May 19, 2025

Employee benefits are greatly influenced by Section 125 of the IRS Code, one of the most potent weapons companies can use to enhance financial results, for both the company and the individuals maintaining it operating. Yet, even as more businesses investigate these strategies, a frequent query remains: Are medical costs included in Section 125 eligible expenses?

Yes is the quick response; yet, there is more to it than that. Real, quantifiable value is unlocked by knowing what qualifies, what doesn’t, and how new initiatives like Core360 from Health Sphere increase the influence of Section 125.

What Are Section 125 Eligible Expenses?

A traditional Section 125 plan—often referred to as a “Cafeteria Plan”—allows employees to pay for certain benefits on a pre-tax basis. This decreases their taxable income, therefore lowering company payroll taxes. “Section 125 qualifying expenses” usually refer to items such as:

Group health plan premiums
Dental and vision coverage
Certain out-of-pocket medical expenses
Dependent care expenses
Health Savings Account (HSA) and Flexible Spending Account (FSA) contributions

These are commonly known as Section 125 allowable expenses, and they’re outlined by the IRS under Publication 502 and related guidance. But the traditional approach has limits, especially when it comes to accessing broader, more preventative health resources.

That’s where Core360 comes in.

How Core360 Goes Beyond Traditional Section 125

Core360, Health Sphere’s unique benefits program, leverages Section 125—but doesn’t stop there. It integrates a Preventative Care Management Plan (PCMP) and a Self-Insured Medical Reimbursement Plan (SIMRP) to create one of the most compliant and benefit-rich solutions available today.

So while traditional Section 125 plans cover a limited set of medical expenses, Core360 expands what’s possible, all while staying fully compliant and automated.

Here’s how:

Core360 still includes all traditional Section 125 allowable expenses, like premiums and pre-tax deductions.
It adds PCMP benefits, which cover services focused on early detection, chronic condition management, and ongoing wellness.
It introduces SIMRP features, which reimburse employees for additional medical services tied to preventive care, mental health, and even family-wide support.

In short, yes—medical expenses are part of Section 125 eligible expenses, and with Core360, employers can now cover more of those expenses in smarter, more cost-effective ways.

What Makes Core360 Different?

While Section 125 has been around for decades, many employers are unaware that the model has evolved. Core360 isn’t just a Section 125 plan—it’s a fully managed, multi-part benefits solution that delivers bigger results without increasing costs.

Here’s what sets Core360 apart:

For Employers:

Save ~$600/year per W2 employee (~$60K per 100 employees)
Zero out-of-pocket cost to implement
Reduced healthcare claims (avg. $1,400 savings over 3 years)
Fully automated implementation completed in under 45 days
Improved retention, morale, and productivity
Immediate bottom-line impact

For Employees:

3–4% increase in net take-home pay (about $100/month for many)
$0 copay Telehealth access, including doctors, nurses, and health coaching
Mental health and counseling support
Mayo Clinic wellness tools and personal health dashboards
Critical Illness, Disability, and Life Coverage
Coverage extended to spouses and dependents

And importantly, more than 40,000+ employees are already enrolled in the Core360 program—proof that this is a real, working solution, not a theoretical benefit.

A Closer Look at Allowable Medical Expenses

To answer the original question in more detail: Yes, many medical expenses fall under Section 125 eligible expenses, including:

Copayments for doctor visits
Prescription medications
Medical equipment like crutches or braces
Mental health counseling
Chiropractic services
Preventive screenings

However, some expenses are not included, like cosmetic procedures, gym memberships (unless medically necessary), and most over-the-counter items without a prescription.

That’s why Core360 is so valuable: it helps employees access qualified medical services more easily and at no cost to them, while also ensuring that everything remains within the IRS-approved definition of Section 125 allowable expenses.

Why It Matters for Employers Right Now

If you’re running a business, offering strong benefits without increasing your budget is no small feat. Health Sphere created Core360 to solve exactly that challenge. Instead of spending more, employers can cut tax waste and redirect those savings into real, tangible benefits—all without disrupting their existing plans.

Best of all, it’s simple, compliant, and completely managed for you. That’s part of Health Sphere’s mission: to help companies support employee well-being, reduce tax liability, and play a part in reaching our goal of impacting over 250,000 employees.

Summary: More Than Just “Eligible”—It’s Empowering

So, yes—medical expenses are part of Section 125 eligible expenses. But with traditional plans, you’re only scratching the surface. Core360 takes it further, combining the strength of Section 125 with PCMP and SIMRP to offer one of the most modern, benefit-rich solutions available today.

It’s not just about eligibility—it’s about doing more with what’s already possible. Health Sphere makes that happen.

Ready to see what Core360 can do for your business?

It’s not just about eligibility—it’s about doing more with what’s already possible. Health Sphere makes that happen.

Ready to see how Core360 can help your business save thousands while giving your employees more? Book a quick 10-minute consultation to discover how Health Sphere’s fully managed, no-cost solution works. You’ll get a personalized proposal showing exactly how much you can save, without changing your current benefits.

Talk with an expert now

Everything You Need to Know About Section 125: Tax Savings, Compliance, and Employee Benefits