Question: Is employer-provided cancer insurance excludable from an employee’s gross income?
Answer: No. A fixed-indemnity health insurance policy is an insurance policy that pays covered individuals a specified amount of cash for the occurrence of certain health-related events. Under many cancer insurance plans, employees pay premiums for coverage and then if a qualifying event occurs, employees received a fixed amount of benefit payments from the coverage. For example, participants could receive a fixed sum (e.g. $300) per day for hospital confinement. This tax issue with fixed indemnity plans is that the amount of the benefits paid are not related to the amount of any medical expense incurred. The IRS has determined that benefit payments under “an employer-funded, fixed-indemnity insurance policy (including where the premium for the coverage is paid by employee salary reduction through a cafeteria plan under section 125 of the Internal Revenue Code (Code)) are includible in the gross income of the employee if the employee has no unreimbursed medical expenses related to the payment.” Therefore, the cancer insurance is not excluded from the gross income if it is provided as a fixed indemnity plan. For more information, see IRS Office of Chief Counsel Memorandum, No. 202323006 (June 9, 2023), available at https://www.irs.gov/pub/irs-wd/202323006.pdf.