Stefanie Zachery April 29, 2011

Q: What is the best practice surrounding retroactive termination of coverage while complying with the new healthcare legislation?

A: From the language in health care legislation, “…plans and issuers cannot rescind coverage unless an individual was involved in fraud or made an intentional misrepresentation of material fact.” A group health plan must provide at least 30 days advance written notice to each participant who would be affected before coverage can be rescinded. This applies to both self-funded or fully-insured groups.

An employer cannot retroactively terminate an employee or their dependent unless it can prove fraud, which is not easy to do. A first step that we suggest to our clients is to include language about the definition of fraud into their Summary Plan Descriptions (SPD). For more aggressive direction, we would recommend your organization seek legal counsel.

The conservative road is not to retro term. For a specific clarifying answer related to dependents and retro termination, the Department of Labors’ site can provide direction (www.dol.gov/ebsa/faqs/faq-aca2.html).

To learn more about dependent eligibility, please visit The Dependent Audit Guide.