(1) Small employer exemption (A) In general This section shall not apply to any group health plan (and group health insurance coverage offered in connection with a group health plan) for any plan year of a small employer. (B) Small employer For purposes of subparagraph (A), the term “small employer” means, in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an average of at least 2 (or 1 in the case of an employer residing in a State that permits small groups to include a single individual) but not more than 50 employees on business days during the preceding calendar year. (C) Application of certain rules in determination of employer size For purposes of this paragraph— (i) Application of aggregation rule for employers Rules similar to the rules under subsections (b), (c), (m), and (o) of section 414 of title 26 shall apply for purposes of treating persons as a single employer. (ii) Employers not in existence in preceding year In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small employer shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year. (iii) Predecessors Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.