The Patient Protection and Affordable Care Act of 2010 (PPACA) prohibits health insurance carriers and group health plans from rescinding coverage (rescissions) except for cases involving fraud or intentional misrepresentation of material fact. A rescission is defined as cancellation or discontinuance of coverage that has a retroactive effect, except to the extent attributable to failure to pay required premium/contributions. This prohibition on rescissions applies to single individuals or individuals within a family, or an entire group of individuals regardless of funding or grandfathering status. As with several other provisions under PPACA, the effective date of the change is the start of the first plan year following September 23, 2010.
As a result of the new restrictions, plan sponsors and insurers will only be able to terminate a member's coverage retroactively in specific circumstances. The Departments of Health and Human Services, Labor and Treasury released interim final regulations and guidance for handling retroactive terminations. This guidance is summarized below.
- Plan sponsors and/or insurers cannot terminate coverage effective with a date in the past if:
- The member was covered through plan error, AND
- The member paid premium or contributed to the cost of the plan
In these cases, you can only terminate the member's coverage with a future effective termination date.
- Plan sponsors and/or insurers may terminate coverage retroactively as part of the monthly reconciliation of eligibility data if:
- The member did not pay any premium or contribution for coverage past the termination date
- Plan sponsors and/or insurers may also terminate coverage retroactively in cases of fraud or intentional misrepresentation. In these cases, a 30-day written notice of coverage termination is required, and the rescission of coverage may be appealed.
Here are some examples:
- You find you mistakenly enrolled a part-time employee who was not eligible under your plan. The employee paid premium/contribution, received medical services and submitted claims. Under the new law, you can terminate this employee's coverage, but only with a future termination date.
- A member's employment was terminated, and the employee did not make any payment of premium/contribution towards his benefits after he left the job, but you forgot to notify the carrier (or Craford if you are utilizing our Benefit Administration services) about the termination until a few weeks later. In this case, you may terminate benefit coverage retroactively.
- Your plan does not cover divorced ex-spouses, but an employee failed to notify you about a divorce for a period of time. As long as the employee or ex-spouse did not pay premium/contribution towards the benefit, you may terminate the ex-spouse retroactively. However, if premium/contribution was paid, you can only terminate coverage with a future date.
If you submit a retroactive termination to your carrier or to Craford's Benefit Administration system, you must ensure that employees/dependents did not pay premiums/contributions during the retroactive termination time period. Carriers may handle these retroactive terminations differently, so be prepared to provide your documentation.
The information presented in this document reflects Craford's opinion and interpretation of the law in the current form and should not be construed as legal advice. You may wish to obtain your own legal counsel before taking any action which impacts your health and welfare benefit plans.
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