Rescission of Coverage
A rescission is a cancellation or discontinuance of coverage, including COBRA coverage which has a retroactive effect. This rule builds on pre-existing provisions that allowed plans to cancel coverage under certain limited circumstances. Plans must clearly document their procedures for rescissions of coverage in their plan document.
Applicability and Effective Date
Affordable Care Act regulations, effective since 2010, prohibit a group health plan, regardless of grandfathered status, from rescinding coverage for any individual covered under the plan. This applies to both fully insured and self insured plans in the individual and group markets. Excepted benefit plans, such as standalone dental or vision that are elected separately from the medical plan, do not need to comply.
The only exceptions that allow a plan to retroactively revoke coverage are:
- the individual performs an act, practice, or omission that constitutes fraud; or
- the individual makes an intentional misrepresentation of material fact, as prohibited by the terms of the plan or coverage;
- the individual has failed to pay their premiums, including during their initial COBRA election period or at the end of a grace period; or
- the individual has requested that their coverage be retroactively terminated without any influence from the employer or plan sponsor.
Omissions of Information
It is important to note that when rescinding coverage in the case of fraud or intentional misrepresentation of material fact, proving intent can be difficult and it is recommended that plans consult their own legal counsel before rescinding coverage. If the omission of information is not intentional, then this cannot be considered fraudulent and coverage should not be rescinded. The regulations provide an example to illustrate this point:
- Individual "A" seeks enrollment in an insured group health plan. The plan terms permit rescission of coverage with respect to an individual if the individual engages in fraud or makes an intentional misrepresentation of a material fact.
- The plan requires "A" to complete a questionnaire regarding "A"'s prior medical history, which affects setting the group rate by the health insurance issuer.
- The questionnaire includes the following question: "Is there anything else relevant to your health that we should know?" "A" inadvertently fails to list that "A" visited a psychologist on two occasions, six years previously. "A" is later diagnosed with breast cancer and seeks benefits under the plan. On or around the same time, the issuer receives information about "A"'s visits to the psychologist, which was not disclosed in the questionnaire.
- Conclusion. In this Example, the plan cannot rescind "A"'s coverage because "A"'s failure to disclose the visits to the psychologist was inadvertent. Therefore, it was not fraudulent or an intentional misrepresentation of material fact.
An example of an allowable rescission of coverage would be if a member fails to notify the employer of a divorce under the terms of the plan and the plan does not cover non-spouses. This would be a violation of the plan terms for which coverage may be rescinded.
In the case of an employee misrepresenting that they are a smoker, the Department of Health and Human Services has stated that if a member has been found to have falsely reported their tobacco use, the member may be charged the appropriate premium that they should have paid as a tobacco user retroactive to the start of the plan year. If this remedy is chosen, the plan loses its ability to rescind coverage based on the member's misrepresentation of tobacco use.
Notices and Appeals
A group health plan must provide at least 30 calendar days advance written notice to each participant who would be affected before coverage may be rescinded. This notice is required to ensure the participant has time to contest the rescission and find other coverage. Notices must be provided in a culturally and linguistically appropriate manner and must detail the available internal appeals and external review processes due to the expansion of the definition of “adverse benefit determination” to include rescissions.
A note about non-ERISA plans
If a plan is subject to state law, there may be more generous protections in place for plan members with regard to rescissions of coverage. Non-ERISA plans should consult their legal counsel to ensure compliance with any additional rescission laws.
Plans that fail to comply with the rescission of coverage rules will be subject to an excise tax of $100 per day per affected individual.
This content is being provided as an informational tool. It is believed to be accurate at the time of posting and is subject to change. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this information, Meritain Health is not exercising discretionary authority or assuming a plan fiduciary role, nor is Meritain Health providing legal advice.