Benefits experts say federal agencies could be inadvertently setting a trap for some small businesses.
The Patient Protection and Affordable Care Act requires employers with 50 or more full-time employees (or equivalent) employees to offer a minimum level of health coverage or pay a penalty.
The Internal Revenue Services has ruled employers should use Internal Revenue Code “business aggregation” rules when counting employees.
The aggregation rules treat a parent and its subsidiaries as a single group, and a “brother-sister group” as a single controlled group.
Donna Baker, a Michigan accountant, testified today at a House Small Business Committee hearing on the topic that the aggregation rules are “vast and detailed,” and little known either to small business owners or to typical small business advisors.
One potential trap involves families in which different members own and run different businesses, Baker said.
Baker’s husband owns half of a dairy farm with eight employees, and she herself owns 100 percent of two companies with a total of 30 employees and half of a store with five employees.
Baker and her husband are not partners in each other’s businesses, but Baker’s name is on some land in the husband’s partnership.
Because Baker has some involvement in her husband’s business, the IRS would treat her and her husband as having a controlled group with 43 full-time equivalents, even though Baker thinks of herself as having ties to just 35 employees and her husband thinks of himself as having ties to only eight.
A couple in that situation that wasn’t aware of the business aggregation rules could easily pass the 50 FTE mark without noticing it, Baker said.
The same kind of problems could crop up for parents and children who have separate businesses but get involved enough in each other’s affairs to unintentionally create what the IRS would classify as a controlled group, Baker said.
Another witness, Sibyl Bogardus of HUB International Insurance Services, said the aggregation rules could force some affected employers to set up health plans that could be classified as “multiple employer welfare arrangements.”
In some cases, an employer might struggle to set up a MEWA for businesses that are part of a controlled group under PPACA rules, only to find that the businesses aren’t closely related enough to share a MEWA under U.S. Labor Department or state insurance rules, Bogardus said.
In theory, when employers set up MEWAs for groups of businesses that aren’t closely related enough to suit state regulators’ requirements, states could “require them to be capitalized and licensed as insurance companies,” Bogardus said.