Can we rescind a participant’s coverage based on a plan error?

Question: Our company sponsors a group health plan that covers employees who work at least 30 hours per week. After reassigning one of our covered full-time employees to a part-time position, we mistakenly continued to provide coverage for two months — collecting premiums and paying claims for that period.

After a routine audit, we discovered the error. Can we rescind the employee’s health coverage effective as of the date that his status changed from full-time to part-time?

Answer: No, the plan can’t rescind coverage in this instance. The Affordable Care Act prohibits rescissions — defined as the cancellation or discontinuation of coverage with retroactive effect — except in cases of fraud or intentional misrepresentation of a material fact as prohibited by the terms of the plan. Even when there is fraud or misrepresentation, plans must give at least 30 days’ advance written notice of a rescission.

In the situation that you describe, there was no fraud or intentional misrepresentation of a material fact, so the rescission of coverage as of the date the employee’s status changed to part-time would be impermissible. Your plan can cancel the employee’s coverage prospectively, subject to other applicable federal and state laws.

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Published in Healthcare

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