Employer Health Care Arrangements 
 
 Q1. What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)? 
 
 Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code. 
 
 Q2. Where can I get more information? 
 
 On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 
 
 DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03, and HHS will shortly issue guidance to reflect that it concurs with Notice 2013-54. On Jan. 24, 2013, DOL and HHS issued FAQs that addressed the application of the Affordable Care Act to HRAs. 
 
 Page Last Reviewed or Updated: 13-May-2014 

 WASHINGTON — Many employers had thought they could shift health costs to the government by sending their employees to a health insurance exchange with a tax-free contribution of cash to help pay premiums, but the Obama administration has squelched the idea in a new ruling. Such arrangements do not satisfy the health care law, the administration said, and employers may be subject to a tax penalty of $100 a day — or $36,500 a year — for each employee who goes into the individual marketplace. 
 
 The ruling this month, by the Internal Revenue Service, blocks any wholesale move by employers to dump employees into the exchanges. 
 
 Under a central provision of the health care law, larger employers are required to offer health coverage to full-time workers, or else the employers may be subject to penalties. 
 
 Many employers — some that now offer coverage and some that do not — had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly.
– The IRS has sent a message to employers—that they can't just hand workers cash and "dump" them into insurance exchanges. Spelled out in a Q&A document, the ruling says employers will be taxed an extra $100 a day for each worker sent into the marketplace to buy their own insurance. The decision seems aimed at larger employers, who, under ObamaCare, must provide full-time workers with health care (average cost: $5,000 a year per employee) or be subject to penalties, the New York Times reports. Many employers decided to save money by taking the "dumping" route—which the IRS still allows, but will tax sums given to employees on both ends (while employer-provided health care is non-taxable). Reacting negatively, a partner at a large accounting firm said the ruling eliminates health-care-reimbursement arrangements that employers have had with workers "for decades." Employers aren't the only ones seeking a health-cost workaround, the Times notes: Hospitals have begun cutting back assistance to needy patients, hoping to push them into buying low-cost plans under ObamaCare.