Back in 2006, Texas passed Texas Senate Bill 51 (SB51), which required employers sponsoring group health and dental plans to terminate employees who lost coverage before the first of the month. So say you forgot to terminate Johnny’s coverage last month, and now you’re well into the next month. Under the Texas rule, Johnny’s coverage now continues for another month, and the employer would have to cover the monthly cost for that employee. (See my post on the Texas rules HERE)

Well, now under the Patient Protection and Affordable Care Act (Health Care Reform Act), only under specific circumstances can you go back in time to cancel an employee’s health coverage. A retroactive termination is when coverage should have ended February 1, but you waited too long to take the employee off the plan. So if it is March 15 and you ask the insurance coverage to cancel the employee’s coverage effective February 1, that is a retroactive termination.

The health care reform law, the Patient Protection and Affordable Care Act (PPACA) puts new restrictions in place for terminations. This means plan sponsors and insurers can only terminate a member’s coverage retroactively in specific circumstances.  This affects all plans that are subject to the health care reform law, regardless of funding or grandfathering status. It is in effect as of each plan’s first renewal or effective date after September 23, 2010.

Here’s what you need to know about the new rules concerning administrative retroactive terminations.

The plan sponsor can’t terminate coverage effective with a date in the past if:

•               The member was covered through plan error, and

•               The member paid premium or contributed to the cost of the plan.

In these cases, the plan sponsor can only terminate the member’s coverage with a future effective date of termination.

The plan sponsor may terminate coverage retroactively as part of a monthly reconciliation of eligibility data if:

•               The member did not pay any premium or contribution for coverage past the termination date.

The plan sponsor also may terminate coverage retroactively in cases of fraud or intentional misrepresentation. In these cases, a 30-day written notice of coverage termination is required, and the rescission of coverage may be appealed.

Here are some examples:

•               The plan sponsor finds it mistakenly enrolled a part-time employee who was not eligible under its plan. The employee paid premium/contribution, received medical services and submitted claims. Under the new law, the plan sponsor can terminate this employee’s coverage, but only with a prospective (future) termination date.

•               A member’s employment was terminated, and the employee did not make any payment of premium/contribution toward his benefits after he left the job, but Aetna was not notified about termination of coverage until a few weeks later. In this case, the plan sponsor may terminate benefit coverage as of the employment termination date.

The plan does not cover divorced ex-spouses, but an employee failed to notify the plan sponsor about a divorce for a period of time. As long as the employee or ex-spouse did not pay premium/contribution toward the benefit, the plan sponsor may terminate the ex-spouse’s coverage retrospectively.

So, long story short, make sure that you have the process in place to find out about and process these terminations. Gone are the days when you could wait too long and then “pull a favor” from the insurance company to correct a late plan termination.