Under the PPACA, rescission is prohibited except in cases of fraud or misrepresentation. (PPACA Sec. 1001, amending the PHSA, 42 USC 300gg et seq.)
The health insurance industry agreed to comply with this requirement ahead of the September effective date.
The House bill required “clear and convincing” evidence and external review. The law as passed does not. Some insurers have agreed to this standard without regulation or requirement. Regulations may, however, impose an external review requirement on claims of misrepresentation.
Interestingly, the House bill would have required continuation of coverage during a challenge. The law as enacted does not.
This area will be interesting to follow.
Questions – what is the standard of review? Presumably, that under Firestone v. Bruch in the group plan setting. Are benefits continued if misrepresentation is alleged? In the case of individual policies, could a retroactive increase in premiums be required as in Werdehausen v. Benicorp Ins. Co., 487 F.3d 660 (8th Cir. Mo. 2007)? If not paid, then could the policy be cancelled for failure to pay premiums? What is the burden of proof?
The anticipated regulations have much to address. I do not expect this to be a very significant issue in the group market, but after the dust settles, I think there are still some surprises in store in the individual policy market.