• Small-Business Tax Credit. A small-business tax credit of up to 35 percent of the employer's contribution to purchase health insurance for employees is now established for "qualified small employers." A "qualified small employer" is an employer that has no more than 25 full-time equivalent employees for the taxable year—and the average annual wages of those employees do not exceed $40,000. When health-insurance exchanges are established in 2014, the available tax credit will increase to 50 percent of premiums.

• Prohibition on Discrimination. The Act provides that individuals may not be excluded from participation in, denied the benefits of, or subjected to discrimination under any health program or activity that receives Federal financial assistance (including credits, subsidies or contracts of insurance), or is administered by an executive agency or an entity established by the Act because of their race, color, national origin, sex, age or disability. This prohibition will be enforced through the existing mechanisms of the federal antidiscrimination laws, such as, for example, those found in Title VI of the Civil Rights Act of 1964, the Age Discrimination Act of 1975, and Section 504 of the Rehabilitation Act of 1973. In addition, the Act provides that nothing therein invalidates or limits any of the rights, remedies, procedures or legal standards under those federal anti-discrimination statutes, nor supersedes state laws that provide additional protection against discrimination on the basis of race, color, national origin, sex, age or disability.

• Whistleblower Protection for Employees. The Act provides that employees may not be discharged or in any way discriminated against with respect to the terms and conditions of their employment because they (i) receive an individual subsidy under the Act, (ii) provide information to their employer, the Federal government or a state attorney general about acts or omissions that they reasonably believe to be a violation of Title I of the Act,1 (iii) provide testimony concerning such violation, (iv) assist or participate in a proceeding regarding such violation, or (v) object to, or refuse to participate in, any activity, policy, practice, or assigned task that they reasonably believe to be in violation of Title I of the Act. The enforcement provisions of the retaliation provisions of the Act are similar to those under the whistleblower provisions of the Sarbanes-Oxley Act. An aggrieved employee must file a complaint with the U.S. Department of Labor within 180 days of the date of the violation.

• Medicare Part D. The Act provides a $250 rebate check for all Part D enrollees who enter the "donut hole." Currently the "donut hole" coverage gap falls between $2,830 and $6,440 in total drug spending by Part D enrollees.  Employers should review their plan design and plan cost going forward to determine whether changes are appropriate. In conducting this review, employers should keep in mind that Medicare Part D prescription drug coverage will be gradually improved over the next several years through a phased elimination of the “doughnut hole” coverage gap. In addition, employers receiving the subsidy should review carefully and quickly the accounting impact of this change as described above.

Effective June 21, 2010:

• Early Retirees. The Act establishes a temporary reinsurance program to provide reimbursement to employer health plans offering health coverage for early retirees (ages 55 to 64) and their families. The reinsurance program would reimburse employer health plans for 80 percent of the cost of benefits provided per enrollee in excess of $15,000 and below $90,000. The employer health plans are required to use the funds to lower costs assumed directly by participants and beneficiaries, and the program incentivizes plans to implement programs and procedures to better manage chronic conditions.

• Pre-Existing Conditions. The Act provides that group-health plans and health-insurance issuers offering group or individual health-insurance coverage may not impose any pre-existing condition exclusions with respect to such plans or coverage. Therefore, group-health plans that include such pre-existing condition exclusions will no longer be permitted.

Effective September 23, 2010:

• Prohibition on Pre-Existing Conditions Exclusions. The Act bars health-insurance companies from imposing pre-existing condition exclusions on coverage for children. Employers should amend plan documents and update procedures to eliminate pre-existing condition exclusions when effective.

• Prohibition on Rescission of Coverage. The Act limits the ability of health-insurance companies from dropping existing coverage. This provision should not have a great impact on employer-sponsored coverage. However, employers should review their plan documents to ensure that the right to terminate coverage for fraud or intentional misrepresentation is appropriately reflected.

• Coverage of Dependants Until Age of 26. The requires any group-health plan or plan in the individual market that provides dependent coverage to continue to make that coverage available until the child turns 26 years of age, if the child does not have access to other health coverage (without regard to the child's marital status). Employers should amend plan documents and update procedures to provide the extended coverage when effective.

• Lifetime Limits. The Act prohibits health-insurance companies from imposing lifetime limits on benefits an individual may receive. Employers should amend plan documents and update procedures to bring lifetime and annual limitations into compliance when effective.

• Preventive Health Services. The Act requires that all new group-health plans and plans in the individual market provide first-dollar coverage for preventive services (i.e., not subject to a deductible). Examples of preventive services include well-childcare visits and certain immunizations.

Effective January 1, 2011:

• W-2 Reporting. The Act requires employers to disclose the value of the benefit provided by the employer for each employee's health-insurance coverage on the employee's annual Form W-2. This is a W-2 reporting obligation and will not result in additional taxable income to employees. Employers should be prepared to include this information when preparing Form W-2 in 2012, as this requirement will apply for the 2011 tax year.

• Additional Tax for Health Savings Account (HSA) Withdrawals. The Act increases the additional tax for Health Savings Account withdrawals prior to age 65 that are not used for qualified medical expenses from 10 percent to 20 percent.

• Cafeteria Plans. The Act creates a Simple Cafeteria Plan to provide a vehicle through which small employers can provide tax-free benefits to their employees. Small employers are defined as employers who on average employ 100 or fewer employees over the previous two years. The Act aims to ease the administrative burden of sponsoring a cafeteria plan for such small employers. The Act also exempts small employers who make contributions for employees under a Simple Cafeteria Plan from pension-plan nondiscrimination requirements applicable to highly compensated and key employees.

• Medicare Part D. The Act provides a 50-percent discount on all brand-name drugs and biologics in the "donut hole" and begins phasing in additional discounts in brand-name and generic drugs to completely fill the "donut hole" by 2020 for all Part D enrollees. It also eliminates co-payments for preventive services and exempts preventive services from deductibles under the Medicare program. Employers should review their plan design and plan cost going forward to determine whether changes are appropriate. In conducting this review, employers should keep in mind that Medicare Part D prescription drug coverage will be gradually improved over the next several years through a phased elimination of the “doughnut hole” coverage gap. In addition, employers receiving the subsidy should review carefully and quickly the accounting impact of this change as described above.

Effective January 1, 2013:

• Healthcare Flexible-Spending Accounts. The Act limits the amount of contributions to healthcare reimbursement flexible-spending accounts to $2,500 per year. No limit was previously imposed upon healthcare reimbursement flexible-spending accounts. This new limit will raise healthcare costs for employees with unreimbursed healthcare expenses in excess of $2,500 annually, to the extent the employee currently has a flexible-spending account that permits contributions in excess of $2,500—and would potentially create increased taxable income for employees. Employers should amend plan documents and update procedures to comply with this maximum beginning in 2013. Employers who wish to have a lower limitation may choose to do so.

• Itemized Deduction for Medical Expenses. The Act increases the income threshold for claiming the itemized deduction for medical expenses from 7.5 percent to 10 percent. Individuals over age 65 would be able to claim the itemized deduction for medical expenses at 7.5 percent of adjusted gross income through 2016.

• Limiting Deductibility of Executive Compensation. With respect to services performed after 2009, the Act limits the deductibility of executive compensation under section 162(m) of the Internal Revenue Code for insurance providers if at least 25 percent of the insurance provider's gross premium income from health business is derived from health-insurance plans that meet the minimum creditable-coverage requirements. The deduction is limited to $500,000 per taxable year (as opposed to the typical $1,000,000 limitation) and applies to all officers, employees, directors and other workers or service providers performing services for, or on behalf of, a covered health-insurance provider.

• Medicare Part D. The Act eliminates the federal income-tax deduction for the 28-percent subsidy for employers who maintain prescription drug plans for their Part D eligible retirees. Employers should review their plan design and plan cost going forward to determine whether changes are appropriate. In conducting this review, employers should keep in mind that Medicare Part D prescription drug coverage will be gradually improved over the next several years through a phased elimination of the "doughnut hole" coverage gap. In addition, employers receiving the subsidy should review carefully and quickly the accounting impact of this change as described above.

Effective January 1, 2014:

• Lifetime Limits. The Act prohibits insurers from imposing annual limits on the amount of coverage an individual may receive. Employers should amend plan documents and update procedures to bring lifetime and annual limitations into compliance when effective.

• Penalty Tax for Not Offering Coverage. The Act requires employers with 50 or more employees who do not offer health coverage to their employees to pay $2,000 annually for a "full-time employee" (i.e., an employee working 30 or more hours per week). The 50-employee threshold is based on the employer's average number of employees on business days during the preceding calendar year. Both full-time and part-time employees are considered in determining whether the employer has 50 or more employees; however, the number of part-time employees to be counted is determined by dividing the aggregate number of hours of service for those part-time employees for each month by 120. The $2,000 penalty then applies only to full-time employees who work 30 or more hours per week. In order to encourage employers to expand beyond 50 employees, the first 30 employees are not included in calculating the applicable penalty amount. The penalty can also increase to $3,000 for a full-time employee receiving a federal tax credit in the exchange where the employer offers health coverage, but that coverage would be deemed "unaffordable" because the employee has to pay more than 9.8 percent of his or her income, or the employer contributes less than 60 percent of the actuarial value of the plan. Therefore, while employers are not required to offer health coverage under the Act, significant penalties may be imposed on those employers that do not offer it or that only offer health coverage deemed "unaffordable." In addition, employers may still impose a waiting period for coverage without being subject to a penalty, but this waiting period may not exceed 90 calendar days.

• Exchanges. The Act provides for the creation of health-insurance exchanges at the state level in 2014, where individuals and small employers would be able to buy health coverage in a manner similar to that of larger employers. Initially, the state exchanges would be open to individuals and small employers with 100 or fewer employees, unless the state opts to limit this to organizations with 50 or fewer employees. Beginning in 2017, states would have the option to expand the exchange to larger employers.

• Wellness Programs. The Act provides that employers can offer increased incentives to employees for participation in a wellness program or for meeting certain health-status targets. The Act permits rewards or penalties, such as premium discounts of up to 30 percent of the cost of coverage. Existing wellness regulations are limited to wellness incentives of up to 20 percent of the total premium, provided that certain conditions are met. In addition, the Act creates a $200 million, five-year program to provide grants to certain small employers (fewer than 100 employees) for comprehensive workplace-wellness programs. The grants would go to small employers that did not have a wellness program when the Act was enacted. Implementation of such wellness programs may help employers lower costs, thereby avoiding the high-cost plan excise tax discussed below.

Effective January 1, 2018:

• Excise Tax. The Act imposes a nondeductible excise tax of 40 percent on insurance companies and plan administrators (including self-insured plans) for any health-insurance plan where the combined annual employer/employee premiums exceed the threshold of $10,200 for self-only coverage and $27,500 for family coverage. The tax would apply to the amount of the premium in excess of the threshold. An additional threshold amount of $1,650 for singles and $3,450 for families would be available for retired individuals over the age of 55 and for plans that cover employees engaged in high-risk professions (e.g., law-enforcement professionals, EMTs, construction and mining). The Act provides that health coverage offered under a collective-bargaining agreement that was ratified prior to the Act's effective date (i.e., March 23, 2010) will not be subject to the Act until the current collective-bargaining agreement expires.

Several states have already filed legal challenges to all or part of the Act, however, these challenges will not be resolved immediately. Without any further act of Congress, these provisions will all be subject to the effective dates above. Employers should make special efforts to familiarize themselves with these new rules and to seek professional guidance when appropriate.

Jackson & Campbell's Employment & Business Law Practice Groups can help employers with practical suggestions on how to navigate the Act. We can advise employers on necessary changes to policies and procedures to comply with the human resources implications of the Act and avoid any potential liability arising from failure to comply.