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

Interim final rules would restrict employers' ability to retroactively cancel coverage

Sept. 7, 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, misrepresentation or 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 they apply to both new and grandfathered plans.

See the Reform Alert, “Patient’s Bill of Rights”: Government Releases regulations on several patient protection provisions,” for more information about rescissions.

According to the current interim rules, retroactive cancellation of coverage is not permissible, even when a non-eligible individual’s coverage was continued by mistake. The interim rules state that if a group mistakenly continues coverage for a non-eligible employee, and then later informs their insurer that the group wants to retroactively cancel the employee’s coverage, then the insurer is prohibited by PPACA from doing so for the group.

The interim rules also state that where a rescission is permissible, the group health plan (or the health insurance issuer offering group health insurance coverage), is responsible for providing notification to the member(s) 30 days prior to the cancellation or rescission. If a group is cancelled due to nonpayment of premium, their health insurer must notify the group 30 days prior to cancellation. However, retroactive termination for nonpayment of premium is permissible, and there is no requirement that premium be accepted after the original due date.

The following is an example used in the regulations to illustrate the interim rules:

“An employer sponsors a group health plan that provides coverage for employees who work at least 30 hours per week. Individual B has coverage under the plan as a full-time employee. The employer reassigns B to a part-time position. Under the terms of the plan, B is no longer eligible for coverage. The plan mistakenly continues to provide health coverage, collecting premiums from B and paying claims submitted by B. After a routine audit, the plan discovers that B no longer works at least 30 hours per week. The plan rescinds B’s coverage effective as of the date that B changed from a full-time employee to a part-time employee.

The plan cannot rescind B’s coverage because there was no fraud or an intentional misrepresentation of material fact. The plan may cancel coverage for B prospectively, subject to other applicable Federal and State laws.”

Please note that rescission regulations were issued as interim final rules, and the U.S. Department of Health and Human Services (HHS) has solicited comments on the rules. The comments were due Aug. 27, 2010, the effective date of the interim rules.

Blue Cross Blue Shield of Michigan and Blue Care Network worked with the Blue Cross and Blue Shield Association and other organizations to submit timely comments to HHS regarding the interim final rules to ensure our group customers are represented fairly under this PPACA provision. Among the recommendations made to the agency was that the final rule provide that routine enrollment adjustments and corrections of routine enrollment errors for non-eligible persons, with respect to group health plans, do not constitute an impermissible rescission of coverage.

BCBSM and BCN will make timely changes to existing processes and policies after consideration of the comments by the agencies.

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.