As commenter described, you can use the handleWatchKitExtensionRequest in iphone app, and send a reply to the watchkit code. In the Simulator the Iphone app will not appear to open, as it is running in the background entirely, but it will return the reply if you setup this method.
If you manually open the app after starting the simulator, you can get the app to update via this method call, and see visual results.
Note, the Debug breakpoints will not stop on the Iphone app without setting that up. In Xcode, you can go to Debug menu, then follow "Attach to Process". I've selected both the Simulator Application as well as the IphoneApp's process to ensure it is linked. I have to do this each time I run the Simulator, but it gets breakpoints to hit in background for the iphone code. This is quite useful, but if there is an easier way, I'm eager to know.