For plan years beginning on or after September 23, 2010, health plans may not retroactively terminate (rescind) coverage except in limited circumstances, such as for an individual who commits fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan. Even in cases where permitted, plans must provide participants with written notice 30 days before coverage is retroactively terminated. The regulations clarify that plans may also terminate coverage retroactively without providing advance notice if a covered person fails to make timely premium or contributions payments (such as COBRA premium).
Note: The limit on rescissions only applies to certain types of health plans, such as major medical insurance. It does not apply to HIPAA excepted benefits, such as disability, cancer, hospital indemnity, or accident insurance. Click here for more information about the types of benefits that are exempt from the ACA plan design mandates.
If your plan does not currently include language allowing rescission in the case of fraud or intentional misrepresentation of material fact, you may not ever terminate an individual’s coverage retroactively. You may want to review your plan document and perhaps adopt a plan amendment incorporating such language.
Rescission Hot Topics & FAQs
- How can a Dependent Verification Review help mitigate costs in connection
Answer: A Dependent Eligibility Verification Review is the inspection of a plan to ensure that enrolled dependents actually meet the guidelines of an eligible dependent. The review will identify ineligible dependents who are being covered by the plan. This in turn can reduce health care costs by eliminating claims paid for ineligible dependents and provide immediate savings to help contain health care costs.
- May an employer cancel an individual’s coverage going forward without violating the rule on rescissions?
Answer: Yes. The rule on rescissions governs retroactive terminations of coverage, not cancellation of coverage on a go-forward basis.
- Would this rule apply in the case of Dependent Eligibility Reviews?
Answer: Yes. For example, if an employer performs a Dependent Eligibility Review and determines that an employee has inappropriately enrolled an individual who does not qualify as a dependent under the terms of the plan, the employer may terminate coverage for the nonqualified individual only in accordance with the rules governing rescission of coverage. For example, the employer may cancel coverage on a go-forward basis. Alternatively, if the plan document allows for retroactive termination in the case of fraud or misrepresentation of material fact, and the employer determines that the employee’s enrollment of the nonqualified individual constituted fraud or misrepresentation of material fact, after providing 30 days written notice the employer could retroactively terminate the coverage.
- Does the plan have to cover all categories of children?
Answer: The adult child plan design mandate only requires the plan to offer coverage to age 26 for children the plan sponsor has chosen to cover under the plan. However, Free Rider Penalty proposed regulations require large employers to offer coverage to full-time employees and dependent children or potentially pay a penalty. This requirement will not be satisfied unless the plan covers biological, step, adopted and foster children.
American Fidelity Assurance Company does not provide tax or legal advice.