Can a Health Insurance Company Drop You?

Health insurance provides financial protection against the high costs of medical care, offering a sense of security for individuals and families. Policyholders expect continuous coverage, allowing access to necessary health services. Understanding the circumstances under which an insurer might discontinue coverage is important. While health insurance is designed to be a continuous benefit, specific situations can lead to a policy’s termination.

When Insurers Can Terminate Coverage

Health insurance companies can terminate coverage under specific, legally defined circumstances, primarily when a policyholder fails to uphold their responsibilities. The most common reason an insurer will cancel a policy is the non-payment of premiums. This includes adhering to any stated timeliness requirements for payments.

Another significant reason for termination is fraud or intentional misrepresentation of material facts on the insurance application. This includes deliberately providing false or incomplete information about health status, identity, or other crucial details to obtain coverage. For example, if an applicant intentionally conceals a pre-existing medical condition or provides inaccurate personal data, the insurer may later terminate the policy.

Beyond policyholder actions, an insurer might also discontinue a specific health plan product from the market. In such cases, the insurer must typically provide advance notice to affected policyholders and the state authority. These market-wide withdrawals usually require the insurer to cease offering all similar products in that specific market within the state.

In some instances, coverage may be terminated if the policyholder moves outside the service area of a network plan. This type of termination must be applied uniformly to all policyholders who move out of the service area, without regard to their health status. These reasons for termination are distinct from a policyholder losing eligibility for a plan due to life changes, as they represent actions initiated by the insurer based on policy terms or market conditions.

Protections Against Unjust Termination

Legal and regulatory protections prevent health insurance companies from arbitrarily dropping policyholders, ensuring stability in coverage. The Affordable Care Act (ACA) prohibits insurers from terminating coverage due to health status or the development of pre-existing conditions. This means an insurer cannot cancel a policy simply because someone becomes sick or incurs high medical costs, provided premiums are paid and there is no fraud.

The ACA established the principle of “guaranteed renewability,” meaning insurers must renew health coverage at the policyholder’s option. Exceptions to this rule are limited to specific scenarios, such as non-payment of premiums, fraud, or if the insurer ceases to offer that particular product or all products in a market. This provision is designed to ensure that individuals maintain continuous access to health insurance.

A practice known as “rescission,” which involved the retroactive cancellation of a policy, was largely prohibited by the ACA. Before the ACA, insurers could retroactively cancel policies if they found errors or omissions in an application. Now, rescission is only permissible in cases of intentional misrepresentation of material fact or fraud. If an insurer pursues rescission, they must provide advance written notice to the policyholder.

How Coverage Loss Differs by Plan Type

While core rules regarding insurer-initiated termination for non-payment or fraud apply across health plans, how an individual might lose coverage varies by plan type. For employer-sponsored health plans, coverage is tied to employment status. Losing a job often means the loss of employer-provided health insurance.

Federal law offers a temporary continuation of group health coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA allows eligible individuals to maintain their employer-sponsored health benefits for a limited period, typically 18 months, following job loss or reduction in hours. Dependents may be eligible for up to 36 months of coverage under certain qualifying events. The cost of COBRA coverage is generally the full premium plus an administrative fee, which can range from approximately $400 to $700 per month for an individual.

For plans obtained through the Health Insurance Marketplace, the protections of the ACA apply. Eligibility for financial assistance, such as premium tax credits, can fluctuate with changes in household income. If an individual’s income increases, their subsidy amount may decrease, potentially making the premiums less affordable, but the policy itself is not dropped by the insurer unless premiums go unpaid.

Medicare and Medicaid are government-funded programs with distinct eligibility criteria. Medicare serves individuals aged 65 or older, and younger people with certain disabilities or specific medical conditions. Loss of Medicare coverage is due to a change in these eligibility factors, such as no longer meeting disability requirements.

Medicaid provides low-cost or free health coverage for certain low-income individuals and families. Eligibility for Medicaid is based on income, family size, and other specific criteria, which vary by state. Losing Medicaid coverage usually occurs when an individual’s income or other qualifying circumstances change, making them no longer eligible for the program. In these cases, the individual is losing eligibility for the program rather than being dropped by an insurer.