This is a worked example, not a client story. The company is hypothetical. The per-employee figures are the plan provider's published estimates as of October 2026, and they are ceilings, not averages. A real figure comes only from a payroll census.
The short answer
A self-insured medical expense reimbursement plan (SIMERP) adds one pre-tax deduction under the employer's existing Section 125 cafeteria plan. A share of medical claims moves off the group plan into the separate reimbursement plan, and the lower taxable wages cut the employer's FICA match. For a 120-employee manufacturer, the provider's math puts the ceiling at roughly $43,500 to $70,400 a year, depending on how many employees qualify and enroll.
The company (hypothetical inputs)
- 120 employees, all W-2, single location, one EIN
- Offers a group health plan, with employee premiums already taken pre-tax through a Section 125 cafeteria plan
- Renewal came in higher again, and finance is looking for an offset that does not cut benefits or change the broker
The problem
Every taxable wage dollar carries a 7.65 percent employer FICA match: 6.2 percent Social Security (up to the annual wage base) and 1.45 percent Medicare. On a 120-person payroll, that match is a fixed cost that rises with every raise. At the same time, the health plan renewal is priced on the group's claims, so premiums keep climbing.
The finance team wants two things: an offset to the premium increase, and no change to the plan, the carrier or the broker.
The mechanics
- One added pre-tax deduction. Eligible employees elect a second pre-tax deduction under the cafeteria plan the company already has.
- A separate reimbursement plan. That deduction funds a self-insured plan that, as the plan provider describes it, reimburses medical expenses employees incur and substantiate. A share of claims that would have hit the group plan is paid by the separate plan instead.
- Lower FICA wages. Pre-tax deductions for qualified benefits under Section 125 are not FICA wages. The employer's 7.65 percent match falls on every enrolled employee.
- Fees come from the savings. The plan provider charges an admin fee per enrolled employee per month, taken from the captured savings. Employees also pay a monthly fee that is netted against their own tax savings, so their take-home pay still goes up in the provider's estimates.
- Nothing else changes. Same health plan, same carrier, same broker.
See the full walk-through on the main page: How it works.
The math
Provider estimates per enrolled W-2 employee, as of October 2026:
| Line | Per month | Per year |
|---|---|---|
| Employer FICA savings | $93.33 | $1,120 |
| Admin fee (from savings) | ($40.00) | ($480) |
| Net employer savings (ceiling) | $53.33 | about $640 |
Two ways to apply it to 120 employees:
| Case | Assumption | Enrolled | Net employer savings per year |
|---|---|---|---|
| Ceiling | All 120 are eligible, 92% enroll (the provider's reported average participation) | 110 | up to about $70,400 |
| Planning screen | About 57% of total headcount ends up enrolled after eligibility and participation | 68 | up to about $43,500 |
The planning screen is the conservative first look we use before a census. Real proposals can come in lower than both lines. The provider also estimates about $125 a month in added take-home pay per enrolled employee.
The timeline
| Step | What happens | Time |
|---|---|---|
| 1 | Introductory call with the plan team | 20 minutes |
| 2 | Employer sends a payroll census | Same week, employer's pace |
| 3 | Written projection from the census | 7 to 10 business days |
| 4 | Employer's own counsel reviews the plan documents | Employer's pace |
| 5 | Enrollment and payroll set-up | Part of onboarding |
| 6 | First savings | About 30 days after signing (provider estimate) |
| 7 | Ongoing HR work | About 5 to 10 minutes per payroll period (provider estimate) |
Who this example does not fit
- 1099 contractors and part-time staff (eligibility needs W-2, 30 or more hours a week, and enrollment in the group health plan)
- Employees covered by a multiemployer or Taft-Hartley fund
- Staff who do not pay into Social Security, such as some public school employees, save only the 1.45 percent Medicare share, roughly a fifth of the headline figure
- Groups below the minimum of 10 enrolled employees
The risks
The plan provider represents that the plan reimburses substantiated medical expenses. That representation is what separates this structure from the fixed-payment "wellness" arrangements the IRS Office of Chief Counsel addressed in Chief Counsel Advice 202323006, which concluded those payments are taxable. The tax treatment of these plans is still contested, and the IRS could challenge any arrangement. Audit protection comes from the plan provider, and an errors-and-omissions policy may not cover an employer's own tax assessments, penalties or interest. Have your own counsel review the plan documents before you sign. Details: Compliance.
Measurable outcome
No client result is published yet. When a client approves it, this section will report enrolled employees, net monthly savings and months live, from the client's own payroll records.
Run your own numbers
Send your full-time W-2 headcount and payroll provider, and the plan team returns a written projection in 7 to 10 business days. Request my projection or read the Section 125 and employer FICA FAQ.
Frequently asked questions
Does a Section 125 plan really lower employer FICA?
Yes. Pre-tax deductions for qualified benefits under a Section 125 cafeteria plan are not FICA wages, so the employer's 7.65 percent match does not apply to those dollars.
How much could a 120-employee company save?
In this worked example, up to about $43,500 to $70,400 a year in net employer savings, using the provider's estimate of up to $640 per enrolled employee per year. Those are ceilings. A payroll census sets the real figure.
Do we have to change our health plan, carrier or broker?
No. The structure sits under your existing cafeteria plan. The health plan, carrier and broker stay the same.
What does it cost the company?
The provider's admin fee of $40 per enrolled employee per month is taken from the captured savings, so there is no out-of-pocket cost to the company in the provider's model. Employees pay a monthly fee that is netted against their own tax savings.
Is this the same as the wellness plans the IRS warned about?
No. Those arrangements paid fixed amounts regardless of medical expenses, and the IRS Office of Chief Counsel concluded in Chief Counsel Advice 202323006 that those payments are taxable. The plan provider represents that this plan reimburses substantiated medical expenses instead. The tax treatment is still contested, so have your own counsel review the documents.