Reform Alert - News from the Blues' Office of National Health Reform

Department of Labor clarifies rescissions regulation

Oct. 20, 2010

Starting with plan years beginning on or after Sept. 23, 2010, group health plans and insurers are prohibited by the Patient Protection and Affordable Care Act (PPACA) from rescinding coverage of an enrollee, except in cases of fraud or intentional misrepresentation. Coverage can also be retroactively terminated for nonpayment of premiums or contributions toward the cost of coverage. The interim rules define a rescission as a retroactive cancellation or discontinuation of coverage, and the rules apply to both new and grandfathered.

Blue Cross Blue Shield of Michigan (BCBSM) and Blue Care Network (BCN) interpreted the interim final regulations in a previous Reform Alert. Since then, as a result of comments received from Blue Cross and Blue Shield Association and others, the U.S. Department of Labor (DOL) has provided additional clarifications to the interim final regulations. The DOL’s additional guidance states that employers will have more administrative flexibility when retroactively cancelling coverage than originally provided in the interim final regulations. The DOL provided the following additional guidance on October 8, 2010:

“The statutory prohibition related to rescissions is not limited to rescissions based on fraudulent or intentional misrepresentations about prior medical history. 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upon which the employee relies for some time) may be cancelled prospectively once identified, but not retroactively rescinded unless there was some fraud or intentional misrepresentation by the employee.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 and issuers 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.)”

Blue Cross Blue Shield of Michigan and Blue Care Network are updating their current internal policies to comply with the rescissions provision where necessary. We will provide our group customers with information about this provision, and explain instances where retroactive terminations are prohibited, as the group should only pass permissible retroactive terminations as part of their eligibility information. Groups may need to update their current policies to comply with the provision.

The information on this website is based on BCBSM's review of the national health care reform legislation and is not intended to impart legal advice. Interpretations of the reform legislation vary, and efforts will be made to present and update accurate information. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Analysis is ongoing and additional guidance is also anticipated from the Department of Health and Human Services. Additionally, some reform regulations may differ for particular members enrolled in certain programs such as the Federal Employee Program, and those members are encouraged to consult with their benefit administrators for specific details.