In 2013 the IRS and the Department of Labor ruled (IRS Notice 2013-54, DOL Technical Release 2013-03) that when an employer reimburses workers for individual health insurance, or pays their carrier, or adds pay on the condition they carry coverage, that arrangement is itself a group health plan. Standing alone, it fails the Affordable Care Act's market rules, and the penalty statute behind that failure is IRC section 4980D: an excise tax of $100 per affected employee per day.
The same rules left honest paths open. A plain raise with no strings attached is just pay, not a plan. An arrangement with fewer than two current employees participating on the first day of the plan year is excepted (IRC section 9831(a)(2)); that count reaches everyone eligible, not just whoever said yes. IRS Notice 2015-17 also holds off enforcement for S corporation owners above 2% while the IRS works on further guidance. And in 2019, federal rules created the Individual Coverage HRA (ICHRA), which lets an employer put a set amount toward employees' own individual coverage inside a documented plan, with required notices and paperwork.
And the IRS is only the loudest of the agencies in the room. The same informal arrangements sit under ERISA's documentation duties (a written plan, a summary description, a claims process), owe COBRA duties once the company has 20 or more employees, and can trip the nondiscrimination rules on pre-tax reimbursements and the Medicare Secondary Payer rules for Medicare-entitled workers. None of those wait for the IRS to notice.
So the difference between the pattern the IRS fines and a documented benefit is structure: a written plan, required notices, records, filings, and a plan that actually operates the way its documents say. BenefitX is benefits administration software that generates and maintains that structure: ICHRA and Defined Contribution classes, plan documents, reimbursement records, and IRS filings. $45 per enrolled employee per month, $0 setup.
General information, not legal or tax advice. Penalties can be reduced or excused for reasonable cause; the yearly figure quoted anywhere on this page is the daily rate multiplied out, not an automatic bill.