Can a Health Insurance Company Drop You?

Health insurance coverage provides a financial safeguard against unexpected medical costs. While health plans generally aim to provide stable coverage, there are specific, legally defined situations where a policy can be terminated.

This overview will explore the legitimate reasons an insurance company might end coverage, highlight the consumer protections designed to prevent arbitrary terminations, and outline actionable steps to take if faced with a coverage termination.

Legitimate Reasons for Coverage Termination

Health insurance policies can be terminated for several specific reasons. One common cause for termination is the non-payment of premiums, where failure to submit required payments by the due date allows the insurer to cancel coverage. Grace periods are provided, but non-payment by the end of this period can lead to termination.

Another significant reason for termination is fraud or material misrepresentation, which occurs when an individual intentionally provides false or misleading information on their application about factors like health status or income. The misrepresentation must be “material,” meaning it significantly impacts the insurer’s decision to offer coverage or set premium rates. Such terminations can be retroactive, voiding the policy from its inception if intentional deceit is proven.

Coverage can also end due to a loss of eligibility for the specific plan. For employer-sponsored health plans, this often happens when an individual leaves employment, experiences a reduction in work hours below eligibility thresholds, or when an employer discontinues the group plan. Dependents may lose coverage upon aging off a parent’s plan, typically at age 26.

Changes in income, household size, or residency can lead to termination from government programs like Medicaid or the Children’s Health Insurance Program (CHIP) if the individual no longer meets the specific eligibility criteria. For Medicare Advantage plans, moving outside the plan’s defined service area can result in termination, as these plans are often geographically restricted. An insurer may discontinue offering a particular health plan or decide to exit a market entirely, resulting in termination of those policies, though with advance notice to allow policyholders to find new coverage.

Consumer Protections Against Coverage Termination

While insurers have legitimate grounds for terminating policies, consumer protections exist to prevent arbitrary or discriminatory cancellations. A key protection, established under the Affordable Care Act (ACA), prohibits insurers from terminating or refusing to renew coverage solely based on an individual’s health status, medical history, or the number of claims filed. This means a policyholder cannot be dropped because they developed a serious illness or incurred high medical costs.

Health plans are subject to guaranteed renewability, which mandates that insurers must renew a policy as long as premiums are paid and there is no evidence of fraud. This provision offers stability, ensuring that coverage continues unless specific, permissible conditions for termination are met, such as the insurer exiting the market entirely. Even in cases of market withdrawal, insurers are required to provide policyholders with options for purchasing other available plans.

The ACA also significantly limits the practice of “rescission,” which is the retroactive cancellation of coverage. Under current regulations, rescission is only permissible in instances of intentional fraud or material misrepresentation on the application, not for minor or unintentional errors. This protection ensures that honest mistakes do not lead to a loss of coverage.

Even when a termination is legitimate, insurers are required to provide advance notice to the policyholder. This notice period is at least 30 days, allowing the individual time to understand the reason for termination and seek alternative coverage. While federal laws establish a baseline for these protections, some states may implement additional safeguards for consumers, further restricting the circumstances under which health insurance can be terminated.

Steps to Take When Coverage is Terminated

Receiving a notice of health insurance termination can be unsettling, but several actionable steps can help individuals maintain coverage and understand their rights. The first step involves carefully reviewing the termination notice to understand the specific reason cited by the insurer. It is advisable to contact the insurance company directly for clarification and to request any relevant documentation pertaining to the termination.

Individuals have the right to appeal a termination decision, both through an internal process with the insurer and, if necessary, an external review by an independent third party. The termination notice should outline these appeal rights and the deadlines for filing, which can vary but range from 60 to 180 days for internal appeals. Expedited appeals may be available in urgent situations where immediate care is needed.

A loss of health coverage qualifies as a life event that triggers a Special Enrollment Period (SEP) on the Health Insurance Marketplace, allowing individuals to enroll in a new plan outside of the annual open enrollment period. This SEP provides a 60-day window from the date of coverage loss to select a new plan, though losing Medicaid or CHIP eligibility may trigger an extended 90-day SEP. For those terminated from employer-sponsored plans, the Consolidated Omnibus Budget Reconciliation Act (COBRA) offers an option to continue group health benefits for a limited period, 18 to 36 months, although the individual is responsible for the full premium plus an administrative fee.

Individuals who lose coverage due to job loss or changes in income should check their eligibility for state Medicaid or CHIP programs, as their financial situation may now qualify them for these low-cost or no-cost options. Navigators, certified application counselors, or state insurance departments can provide valuable guidance and assistance in understanding options and navigating the enrollment processes.