Determining How Common Ownership Impacts Compliance

Businesses under common ownership or control may be treated as a single employer for ACA, COBRA, and Medicare Secondary Payer purposes; getting the headcount analysis right matters.

See the Step-by-Step ProcessView the Questionnaire
What Two or more entities under common ownership or control can be treated as one employer for federal compliance, affecting ACA, COBRA, and MSP rules.
Who Any employer involved in parent-subsidiary, brother-sister, or affiliated service group structures.
When Ongoing; reassess at least annually and upon ownership changes, mergers, formations, or divestitures.
Risk Miscounted employees, missed offers of coverage, incorrect COBRA or MSP status, leading to penalties, excise taxes, and claims exposure.
Trigger Timing Notes
Annual ACA Applicable Large Employer (ALE) determination Annually (look-back measurement across aggregated group) Aggregate full-time + FTE counts across all commonly owned entities.
COBRA applicability and plan administration Ongoing; reassess upon ownership changes Common control affects who is treated as the employer and where notice obligations lie.
Medicare Secondary Payer (MSP) group-size determination Each calendar year (and upon ownership changes) Headcount aggregation determines whether the group health plan is primary or secondary to Medicare.
Trigger: Annual ACA ALE determination
Timing: Annually (look-back across aggregated group)
Notes: Aggregate full-time + FTE counts across all entities.
Trigger: COBRA applicability and administration
Timing: Ongoing; reassess upon ownership changes
Notes: Common control affects who is the employer.
Trigger: MSP group-size determination
Timing: Each calendar year (and upon ownership changes)
Notes: Determines whether the plan is primary or secondary to Medicare.
  • Organizational chart across all related entities, with ownership percentages, voting rights, and any control agreements.
  • Entity details: type (LLC, C-corp, S-corp), EIN, and principal business activity for each entity.
  • Headcount data: full-time, part-time, and variable-hour employee counts; average hours worked; and measurement period methodology across entities.
  • Plan sponsorship details: which entity sponsors each plan and which employees across entities participate.
  • Prior determinations: any existing counsel memos or workpapers supporting prior aggregation conclusions.
1
Map entitiesList all potentially related companies, owners, and ownership or control percentages.
2
Assess controlIdentify parent-subsidiary and brother-sister relationships under IRC §414(b) and (c), and any affiliated service group factors under §414(m).
3
Aggregate headcountsCombine full-time and FTE counts across the controlled group for ACA ALE determination and MSP group-size rules; align COBRA employer responsibilities accordingly.
4
Decide plan strategyConfirm which entity sponsors coverage, how eligibility applies across entities, and how to coordinate notices and COBRA obligations.
5
Document and reviewRecord the analysis, conclusions, and effective period. Re-evaluate at least annually and upon any ownership changes.
  • No disclosure to employees is triggered by the aggregation analysis itself.
  • Ensure downstream notices (SBC, SMM, COBRA) reflect the correct plan sponsor and covered entities based on the determination.
  • Notify vendors and TPAs of the aggregated group structure so they administer the plan accurately.
  • Analysis workpapersOwnership analysis workpapers, org charts, cap tables, and the final aggregation determination.
  • Headcount calculationsHeadcount and FTE calculations with measurement-period methodology across all entities.
  • Plan sponsor decisionsPlan sponsor decisions, participation by entity, and any intercompany agreements.
  • Annual confirmationAnnual confirmation of group status and a change log documenting when ownership shifts occurred and how the analysis was updated.

Common traps

Counting employees by legal entity: The whole point of aggregation rules is that entity-by-entity counting is wrong. You count across the controlled group.
Missing affiliated service group relationships: Aggregation can be triggered even without majority ownership if entities share services or management in specific ways under IRC §414(m).
Not updating vendors when ownership changes: A mid-year acquisition or divestiture that changes group size can affect ACA, COBRA, and MSP status; TPAs and carriers need to know promptly.
Treating PE portfolio companies as independent: Private equity and management company structures often involve shared services or common officers that trigger affiliated service group rules even without majority ownership.
Assuming control requires majority equity: Control can exist through voting rights, management agreements, or board composition without a majority ownership stake.

FAQs

What counts as "common ownership" under these rules?
The federal rules look to IRC §414: principally parent-subsidiary groups (one entity owns 80%+ of another), brother-sister groups (five or fewer common owners collectively control 80%+), and affiliated service groups (entities linked by service relationships under §414(m)). The analysis is entity-type-specific and can be complex; legal or accounting review is recommended before finalizing.

Why does this matter for health benefits specifically?
Aggregated headcount determines ACA ALE status (50+ full-time equivalent employees triggers the employer mandate), COBRA applicability (20+ employees for group health plans), and MSP group-size rules (20+ for working-aged individuals; 100+ for disability-based Medicare). Miscounting across entities means a wrong compliance determination on all three.

What are the consequences of getting it wrong?
For ACA: employer shared responsibility penalties. For COBRA: excise taxes under IRC §4980B and potential liability for COBRA benefits. For MSP: liability for claims paid in the wrong order. The stakes are high enough that the cost of professional review is almost always less than the cost of an error.

Do we reassess every year even if nothing changed?
Yes. Ownership percentages, headcounts, and measurement periods can shift in ways that change the analysis even without a formal transaction. An annual review also creates a paper trail showing you stayed current.

Use this questionnaire to gather everything you need before performing, or commissioning, a controlled group analysis.

Entity Information (complete for each potentially related entity)

FieldDetails
Legal entity name 
EIN 
Entity type (C-corp, S-corp, LLC, partnership, and so on) 
Principal business activity 
All owners: name, ownership %, and whether interest is voting or non-voting 
Any management agreements, control agreements, or shared officers/directors 
Any shared services provided to or received from other entities 

Headcount Data (complete for each entity, for the prior calendar year)

FieldDetails
Number of full-time employees (30+ hours/week or 130+ hours/month) 
Number of part-time employees and average weekly hours worked 
Any variable-hour or seasonal employees and how hours are tracked 
Measurement period methodology used (monthly, look-back, and so on) 

Plan & Benefits Details

FieldDetails
Which entity is the named plan sponsor for each group health plan 
Which employees across entities are eligible for and enrolled in each plan 
Any intercompany cost-sharing or administrative agreements related to benefits 
Prior aggregation determinations, counsel memos, or workpapers (if any)