A controlled group is a group of employers that share common ownership or control under IRS §414 rules. These groups are sometimes also called aggregate groups.
Controlled group rules affect not only ACA compliance but also COBRA responsibility, Medicare Primary/Secondary Payer (MSP) coordination, and certain employment law and tax determinations. Employers should be aware that these rules apply even when entities have different Tax IDs, have different groups of employees, operate in different industries, or are located in different places.
Entities in a controlled group are not required to offer the same health plan from an IRS/ACA compliance standpoint, though fully insured plan underwriting rules can vary by carrier. Still, many employers find that using a unified plan across entities simplifies ACA IRS reporting, which can otherwise be especially challenging for controlled groups.
ACA Application
- For ALE determination, all employees across the controlled group are counted together (using the ACA’s full-time + FTE formula).
- If the combined group meets ALE status, each entity is considered an ALE member.
- Each ALE member:
- Files its own Forms 1094-C and 1095-C.
- Is subject to separate penalty exposure under IRC §4980H.
- Reports its status as part of an Aggregated ALE Group on Form 1094-C.
Other Applications of Controlled Group Status
- Federal COBRA: Group size for COBRA is determined at the controlled group level. A smaller subsidiary may be required to offer COBRA if the combined group exceeds the 20-employee threshold.
- Cal-COBRA: In California, fully insured health plans may apply Cal-COBRA differently based on controlled group counting, affecting whether Federal COBRA or Cal-COBRA applies.
- Medicare Primary/Secondary Payer (MSP): Group size for determining whether Medicare is primary or secondary payer (20+ or 100+ employees, depending on the rule) is also based on controlled group counting.
Tip on Advising on Controlled Groups
Controlled group determinations are tax-driven and can be complex. Employers should consult with a CPA or tax professional when evaluating controlled group status. Health insurance agents typically do not have E&O coverage for providing tax counsel. Most employers are aware of controlled group status because it impacts not only ACA rules but also taxes, HR law, and other business compliance areas.