Prohibition on Rescissions
Effective for plan years beginning on or after Sept. 23, 2010, the Affordable Care Act (ACA) prohibits group health plans and health insurance issuers from rescinding coverage for covered individuals, except in the case of fraud or intentional misrepresentation of a material fact. Fraud may include an omission of relevant facts. This prohibition applies to grandfathered and non-grandfathered health plans, whether in the group or individual market, and whether coverage is insured or self-funded.
On June 28, 2010, the Departments of Health and Human Services (HHS), Labor and the Treasury issued interim final rules regarding these health plan coverage mandates.
The interim final rules define a “rescission” as a cancellation or discontinuance of coverage that has a retroactive effect. For example, a cancellation that treats a policy as void from the time of enrollment, or that voids benefits paid up to a year before the cancellation, is considered a rescission. When a coverage rescission occurs, the insurance company is no longer responsible for medical care claims that they had previously accepted and paid.
In contrast, a cancellation or discontinuance of coverage isnot considered a rescission if it:
- Has only a prospective (future) effect; or
- Is effective retroactively to the extent it is attributable to a failure to timely pay required premiums or contributions toward the cost of coverage.
If a state law is more protective of individuals than the federal law, the state law will continue to apply.
Inadvertent Misstatements and Plan Errors
The interim final regulations make clear that misstatements of fact that are inadvertent do not give rise to a permissible rescission. This means that plans may not rescind coverage for enrollees who simply fail to disclose information unless they can prove that the failure was intentional.
Additionally, plans are permitted to correct errors (such as mistakenly covering a part-time employee) by cancelling coverage prospectively, but not by retroactively rescinding coverage unless there was some fraud or intentional misrepresentation by the employee.
Advance Notice Requirement
In addition to setting federal requirements for rescissions, ACA adds a new advance notice requirement when coverage is rescinded where still permissible. Group health plans and group health insurance issuers must provide at least 30 calendar days’ advance notice to an individual before coverage may be rescinded. This 30-day period will provide individuals and plan sponsors with an opportunity to contest the rescission or look for alternative coverage.