ESPA compliance, in plain English.
If a payroll-tax-saving plan sounds too good to be true, you are right to ask the question. This page answers it. The Employer Sponsored Preventive Access (ESPA) is structured under named IRS code sections, with three integrated plan documents, and is consistent with the Office of Chief Counsel Memorandum 201703013. We will walk you through the structure in plain language. The full technical detail lives on the Compliance page.
The three questions buyers usually ask
Is the ESPA legal?
Yes. The ESPA is structured under IRS Codes 213(d), 106(a), 105(b), 1.105-11(i), and 104(a)(3). The structure has been in use under these code sections for decades. What we provide is the technology and the plan documents that make it simple for an employer to put one in place correctly.
Why have we not heard of this before?
Two reasons. First, the underlying tax code is well known to ERISA attorneys and benefits consultants but less known to general-practice CPAs. Second, several programs in the market have been built incorrectly (using fixed indemnity products, requiring monthly activity-based participation, or missing one of the three required plan documents). Those programs have given the category a bad reputation. The ESPA is structurally different.
What is the risk to our business?
The risk of putting any benefits plan in place incorrectly is real. That is the entire reason BizPower Benefits exists. Our plan documents are configured to the named IRS code sections. Our technology administers the plan according to those documents. Your CPA reviews everything during setup, and our team is available for any outside audit.
The three safeguards built into every ESPA
Is the ESPA legal?
Yes. The ESPA is structured under IRS Codes 213(d), 106(a), 105(b), 1.105-11(i), and 104(a)(3). The structure has been in use under these code sections for decades. What we provide is the technology and the plan documents that make it simple for an employer to put one in place correctly.
Participation-based, not activity-based
Participation in the ESPA is measured through points earned annually as a passive matter. Employees are not required to perform specific monthly activities to maintain eligibility. The IRS memos that have flagged SIMRP-like programs as non-compliant target activity-based structures. The ESPA does not use that structure.
No fixed indemnity products inside the plan
Several programs in the market use fixed indemnity products inside their wellness plan structure. The IRS has flagged this as a non-compliant double-dip. The ESPA does not include fixed indemnity products.
Who we work with on compliance
BizPower Benefits coordinates compliance work with:
- Your CPA, during setup and any outside audit
- Your existing broker, for coordination with the major medical plan
- Outside ERISA counsel, on the technical structure of the plan
- Your HR team, on day-to-day plan administration
The next level of detail
If you want the full technical answer with IRS code section citations, the Office of Chief Counsel memorandum reference, and the regulatory framework, the Compliance page is built for that. If you want to ask a specific compliance question or have us coordinate with your CPA, book a 15-minute evaluation.
Frequently asked questions
No. The ESPA is a Section 125 Cafeteria Plan paired with a Self-Insured Medical Reimbursement Plan (SIMRP) and preventive health benefits. It pairs with the employer’s existing major medical plan but is not itself insurance.
Putting an ESPA in place does not trigger an audit. The plan is structured under named IRS code sections that have been in use for decades. If you are audited for any other reason, the plan documents we provide are designed to be audit-defensible.
Many CPAs have not seen this structure before. We are happy to coordinate a joint call with your CPA during setup so they can review the plan documents and ask questions directly.
Employee data is reassessed regularly. When pay or withholdings change, the plan is updated accordingly. This is one of the reasons employers work with a structured platform rather than building a SIMRP themselves.
Note: Tax benefits stem from the structure of the Self-Insured Medical Reimbursement Plan, which uses pre-tax funding. Employers benefit from reduced FICA taxes, while employees only realize tax advantages if they actively participate in the plan and earn the reimbursement after-tax. Without participation, any reimbursement becomes taxable, negating the financial benefit.
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