/DOL/HHS final rule, 89 FR 23338; IRS CCA 202323006. Proof library P-48
  10. Verified Section 213(d): what counts as medical care. IRS — FAQs on nutrition, wellness and general health. Proof library P-50
  11. Elysian-stated Fully insured — not self-funded by your company. Holland & Knight memorandum to Elysian Healthcare (confidential; available on request, subject to Elysian's permission). Proof library P-19
  12. Pending NDA doc Program fees. Elysian Dealer FAQ. Proof library P-34
  13. Analysis How Elysian says it stays inside each line. Our analysis of P-46 through P-61 and P-64. Proof library P-62
  14. Pending NDA doc Step 3 — what triggers a claim payment. Holland & Knight memorandum to Elysian Healthcare (confidential; available on request, subject to Elysian's permission); Evidence request E-1 (written claim-trigger definition). Proof library P-31
  15. Elysian-stated Holland & Knight tax memorandum. Holland & Knight memorandum to Elysian Healthcare (confidential; available on request, subject to Elysian's permission). Proof library P-64