The authors of the Patient Protection and Affordable Care Act (PPACA) included a provision that adopted the definition of common control as set forth in the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that any group of companies under “common control” is to be treated as a single company. “Common control” is defined as the same five or fewer people owning at least 80 percent of the companies. The purpose of that section of PPACA was to (1) prevent owners from subdividing their companies to receive more beneficial treatment under PPACA (see below for some examples of PPACA provisions that provide different types of treatment based on group size), and (2) to prevent owners of companies from providing “Cadillac” plans to the owners and senior managers of one company and lesser coverage to the rank and file employees.
The IRS also addresses this issue in the Internal Revenue Code Sections 414(b) and 414(c). These regulations create three classes of controlled groups:
- A Parent Subsidiary relationship is created whenever a parent organization owns 80% or more of the equity in a subsidiary organization or where any two of the five owns more than 50% of the equity in both of the trades or businesses. The subsidiary organization may be another corporation, a group of corporations, partnership(s), or LLCs. They are all to be treated as a single employer under PPACA.
- A Brother-Sister common control group exists wherever the same five or fewer persons (counting individuals, estates and trusts as "persons") collectively own 80% or more of the equity in two separate trades or businesses.
- Additionally, there is the "affiliated service group" rule (IRS Code Section 414(m)). That rule defines “affiliated service groups as applicable to organizations such as law firms, accounting firms, civic organizations, temporary staffing companies and third party administrators. The regulation applies when separate organizations linked by at least 10% common ownership and the organizations closely allied in the services they provide.
The following is a list of some of the more significant PPACA provisions that are based upon group size:
- Small Employer Tax Credits: Since its enactment on March 23, 2010, PPACA has offered a tax credit to help the small group employer (25 or fewer FTEs) with the cost of premiums for its employees' health insurance coverage. This provision is subject to average annual wage thresholds.
- Non-Discrimination Rules: As of September, 2010, PPACA regulations introduced new non-discrimination regulations that cover both insured and self-funded health plans which applies to all of a "controlled group" and assesses penalties to any employer which provides health benefits that favor highly compensated employees over lower compensated employees.
- Access to Health Benefit Exchanges: Beginning on October 1, 2013, small group employers with less than 101 employees may begin shopping for health insurance for their employees on the new SHOP health insurance exchanges. This number may be as few as 50 in some states. Large group employers with 101 or more employees will not have access to the public health insurance exchanges at least until 2017, if then.
- The Employer Mandate: Beginning January 1, 2014, employers employing 50 or more full-time equivalents must offer full-time employees and their dependents affordable health coverage.