Two States Just Licensed Our Industry. Here Is the Standard.

I have spent the better part of a decade watching this industry argue about what the IRS might do. In 2026 two state legislatures stopped waiting. South Carolina and West Virginia passed laws that license the companies administering wellness reimbursement programs, and they wrote those laws with a very specific picture of what has been going wrong. If you sell, administer, or advise on a SIMERP, a WIMPER, or any Section 105 reimbursement plan sold alongside a health plan, this is the most important regulatory development in our space since the 2023 Chief Counsel memo. Here is what happened, what it requires, and why I think it is good news for the people doing this right.

What happened

South Carolina’s H.4305 was signed by Governor McMaster on May 19, 2026 as Act 215 and took effect that day, adding Chapter 105 to Title 38 of the state insurance code. (SC Statehouse, H.4305) West Virginia’s HB 5527 passed both chambers in March 2026 and became law without the Governor’s signature, and it is now Article 64 of Chapter 33. (WV bill status, W. Va. Code 33-64) On September 25, 2026 the South Carolina Department of Insurance put out Bulletin 2026-09 telling administrators exactly how to comply and reminding everyone that compliance has been required since May. (SC DOI Bulletin 2026-09)

The committee record in South Carolina says the bill came out of consumer complaints about deceptive practices and testimony about bad actors and deceptive advertising. (Citizen Portal) Nobody should be surprised. We have all seen the proposals that promise an employer a six-figure payroll tax savings with a two-page summary and no plan document.

Who is covered

South Carolina’s definition is a description of our product. A wellness reimbursement program is a self-insured medical reimbursement plan created under Treasury Regulation 1.105-11 and Sections 105 and 125 of the Code, paying claims for Section 213(d) medical expenses, sold as an ancillary product next to the employer’s health coverage. The administrator is anyone who manages the operation of one. (SC Code 38-105-10)

West Virginia went wider. Its definition covers any plan providing “reimbursement or other wellness-related benefits intended to promote health or wellness,” including arrangements “offered through insurance or similar benefit models,” as long as it pays 213(d) reimbursements and is sold as an ancillary product. (W. Va. Code 33-64-1) That reaches the insured fixed indemnity designs too, which I think is exactly right. The regulators are not interested in what you call it. They are interested in whether a pre-tax dollar goes in and a cash payment comes out.

What administrators have to do now

You need a license before you sell, offer, market, promote, or operate. Marketing alone triggers it. The fee is $5,000 up front and $500 a year to renew, and you have to hand over two years of financial statements. (SC Code 38-105-20)

You need either a letter from the IRS or the Department of Labor approving your specific program, or a company officer has to certify that the program complies with federal ERISA requirements. In South Carolina that certification sits on an application signed under penalty of perjury. (SC DOI Bulletin 2026-09) A word on the first option. I am not aware of any administrator who has obtained a letter from either agency approving a specific wellness reimbursement program, and neither agency has a process for issuing one. So in practice the question for every administrator in these states is whether an officer is willing to sign the ERISA certification with their name on it, and whether the plan documents, SPD, claims procedure, and named fiduciary exist to back it up.

You need a bond. South Carolina set it at $75,000 or 10 percent of the pre-tax funds that ran through your South Carolina employers last year, whichever is greater. (SC DOI Bulletin 2026-09) Read that formula again. The state sized its security against the tax dollars, not against your fees. West Virginia requires a bond and left the amount to the Commissioner. (W. Va. Code 33-64-2)

In South Carolina you need the Department to approve your contract, your pricing, and every piece of marketing before you use it, and again every time it changes. You have to file a list of every South Carolina employer with the pre-tax dollars for each. You have to submit NAIC biographical affidavits for your officers and directors, and the state will inspect your records at least every three years at your expense. (SC DOI licensing page)

You cannot use any advertisement, proposal, or representation that is untrue, deceptive, or misleading, and you have to attest to the regulator and to the employer that the program complies with all federal and state law. (SC Code 38-105-30)

And here is the one that changes the business. If the program “results in a taxable event” for the employer or an employee, the administrator must defend them against any claim or suit and indemnify them for the loss. (SC Code 38-105-30(C), W. Va. Code 33-64-3) South Carolina adds a 30-day written notice to the Director and proof afterward that you performed. (SC DOI Bulletin 2026-09) If the IRS reclassifies reimbursements as wages for an employer in either state, the administrator writes the check.

South Carolina also requires a plain-language disclosure to every employer before enrollment and at every renewal, passed through to every employee. It has to say whether you have federal approval or rely on ERISA, it has to explain your indemnity obligation, it has to recommend independent counsel, and it has to say this: “federal tax guidance in this area continues to evolve and that tax treatment of certain wellness reimbursement payments may depend on the specific design and operation of the program.” (SC Code 38-105-30(D)) A state legislature just wrote the honest version of our sales conversation into law.

Operating without a license is a misdemeanor, up to $20,000 and two years per violation in South Carolina, up to $20,000 and one year in West Virginia. South Carolina licenses expire every November 30, the renewal window opened August 30, and a lapse means starting over at $5,000. (SC DOI Bulletin 2026-09)

What this means for brokers

You do not need the license to earn your commission. Both statutes say so, and both describe the broker as independent of the administrator. (SC Code 38-105-40) But the exemption is from licensing, not from conduct. You cannot use or permit misleading marketing, you owe the client good faith and fair dealing, and the penalty section applies to any person who violates the chapter. (W. Va. Code 33-64-4)

My practical advice is simple. In these two states, only use materials your administrator has filed with the regulator. Confirm the administrator is licensed before you put your name on a proposal. And never say anything about tax treatment that the administrator’s own mandatory disclosure contradicts, because the employer is going to read both.

Why I think this is good for us

I know a lot of people in this industry read these laws as an attack. I read them as the first time a government body has described what a legitimate program looks like and offered a path to prove you run one.

Think about what the South Carolina checklist actually asks for. Real financial statements. An officer willing to certify ERISA compliance under oath. A bond sized to the tax dollars. Marketing a regulator has read. A list of your clients. Records open to inspection. A promise to make the employer whole if the tax treatment fails. An honest disclosure in plain English.

An administrator whose plan reimburses actual, substantiated 213(d) expenses up to what each employee really paid, with plan documents and nondiscrimination testing and a ledger behind it, can do every one of those things. An administrator whose plan pays a fixed amount every month regardless of expense cannot do most of them with a straight face. For years the only thing separating those two businesses in a sales meeting was who had the better slide deck. Now a state regulator knows the difference, and the employer gets told about it in writing.

That is what a standard looks like. The federal side has been unsettled in form and consistent in substance for a long time. The 1956 regulation says Section 105(b) does not apply to amounts an employee gets “irrespective of whether or not he incurs expenses for medical care.” (Groom Law Group) Treasury proposed tightening that in 2023, chose not to finalize in 2024, said no inference should be drawn, and said enforcement would continue. (Federal Register, April 3, 2024) Last week the benefits bar reported that the IRS has begun auditing these plans. (Morgan Lewis) Into that uncertainty, two states said: fine, the administrator carries the risk, and the employer gets the truth. I can work with that. So can every agent who has been doing this honestly.

What I am watching

More states. Two legislatures adopting the same framework in one session means a model bill is moving. Expect 2027 introductions, and expect them to look more like West Virginia’s broader definition than South Carolina’s.

West Virginia’s numbers. The Commissioner has not published a bond amount or application guidance. Do not assume South Carolina’s $75,000 figure applies. Call the Offices of the Insurance Commissioner.

The first enforcement action. Neither state has announced one yet. The first revocation or indemnity dispute will tell us how regulators read “taxable event.”

The federal track. The 2023 proposal was never withdrawn and the current Priority Guidance Plan lists only a general “health care related tax matters” line. (IRS 2026–2027 Priority Guidance Plan) The Greenbook next spring is where a revival would show up first.

Seven questions to ask any administrator in these states

Are you licensed in South Carolina, and what is the license number? Are you licensed or in process in West Virginia?

Which officer signed the ERISA attestation? If you say you have an IRS or DOL approval letter, may I see it?

What is your bond amount and how was it calculated?

Has the Department approved the contract, pricing, and the proposal you just handed me?

Show me your 38-105-30(D) disclosure. Does it say the same thing your presentation says about taxes?

Is defend-and-indemnify in the employer contract, and what stands behind it?

Has this program ever produced a taxable event for an employer, and was the Director notified?

An administrator who can answer these in five minutes is running the business the statute describes. One who cannot is either outside the definition, which you should get in writing, or out of compliance. Either way, now you know. Be the agent who knows.

The full section-by-section explainer, the two-state comparison table, and the application checklist are in Regulatory Intelligence.