Can Health Insurance Be Cancelled Retroactively?

Retroactive cancellation of health insurance means an insurer treats a policy as though it never existed from its original effective date. This action effectively voids the coverage for the entire period it was in force. Such a measure is a serious step taken by insurers and is subject to strict rules and limitations.

Understanding Rescission

Rescission is the legal term for the retroactive cancellation of a health insurance policy. Historically, before the Affordable Care Act (ACA), this practice was more common. Insurers often used medical underwriting. If a policyholder filed a claim, insurers would sometimes perform “post-claims underwriting,” reviewing the initial application for undisclosed pre-existing conditions. If a discrepancy was found, the insurer could rescind the policy, refunding all premiums paid and treating coverage as if it never existed. This meant any claims previously paid could be retroactively retracted, leaving the policyholder responsible.

The ACA significantly changed these practices, largely prohibiting rescission for most types of coverage. Under current law, an insurer can generally only rescind a policy if there was intentional misrepresentation or fraud by the policyholder on the application. Intentional misrepresentation involves knowingly providing false information or concealing material facts that are relevant to the insurer’s decision to issue the policy. For example, deliberately misrepresenting drug, alcohol, or tobacco usage on an application could be considered intentional misrepresentation.

An innocent mistake or unintentional omission, such as an applicant unknowingly providing incorrect information or forgetting a minor detail, typically does not constitute grounds for rescission under ACA-compliant plans. The policy is considered void from its inception, meaning no claims are paid, even those filed and potentially paid before the rescission notice. The insurer typically refunds all premiums paid by the policyholder, as the contract is essentially erased.

Consumer Protections and Limitations

The legal framework, primarily established by the Affordable Care Act (ACA), provides substantial protections against arbitrary retroactive cancellation of health insurance policies. The ACA specifically prohibits insurers from rescinding coverage except in instances where the policyholder intentionally misrepresented a material fact or committed fraud on their application.

Before an insurer can rescind a policy, they bear the burden of proving that the policyholder engaged in intentional misrepresentation or fraud. This is not a casual process and requires a thorough investigation by the insurer. Insurers are obligated to provide adequate written notice to the policyholder before rescinding a policy. This notice period is typically 30 days, allowing the policyholder time to understand the insurer’s reasoning, gather relevant information, and prepare a response or seek new coverage.

Policyholders also have the right to appeal the insurer’s decision to rescind their policy. This appeal process includes both an internal review by the insurance company and, if necessary, an external review by an independent third party. If a policy is rescinded, premiums paid are typically returned. However, if the insurer previously paid claims, the policyholder may be required to repay those amounts.

What to Do If Your Policy is Rescinded

Review the rescission notice provided by the insurer. This document should clearly state the specific reason for the retroactive cancellation. Understanding the stated grounds is essential for formulating an effective response.

Gather all documentation related to your health insurance policy, including your original application, policy documents, correspondence, and medical records. These documents are crucial for disputing the insurer’s claims. Disputing a rescission requires timely action, as appeal deadlines are often strict.

You should initiate the internal appeal process with your insurer as outlined in their notice or policy documents. If the internal appeal is unsuccessful, you typically have the right to an external review, where an independent body assesses the insurer’s decision. These appeal avenues are designed to provide recourse for policyholders.

Contacting your state’s Department of Insurance (DOI) or equivalent regulatory body is a prudent step. These agencies oversee insurance companies and can provide guidance, mediate disputes, or assist you in filing a formal complaint against the insurer. Their role is to protect consumers and ensure compliance with insurance laws. For complex cases or those involving significant financial implications, consulting with legal counsel specializing in health insurance is advisable. An attorney can help navigate the legal complexities, assess the validity of the rescission, and represent your interests in appeals or potential litigation.