U.S.: Reminder of ACA Prohibition on Rescissions of Coverage

The ACA prohibits group health plans and insurers from rescinding coverage except where there is fraud or an individual makes an intentional misrepresentation of material fact. A rescission is a cancellation of coverage that has a retroactive effect. Cancellation of coverage that is prospective, initiated by the individual (not under the influence of the employer/plan sponsor or insurer), or due to a failure to timely pay premiums is not considered a rescission.

Importantly, inadvertent misstatements or plan errors (like mistakenly offering coverage to an ineligible part-time employee or failing to terminate coverage for an employee on an extended leave of absence) would not be considered fraud or intentional misrepresentation of material fact or otherwise justify a rescission. Note also that the exception to the prohibition on recessions for failure to pay timely premiums has been narrowly construed. The only specific guidance allowing a plan to rescind coverage retroactively in this context is where a plan is not timely notified of a divorce, and the full COBRA premium is not paid (termination of coverage retroactive to the divorce is not considered a rescission). When a plan decides to rescind coverage due to fraud or intentional misrepresentation of material fact, the plan must provide at least 30 days of advance written notice to each participant before coverage may be rescinded.  Employer plan sponsors should ensure their plan document provides notice that rescission is possible if an individual commits fraud or makes an intentional misrepresentation of material fact and keep documentation of the facts and circumstances justifying any rescission.

Alliant Employee Benefits, Asinta’s U.S. Partner, provided this information regarding the ACA.