Compliance & legitimacy
A plan that raises your employees’ take-home pay and lowers your payroll taxes at no net cost can sound too good to be true. It isn’t. Here’s exactly how the program stays compliant — with the IRS, with state insurance regulators, and with the health coverage you already offer.
The program is a Section 125 Fully Insured Fixed Indemnity plan, underwritten by an A+ rated insurance carrier and individually filed with and regulated by each state’s Department of Insurance (DOI). It supplements your existing major medical coverage — it never replaces it.
Where the program is available
We cannot currently enroll businesses located only in these 10 states: Colorado, Idaho, Massachusetts, Michigan, New Jersey, New Mexico, New York, Oregon, Virginia and Washington. The program is available in the other 40 states. If your business also has locations in other states, ask us — those locations may qualify.
Some states add their own rules. Florida requires 50+ enrolled employees, and California has a lower age limit for coverage (64, instead of 70 in other states).
Not sure about your locations? An advisor will confirm availability for each one.
Backed by the IRS tax code — since 1978
Section 125 cafeteria plans have been part of the Internal Revenue Code since 1978. The program is built and maintained with a nationally recognized law firm as counsel, structured around the Code, Treasury regulations, and the IRS’s published Chief Counsel guidance on fully insured fixed-indemnity plans.
In plain English: premiums are paid pre-tax under Section 125, and the plan is fully insured — the risk is transferred to a licensed carrier, which keeps it clear of the rules that govern self-funded arrangements.
Compliant auto-enrollment
Section 125 lets employers of any size auto-enroll employees when the plan is fully insured and employees receive proper notice and a fair chance to opt out. The program meets this: every employee is educated during onboarding and has at least 30 days to decline — the window the IRS treats as reasonable.
How it’s taxed
Premiums are pre-tax under Section 125. Benefit (claim) payments are handled per the program’s legal guidance, and employees simply keep records of qualifying medical expenses. Your plan documents and a strategy advisor cover the specifics for your group — and every enrolled employee gets access to tax-advice services through the plan.
Important disclosures
Benefits, features, and rates may vary by state. Plan offerings are subject to state limitations, and not all benefits are available in all states.
The Group Hospital Fixed Indemnity Insurance plan is a limited benefit policy intended to supplement comprehensive health insurance. It is not major medical or comprehensive coverage, is not minimum essential coverage under the federal Affordable Care Act (ACA), and is not workers’ compensation insurance. The insurance benefits are limited.
A separate Minimum Essential Coverage (MEC) policy can be added on request for employers that need one.
This page is a brief summary of the products and services available under the plan. For complete terms, conditions, limitations, and exclusions, please review your Certificate of Insurance. Particulars may differ by group size, plan category, and underwriting considerations subject to state insurance law. Policies may not be available in all states.
This information is provided for general education only and is not legal or tax advice. Please consult a qualified tax advisor regarding your specific situation.
Still have a compliance question?
Talk to a strategy advisor — we’ll walk you through the details for your state and your group, with no obligation.