SECOND OPINIONS

What are the PPACA’s Restrictions on Coverage Rescission?

By PS | July 06, 2010

July 6, 2010 (PLANSPONSOR.com) - On June 28, 2010, the Department of Health and Human Services, Labor, and Treasury published a new Interim Final Rule (IFR) addressing several provisions of the Patient Protection and Affordable Care Act (PPACA).   

Among other things, the IFR provides guidance on a provision in PPACA generally prohibiting the "rescission" of coverage, or the cancellation of coverage without prior notice.

This week’s column deals with questions about coverage rescission. 

What are the specific restrictions in PPACA and when are they effective?

PPACA provides that a group health plan or health insurance issuer offering coverage to individual or group health plans may not rescind coverage with respect to an enrollee, except where the individual has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of a material fact, as prohibited by the terms of the plan or coverage.  The statute also provides that a plan may cancel coverage only with prior notice to the enrollee and only as permitted under certain exceptions to the HIPAA guaranteed renewability rules (nonpayment of premium, fraud, violation of participation or contribution rules, termination of plan, movement outside service area, and association membership ceasing).  These restrictions are effective for plan years beginning on or after September 23, 2010 (i.e., January 1, 2011 for calendar year plans).

Do these requirements apply to grandfathered plans?

Yes, these restrictions apply to both grandfathered and non-grandfathered plans.  They also apply to both self-funded and insured (individual and group coverage) plans.

What is considered a "rescission"?

The IFR defines "rescission" as a cancellation or discontinuance of coverage that has a retroactive effect.  A rescission would include a cancellation that treats a policy as void from the time of the individual's or group's enrollment or that voids benefits up to a year before cancellation.  The IFR clarifies that a cancellation will not be considered a rescission if it is prospective or only is effective retroactively to the extent attributable to a failure to timely pay required premiums or contributions toward the cost of coverage.

Are there any circumstances in which rescission will be permitted?

Consistent with the statute, the IFR provides that rescission will be permitted only if the individual has performed an act, practice or omission that constitutes fraud, or the individual has made an intentional misrepresentation of a material fact as prohibited by the terms of the plan or coverage.

Is there a notice requirement if a plan seeks to rescind coverage?

Yes, a plan or issuer seeking to rescind coverage must provide 30 days advance written notice to each participant affected.  The preamble to the IFR say this notice requirement is designed to give individuals and plan sponsors the opportunity to explore their rights to contest the decision to rescind coverage or look for alternative coverage.

Can we expect more guidance on the rules that apply to cancellations?

The preamble to the IFR states that the agencies expect to issue future guidance on any notice requirements for cancellations.

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You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html  

Contributors:

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.