The Patient Protection and Affordable Care Act (ACA) imposes a penalty on “large” employers that either do not offer “minimum essential” (basic medical) coverage, or who offer coverage that is not affordable (the employee’s cost for single coverage is greater than 9.5 percent of income) or it does not provide minimum value (the plan is not designed to pay at least 60 percent of claims costs). A large employer is one that employed at least 50 full-time or full-time equivalent employees during the prior calendar year. To discourage employers from breaking into small entities to avoid the penalty, the ACA provides that, for purposes of the employee threshold, the controlled group and affiliated service group aggregation rules will apply to health plans. Essentially, this means that the employees of a business with common owners or that perform services for each other may need to be combined when determining if the employer is “large.”
The aggregation rules are very complicated and may require a large amount of information to do an accurate analysis. This article does not address all of the possible considerations or all of the intricacies of the rules, and assumes that the regulations that apply to retirement plans will also apply to health plans. We strongly encourage employers with complex arrangements to consult with their attorney or accountant.
When one business owns a significant part of another business, there may be a “controlled group.” There are four types of controlled groups – parent-subsidiary, brother-sister, combined, and life insurance.
- Stock ownership in a corporation
- Capital interest or profits in a partnership
- Membership interest in an LLC
- A sole proprietorship
- Actuarial interest in a trust or estate
- A controlling interest in a tax-exempt organization (80 percent of the trustees or directors are also trustees, directors, agents or employees of the other organization or the other organization has the power to remove a trustee or director)
- A government entity, including a school, if there is common management or supervision or one entity sets the budget or provides 80 percent of the funding for the other.
Affiliated Service Groups
If the company regularly performs certain types of personal services or management functions with or for related entities, it may be part of an “affiliated service group” even if there is not common ownership.
An affiliated service group is basically a group of businesses working together to provide services to each other or jointly to customers, and can be one of three types:
- A-Organization (A-Org), which consists of a First Service Organization (FSO) and at least one A-Org
- B-Organization (B-Org) which consists of an FSO and at least one B-Org
- Management groups
Only entities that provide personal services are subject to the affiliated service group rules. Attribution rules similar to those that apply to controlled groups apply to affiliated service groups.For detailed information on the four types of controlled groups, three types of affiliated service groups and other related aggregation rules, request UBA’s ACA Advisor, “Controlled Groups and Affiliated Service Groups: How They Apply to the ACA”