Think health care reform doesn’t apply to you? Beware the controlled group rules

Question: Can we avoid some of the upcoming health care reform compliance issues, such as the “play or pay” penalties, by carving our company up into smaller corporate entities?

Answer: No. Some of the mandates included in the federal Patient Protection and Affordable Care Act (PPACA), apply only to employers of a certain minimum size. The “play or pay” penalties, for example, (also known as the “shared responsibility” mandate) penalize employers of 50 or more full time equivalents (FTEs) if they do not provide minimum essential health benefit coverage to all full time employees and their dependents.  This has prompted many employers to look at how they might change their business structure or strategies so that they fall under this 50 FTE threshold by 2014, when the penalties go into effect. Unfortunately, however, there are a set of “controlled group” rules established by the IRS that treat related business entities as a single corporate entity for many purposes, including the mandates of PPACA. The rules define the extent of common ownership necessary to be considered a single entity in situations of parent-subsidiary ownership, as well as “brother-sister” controlled groups of corporations. These rules apply based on the degree of common ownership of the companies, regardless of whether the businesses are in related or unrelated industries. Contact your benefits advisor for more information on how these rules might impact your company.