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Employer Mandate and the Controlled Group Rules

controlled group rulesEmployers with 50 or more full time equivalent employees (“FTEs”) will be subject to a penalty tax for: (1) failing to offer health care coverage to all full time employees; ( 2) offering minimum essential coverage that is unaffordable; or (3) offering minimum essential coverage where the Plan pays less than 60% of cost.   This is often referred to as the Employer Mandate of PPACA.

While large employers may think that subdividing into smaller companies may provide some relief from the Employer Mandate, PPACA and its regulations apply the IRS “controlled group” rules found in IRS Code § 414 (b) and 414(c).  The controlled group rules essentially state that “all employees of all corporations which are members of a controlled group of corporations" and "all employees of trade[s] or business[es] (whether or not incorporated) which are under common control" are to be treated as employed by a single employer.

Generally, there are three types of “controlled groups:”

  1. parent-subsidiary groups (one business owns 80 percent or more of another business or businesses);
  2. brother-sister groups (five or fewer common owners; the common owners must own at least 80 percent of each business; and the combined identical ownership must be 50 percent or more); and
  3. combined ownership groups (each organization is a member of either a parent-subsidiary or brother-sister group and at least one corporation is: the common parent of a parent-subsidiary and a member of a brother-sister group).

Accordingly, any of the organizations that are “controlled groups” are treated as a single employer under PPACA.  Thus, an employer cannot simply divide its organization into separate organizations to avoid the Employer Mandate under PPACA.

Categories: Employee Benefits, Health Care Reform, Insurance, Regulatory

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With a business-minded approach, and service-oriented delivery, Mindi helps clients navigate challenges and solve problems in the areas of employee benefits law and health care law. Mindi has spoken and written extensively on employee benefits, health care reform, and health care law topics, and is actively involved in a number of legal, professional and industry organizations focused on these issues.

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Best Lawyers® 2021

Congratulations to the attorneys of the Health Care practice group at Foster Swift Collins & Smith, PC for their inclusion in the Best Lawyers in America 2021 edition. Firm-wide, 44 lawyers were listed. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation and as lawyers are not required or allowed to pay a fee to be listed; inclusion in Best Lawyers is considered a singular honor. Health Care practice group members listed in Best Lawyers are as follows:

To see the full list of Foster Swift attorneys listed in Best Lawyers 2021, click here.