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PPACA considerations for controlled groups and affiliated services groups

PPACA 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. 

ppaca considerations PPACA considerations for controlled groups and affiliated services groups

To discourage employers from breaking into small entities to avoid the penalty, PPACA provides that, for purposes of the 50-employee threshold, the controlled group and affiliated service group aggregation rules will apply to health plans.  Essentially, this means that the employees of 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 clients with complex arrangements to consult with their attorney or accountant.

If you have questions or would like additional information about your options and obligations under PPACA, please contact us at please contact us at CCFNMarketing@ccfninsurance.com or 855-888-7872.

Our access to PPACA Advisor resources can help you clear up PPACA questions and help you shape your company’s benefit strategy.

Controlled Groups

When one business owns a significant part of another business, there may be a “controlled group.” There are three types of controlled groups — parent-subsidiary, brother-sister and combined.

Ownership includes:

  • 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)


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:

  1. A-Organization (A-Org), which consists of a First Service Organization (FSO) and at least one A-Org
  2. B-Organization (B-Org) which consists of an FSO and at least one B-Org
  3. 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.

To be an FSO, the performance of personal services must be the principal business of the organization (corporation, partnership, sole proprietorship or not-for-profit).  Compensation must be through commissions, fees or similar compensation based upon providing services (as opposed to having profits based at least in part on inventories, equipment, or manufacturing).  These services are always considered covered services when deciding if an organization is an FSO:

  • Accounting
  • Actuarial science
  • Architecture
  • Consulting
  • Engineering
  • Health (including chiropodists, chiropractors, dentists, medical doctors, optometrists, osteopaths, podiatrists, psychologists, veterinarians)
  • Insurance
  • Law
  • Performing arts

Professional service corporations are always FSOs.  If the entity is an FSO, you need to determine if there is also an A-Org or a B-Org group that will create an affiliated services group.

In Summary

  • The rules are complicated, and include requirements and exceptions.
  • If a business isn’t wholly owned by an individual or other entity, it’s important to know who owns the rest of the business and what else the other owners have an interest in.
  • It’s important to know what an individual owner’s family situation is.
  • It’s important to know if a business owns other businesses.
  • The affiliated service group rules apply only if the entity is providing personal services.
  • If personal services are the entity’s main “product,” it’s important to know if it provides or receives services to or from other businesses.

Again, 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.  We strongly encourage clients with complex arrangements to consult with their attorney or accountant.

If you have questions or would like additional information about your options and obligations under PPACA, please contact us at please contact us at CCFNMarketing@ccfninsurance.com or 855-888-7872. 

Our access to PPACA Advisor resources can help you clear up PPACA questions and help you shape your company’s benefit strategy.

 

DISCLAIMER: Because of the generality of this update, and based on particular situations, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice, financial advice and/or the advice of a licensed insurance or certified human resource professional.

© Connelly, Carlisle, Fields & Nichols 2012



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Email: ccfnmarketing@ccfninsurance.com
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