When conducting a dependent audit, please be aware that the Affordable Care Act prohibits health plans from rescinding coverage, except in the event of fraud, intentional misrepresentation of material fact or failure to pay premiums on time. “Rescission” generally means to cancel with some retroactive effect.
The U.S. Department of Labor (DOL) expressly states that the prohibition “is not limited to rescissions based on fraudulent or intentional misrepresentations about prior medical history.” Employers can cancel coverage due to some plan errors (such as mistakenly covering a part-time employee) prospectively, but cannot retroactively rescind coverage unless there was some fraud or intentional misrepresentation by the employee.” In other words, you cannot cancel coverage back to the date the event occurred, whether it was a reduction in hours, divorce or other event that caused the employee or dependent to become ineligible for coverage. You also cannot charge back premiums for an employee or dependent mistakenly left on the rolls if no fraud or failure to pay amounts due occurred.
The DOL also notes that, “On the other hand…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.”
Even when a rescission is justified, the law requires you to give employees a minimum of 30 days’ notice before rescinding coverage.
- Ensure plan documents clearly state who is eligible for coverage.
- Include a statement in enrollment documents that says attempting to enroll a dependent who does not meet eligibility requirements will be treated as fraud or material misrepresentation and subject to rescission.
- Require documentation for dependent coverage.
- Conduct regular eligibility audits.
For insurance advice, please contact us or for legal advice, consult an employment attorney.
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