The Affordable Care Act prohibits the rescission of coverage except in cases of non-payment, fraud or intentional misrepresentation of material fact, as prohibited by the terms of the plan.
A rescission is defined as a cancellation or discontinuance of coverage that has retroactive effect. A rescission is not the cancellation or discontinuance of coverage that has only a prospective effect; or the cancellation or discontinuance of coverage if effective retroactively to the extent it is based on a failure to timely pay required premiums or contributions towards the cost of coverage.
A group health plan must provide at least 30 days advance written notice to each participant who would be affected before coverage may be rescinded regardless of whether the rescission applies to an entire group or only to an individual within the group.
An example in the Departments’ interim final regulations on rescissions clarifies that some plan errors (such as mistakenly covering a Part-Time Employee and providing coverage upon which the employee relies for some time) may be cancelled prospectively once identified, but not retroactively rescinded unless there was some fraud or intentional misrepresentation by the employee.
On the other hand, some plans have commented that some employers’ human resource departments may reconcile lists of eligible individuals with their plan or issuer via data feed only once per month. If a plan covers only active employees (subject to the COBRA continuation coverage provisions) and an employee pays no premiums for coverage after termination of employment, the Departments do not consider the retroactive elimination of coverage back to the date of termination of employment, due to delay in administrative record-keeping, to be a rescission.
Similarly, if a plan does not cover ex-spouses (subject to the COBRA continuation coverage provisions) and the plan is not notified of a divorce and the full COBRA premium is not paid by the employee or ex-spouse for coverage, the Departments do not consider a plan’s termination of coverage retroactive to the divorce to be a rescission of coverage. (Of course, in such situations COBRA may require coverage to be offered for up to 36 months if the COBRA applicable premium is paid by the qualified beneficiary.)