Technically, this is a retroactive change, but is it a “rescission” under the new rules?
What is a “rescission”?
The PPACA regulations broadly define a “rescission” as a cancellation or discontinuance of coverage that has a retroactive effect. The regulations say a cancellation is not considered a rescission if it is prospective only or is due 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?
The regulations provide that a 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.
Can a plan rescind coverage retroactively if there has been a mistake?
This may depend on who made the mistake and how much time has elapsed. The regulations include an example where a plan mistakenly failed to terminate an employee who went from full-time to part-time, which normally would not have been covered under the plan. The mistake went on for several months, with the employer continuing to deduct premiums for coverage. The example says that the plan could not terminate coverage back to the date the employee went to part-time status because there was no evidence of fraud of intentional misrepresentation. Later Q&A guidance explains that, in the example, the employee may have “relied” upon the coverage “for some time,” suggesting that if the mistake was caught earlier or if no premiums had been deducted, giving the employee a reason to rely on the coverage, perhaps the plan would have been able to retroactively cancel coverage.
Our plan reconciles our eligibility feed once a month and retroactively terminates coverage back to the date of an employee’s termination. Is this a rescission?
The Q&A guidance says that, where a human resources department reconciles lists of eligible individuals via data feed once per month, and the employee has not paid premiums, this would not be considered a rescission, even if the termination is retroactive to date of termination of employment. It is not clear whether the guidance is limited to these particular facts, or whether the Q&A also would permit a reconciliation that extends beyond a month or where an employee may have paid premiums.
May a plan terminate coverage retroactively to the date of a participant's COBRA qualifying event?
COBRA generally says that, when someone elects COBRA, their COBRA is counted from the date of their qualifying event, meaning their active coverage ends as of that date. However, for some events, such as divorce or death, the participant may not notify the plan of the qualifying event until well afterwards (the participant has 60 days to notify the plan and elect COBRA). So, under COBRA, plans would terminate the individuals coverage retroactively back to the date of the qualifying event. The Q&As clarify that the agencies do not consider this to be a rescission of coverage.
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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.