The Pre-Tax PlaybookThe employer's briefing on Section 125 benefits
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How it works

Where every dollar goes

Six steps, each with its source. The red dashed box in the diagram marks the step the IRS questions: whether claim payments that come back through payroll count as wages.[51, 58]

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.
How the money flows Step 1: pre-tax premium from employee pay to the insurance carrier. Step 2: lower taxable wages reduce FICA and income tax. Step 3: a covered medical service occurs. Step 4: the carrier funds a fixed claim payment. Step 5: payroll passes the claim to the employee. Step 6: the employer keeps FICA savings less the program fee. Employee gross payW-2, hourly/frontline Insurance carrierfully insured, licensed 1 Pre-tax premium (Section 125) Lower taxable wagesless FICA + income tax owed 2 Covered medicalservice (CPT-coded) 3 Employer payrollpaying agent only · W-2 Box 14 4 fixed claim payment, carrier-funded Employee net payclaims + tax saved − premium 5 employee tax saved Employerkeeps FICA saved Program feeElysian / carrier 6
  1. 1

    Employee elects coverage, paid pre-tax

    The premium is taken from gross pay before taxes under a written Section 125 cafeteria plan. One client's published premiums ran $600–$1,600 a month by plan tier.[30, 46]

  2. 2

    Taxable wages go down

    The employee's income tax and FICA drop, and your company's 7.65% FICA drops on every premium dollar.[40]

  3. 3

    A covered medical service happens

    For example a virtual doctor visit, a screening, or a hospital stay, recorded by the provider with a medical billing (CPT) code. Payment rules are set in the policy — we've requested Elysian's written trigger definition.[31]

  4. 4

    The carrier pays a fixed benefit

    The insurance carrier funds the claim. Your payroll passes it to the employee as the carrier's paying agent and reports it on the W-2 (Box 14).[32]

  5. 5

    Take-home pay can rise

    If claim payments plus taxes saved are larger than the premium, take-home goes up. Elysian reports about $140/month on average.[38, 37]

  6. 6

    You keep the FICA savings, less the fee

    Your Financial Impact Statement shows the projected net after Elysian's fee.[41, 34]

Employee math, nothing hidden

Illustration — the $600 premium is a real tier[30]; every other number is an assumption.[38]

Premium deducted$600.00 / month
Taxes saved (assumed 12% federal + 7.65% FICA + 0% state = 19.65%)$117.90
Claim payments needed that month for +$140≈ $622

What it tells you: employees come out ahead only when the plan pays a claim close to the premium almost every month. That is how the program is built — and it's the exact point the IRS looks at.[31, 58]

Employer math

Illustration — assumption: $600/month premium.[41]

$600 × 12 × 7.65%$550.80 / enrolled employee / year
Less Elysian's feeper your fee schedule[34]
Elysian's 3,785-employee proposal$2,060,534.30 / yr net of fees (≈ $682.52 per qualified employee)

California employers may also see lower workers' comp premiums.[42] Run your own estimate →

The IRS line vs. this plan

The IRS has published positions on these arrangements.[55, 56, 57, 58, 59, 60] They aren't a final regulation, but they are clear lines, and the IRS has begun auditing plans that cross them.[61] Here is each line, what Elysian says it does, and how strong the evidence is today.[62]

The line the IRS has drawnWhat Elysian says this plan doesHow strong is the evidence?
Don't pay cash for simply completing health activities.[60, 58]Benefits are triggered only by CPT-coded Section 213 medical services, not activities.[64, 31]Pending Pending — written trigger definition requested; some Elysian materials use participation language.
Don't treat payments as tax-free when the employee has no unreimbursed medical expense (free services, or costs paid by other insurance).[58, 48]Tax-free only up to actual medical expenses; anything above that is the employee's taxable income. Members get a tax advice line.[33, 27]Open Open — bundled care is $0 and most 100+ employers also offer major medical.
Don't skip FICA and withholding on payments that are really pay.[58, 51]Payments come from the carrier for a medical event, so they aren't wages; payroll acts only as paying agent.[32, 51]Disputed Legal disagreement — Elysian's counsel and the IRS differ in writing.
Don't use a self-funded "plan" with no real insurance risk.[56]Fully insured by a licensed carrier and regulated by each state.[19, 2]Stronger Stronger — carrier appointments verified; policy form requested.
Don't let fees just eat the FICA saved, or promise guaranteed savings.[56, 67]Fees are designed to come out of the savings; projections are not guaranteed.[35, 34]Pending Pending — full fee schedule requested.
Group fixed indemnity must pay per day/period and carry the federal notice.[52]Notice displayed on this site. Payment basis to be confirmed from the policy form.[52, 14]Open Open — group vs. individual policy form requested.
Run a written Section 125 plan with consistent elections and nondiscrimination testing.[46]Plan document, elections and testing provided by Elysian.[46, 54]Elysian-stated Elysian-stated — documents requested.

Bottom line for a CFO: the pre-tax premium is standard, accepted tax treatment.[30, 47] The savings depend on claim payments being tax-free and not wages. Elysian's counsel says they are[64]; the IRS has said otherwise for plans that pay for activities rather than medical expenses.[58, 60] Which side a plan falls on comes down to what actually triggers each payment — get that in writing and have your own tax advisor review it. If the IRS disagrees, employers can owe back taxes, penalties and interest.[63]

Before you sign, get these in writing

  1. The policy form and certificate naming the carrier and state filing[14]
  2. The exact definition of what triggers each claim payment[31]
  3. The full fee schedule[34]
  4. How claim payments are reported on W-2s and whether FICA is withheld[33]
  5. Audit-defense terms — do they cover taxes, penalties and interest?[68]
  6. Audit history, under NDA[69]
  7. Your own advisor's review of the Holland & Knight memo against IRS CCA 202323006[64, 58]
Book a call / census reviewEstimate your savings

Held back from this site

The numbers by headcount, the IRS-line checklist, and 20 questions to ask any vendor.

Work email and company name. We email you a link to confirm it's really you, and the link unlocks the PDF.[41, 58, 69]

The risks are not gated: the federal notice, the IRS positions and every source stay free to read.

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