A number of NAHU members have asked about the new health reform law's impact on “controlled” or “affiliated” employer groups. We have also received many questions about how employers might know, when the employer mandate is effective in 2014, if some of their employees might qualify for “unaffordable” premium tax credits through the new exchanges.

Controlled/Affiliated Service Groups
Rules for determining whether an employer is a member of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are provided under Internal Revenue Code section 414(b), (c), (m), and (o).

On the employer penalties in 2014, whether an employer satisfies the 50-employee test will be determined on a “controlled group” basis under tax code rules. In general, those rules treat all firms under common ownership or control as one firm. Most employers would be unwilling to give up control of their business to the extent necessary to satisfy those rules.

For the small business tax credit available this year, members of a controlled group or an affiliated service group are treated as a single employer for purposes of the credit. Thus, all employees of the controlled group or affiliated service group, and all wages paid to employees by the controlled group or affiliated service group, are counted in determining whether any member of the controlled group or affiliated service group is a qualified employer.

We will be providing more analysis in the near future, but for the time being, the links below offer very good explanation of the rules, as well as citation to the Internal Revenue Code:

http://www.boardmanlawfirm.com/readingroom/PTXL0808-VanBogaert.pdf

http://www.irs.treas.gov/pub/irs-tege/epchd704.pdf

http://www.law.cornell.edu/uscode/26/usc_sec_26_00000414----000-.html

Employer Responsibilities and “Unaffordable” Coverage in 2014
NAHU members are familiar with the basic two-pronged test of whether or not an employer might face penalties with regard to health care coverage in 2014: (1) penalties for those employers not offering proscribed coverage; and (2) penalties for those employers offering inadequate or “unaffordable” coverage.

Beginning in 2014, a large employer (50 or more full-time employees) will be subject to a penalty if any of its full-time employees receives a premium credit toward their exchange plan. In 2014, the monthly penalty assessed to employers who do not offer coverage will be equal to the number of full-time employees minus 30 multiplied by one-twelfth of $2,000 for any applicable month. After 2014, the penalty payment amount would be indexed by the premium adjustment percentage for the calendar year.

Employers who do offer health coverage will not be treated as meeting the employer requirements if at least one full-time employee obtains a premium credit in an exchange plan because, in addition to meeting the other eligibility criteria for credits, the employee’s required contribution for self-only coverage exceeds 9.5% of the employee’s household income or if the plan offered by the employer pays for less than 60% of covered expenses.

In 2014, the monthly penalty assessed to the employer for each full-time employee who receives a premium credit will be one-twelfth of $3,000 for any applicable month. However, the total penalty for an employer would be limited to the total number of the firm’s full-time employees minus 30, multiplied by one-twelfth of $2,000 for any applicable month. After 2014, the penalty amounts would be indexed by the premium adjustment percentage for the calendar year.

Is the employer responsible for knowing an employee’s household income in determining unaffordable coverage? No, it is not. Under §1411(e) and (f) of PPACA, after a person applies for premium credits in an exchange, the Secretary will notify the exchange whether the person is eligible because the enrollee’s (or related individual’s) employer does not provide minimum essential coverage or the coverage is unaffordable. The exchange must notify employers and inform them that they may be liable for a penalty. The Secretary must establish a separate appeals process for these employers, providing them with the opportunity to present information for review and must grant them access to the data used to make the determination. This process is in addition to any rights of appeal the employer may have under the Internal Revenue Code.