When it comes to health insurance, understanding the rules surrounding common ownership is crucial, particularly for business owners who are looking to provide insurance for their employees or themselves. Common ownership rules for health insurance play a vital role in determining eligibility, premiums, and the types of coverage available. Whether you’re a business owner, a self-employed individual, or an employee who benefits from employer-sponsored health insurance, it’s important to understand how common ownership affects your health insurance options. we’ll break down what common ownership means, how it impacts health insurance, and the key rules you need to be aware of in order to navigate the complexities of health coverage.
What is Common Ownership?
Common ownership refers to a situation where multiple entities, such as businesses or corporations, share a common group of owners. In the context of health insurance, common ownership typically refers to ownership among businesses, partners, or organizations where the owners share an affiliation. Understanding common ownership becomes important when assessing eligibility for group health plans or other employer-sponsored health insurance options.
The IRS and the Department of Labor (DOL) have rules that determine whether businesses with shared ownership are considered a single employer for purposes of health insurance. These rules apply to situations where multiple entities are owned by the same or related group of individuals.
Types of Ownership Structures
To better understand common ownership, it’s helpful to know the different types of ownership structures that can come into play:
- Direct Ownership: In this case, an individual or group owns multiple businesses directly, and each business operates separately. The individual owners may be able to combine employee health plans if they meet certain criteria.
- Indirect Ownership: This type of ownership involves ownership through another company or holding entity, like a parent company that owns subsidiary companies. The common ownership rules may allow businesses in an indirect ownership relationship to be treated as a single employer.
- Affiliated Service Groups (ASG): This structure applies when businesses provide services to each other or have significant interdependence, such as when one business provides a service to another, creating a close affiliation that may lead to combined health insurance plans.
Understanding the different ownership types is important because the IRS rules, like the Controlled Group rules and Affiliated Service Group rules, are designed to clarify when two or more businesses with common ownership must be treated as a single entity for purposes of offering health insurance.
How Common Ownership Affects Health Insurance
The primary concern with common ownership and health insurance revolves around the eligibility for group health plans and the application of group health insurance rules. The Affordable Care Act (ACA) and IRS regulations provide guidelines for determining whether businesses with common ownership must combine their employees under a single health insurance plan.
Let’s take a deeper look at how common ownership can affect both small business owners and employees in a multi-business environment.
Group Health Plans for Businesses with Common Ownership
If multiple businesses are under common ownership, they might be able to offer a combined group health insurance plan, which can help reduce overall premiums and provide more comprehensive coverage. However, the key here is that the businesses must meet specific criteria under the ACA and IRS rules. These criteria typically include the following:
- Controlling Interest: There must be a sufficient level of common ownership between the businesses, often requiring that at least 80% of the businesses are owned by the same individuals or group.
- Shared Employees: If a business with common ownership has employees across multiple entities, those employees may need to be combined for purposes of offering group health insurance.
- Health Insurance Mandates: Businesses that meet the common ownership threshold and qualify as a single employer must follow the ACA’s employer mandate, which may include offering affordable health insurance to full-time employees.
Impact on Self-Employed Individuals and Health Insurance
Self-employed individuals who own multiple businesses may face challenges when trying to apply for health insurance under common ownership rules. Depending on how the business entities are structured, a self-employed individual might only be eligible for individual health insurance plans, or they might be able to combine their entities and qualify for group coverage.
If the businesses are considered a single employer, the self-employed individual may be able to qualify for a group health plan through one of the businesses. However, this often depends on the specifics of their ownership structure and how the business entities are classified.
Key Rules Governing Common Ownership and Health Insurance
There are several key IRS and ACA rules that govern how businesses with common ownership are treated with respect to health insurance. Let’s break down the most important ones:
Controlled Group Rules
The Controlled Group rules apply when two or more businesses are owned by the same or related group of individuals. Under these rules, businesses with common ownership may be treated as a single employer for purposes of providing employee benefits, including health insurance.
A Controlled Group is typically defined as businesses where:
- One business owns at least 80% of another business, or
- Both businesses are owned by the same individuals, typically at least 80%.
This means that businesses in a controlled group must comply with the same rules for offering group health insurance to employees. This could impact eligibility, premium costs, and tax benefits for both employers and employees.
Affiliated Service Groups (ASG)
An Affiliated Service Group (ASG) refers to businesses that are connected through the provision of services to each other. These businesses might not have direct ownership of each other but still have significant interdependence. The ASG rules help determine if businesses within the group must be treated as a single entity when offering group health insurance.
If your business is part of an ASG, it may be required to offer health insurance to employees across multiple affiliated businesses, even if those businesses are not under direct ownership. This often applies to businesses that work closely together or share employees for specific services.
ACA Employer Mandate and Group Health Plans
Under the Affordable Care Act (ACA), employers with 50 or more full-time employees (or full-time equivalent employees) are required to provide affordable health insurance to their employees. If your business falls under the common ownership rules and is considered a single employer, then it must comply with the ACA employer mandate for offering health coverage.
Employers with common ownership must ensure that:
- Health plans offered meet the ACA’s minimum essential coverage requirements.
- The health insurance is affordable and covers at least 60% of total health care costs.
- Full-time employees are offered coverage or face potential penalties under the ACA.
Considerations for Small Business Owners
For small business owners, understanding common ownership rules is essential when trying to offer health insurance to employees. Some businesses may qualify for tax credits through the Small Business Health Options Program (SHOP) if they meet certain criteria. However, the specific requirements for combining multiple businesses under one health insurance plan can be complex, especially when businesses are owned in different ways.
The Bottom Line
Common ownership rules for health insurance are vital for business owners, self-employed individuals, and employees. Understanding whether your businesses are treated as a single entity for health insurance purposes can impact your access to group health plans, tax benefits, and the affordability of your coverage.
If you’re a business owner with common ownership of multiple entities, it’s crucial to seek professional advice from an accountant or benefits consultant to ensure that you comply with the IRS and ACA requirements. If you’re an employee of a business with common ownership, it’s important to understand how these rules can affect your eligibility for employer-sponsored health insurance.
Whether you’re navigating the world of health insurance for your business or trying to figure out how common ownership impacts your health plan options, staying informed and working with experts can help you make the best decisions for your health and financial well-being.
