Wednesday, April 21, 2010

Prohibition on Rescinding Coverage

(Note : For the next few weeks, Health Reform Talk will focus on detailed explanations for specific provisions in the new health reform law. Click here for previous post)

So what’s included in Sec. 1001 of the Affordable Care Act, concerning the prohibition on rescinding coverage?

The guaranteed renewability of health insurance coverage provisions of the Public Health Service Act (PHSA) are expanded to expressly prohibit group health plans and health insurance issuers offering group or individual coverage from rescinding coverage of an enrollee once the enrollee is covered, except where an individual has performed an act or practice constituting fraud or has made an intentional misrepresentation of material fact as prohibited under the terms of the plan or coverage. Such plan or coverage may not be cancelled without prior notice to the enrollee, and only as permitted under the rules for network plans and the general exceptions to guaranteed renewability of individual coverage.

Special rules for network plans. Where a health insurance issuer offers health insurance coverage in the group and individual markets through a network plan, the issuer may:

(1) limit eligible employers to those having eligible individuals who live, work or reside in the service area of the network plan; and

(2) within the service area of the plan, deny coverage to employers and individuals if the issuer has demonstrated, if required, to the applicable state authority that—

(a) it lacks the capacity to deliver services adequately to enrollees of any additional groups or additional individuals because of obligations to its existing group contract holders and enrollees, and

(b) it is applying the denial of coverage uniformly to employers and individuals without regard to the claims experience of individuals, employers and their employees, and their dependents, or any health status-related factor related to those individuals, employees and dependents.

(3) Upon denying health insurance coverage in any service area, an issuer may not offer coverage in the group or individual markets within that service area for a period of 180 days after the date that coverage is denied.

Exceptions to guaranteed renewal of individual coverage. In the individual market, a health insurance issuer is allowed to discontinue coverage of an individual only based on one or more of the following:

  • Nonpayment of premiums or contributions or untimely payments.
  • Fraud or intentional misrepresentation of material fact under the terms of coverage by an individual or a plan sponsor.
  • Cessation of the particular type of coverage in the market.
  • When coverage is offered in the market through a network plan, and the individual no longer lives within the service area, or an area where the issuer is authorized to do business, but only if coverage is terminated uniformly without regard to health status-related factors of the covered individuals.
  • Coverage is offered through an association and an employer ceases to be a member, but only if coverage is terminated uniformly without regard to health status-related factors of the covered individuals.

Effective date. The provision is effective for plan years beginning on or after the date that is six months after the date of enactment (Sept. 23, 2010).

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