Why the wellness tax plan is always about $1,200 a month

If this wellness tax savings plan you’re being pitched really works, why doesn’t it work at $12,000 a month? Why is it always around $1,200?

Two structural features tell you what’s going on.

First, the vendors don’t disclose a §213(d)-grounded methodology for calculating the contribution amount. If the figure were derived from actual expense projections — census data, age and family demographics, expected utilization — that analysis would be the strongest possible defense of the structure, and the vendors would share it.

They don’t share it because there isn’t one.

The amount came from the opposite direction: what’s the FICA savings number that sells, and what contribution level gets us there without drawing too much scrutiny.

Second, the monthly payment is the same for every employee. Every participant gets the same $1,130 or $1,000. Real §213(d) expenses aren’t uniform. The top 5% of healthcare utilizers consume roughly half of total healthcare spending. A 28-year-old single employee and a 58-year-old with a chronic condition and a family of four do not have the same unreimbursed medical expenses. A plan that genuinely reimburses medical expenses would produce different payment amounts for different employees. A plan that pays the same amount to everyone isn’t reimbursing anything in particular.

Those two features — silent calculation and flat uniformity — are incompatible with a §105(b) reimbursement structure. §105(b) requires the payment to be tied to the employee’s actual incurred medical expenses. The payments here aren’t tied to anything the employee actually incurred. They’re tied to a spreadsheet the vendor won’t share.

Which is why the $12,000 question matters. If §1.105-2 really permitted flat reimbursements untethered to actual expenses, nothing would stop the plans from scaling. The cap sits at $1,200 because that’s the window where the math works and the scrutiny doesn’t.

Yesterday’s post on the Classic 105 and its successors brought promoters of the current generation of these plans into my comments, which sent me back through a decade of emails explaining why each successor was different from the last one the IRS rejected.

The full analysis — ten years of vendor defenses and why each one fails the same regulatory test — just went up as the first post on my new Substack.

https://lnkd.in/ehkeR7Qy