What Is Insurance Rescission, and What Do I Need to Know About It?
Key takeaways:
Insurance rescission is when a company cancels your health coverage retroactively, denying your past and present claims.
Health plans that comply with the Affordable Care Act (ACA) can’t be rescinded.
Rescission is not the same as policy cancellation.
It’s tempting to try to save money on health insurance. This is especially true if you’re young, healthy, or unable to qualify for insurance subsidies from the federal government. You may be considering cheaper coverage options like:
Short-term limited duration insurance
Healthcare sharing ministries
Fixed-indemnity policies
Farm Bureau coverage
If so, be aware that these plans aren’t subject to Affordable Care Act (ACA) regulations and don’t provide ACA protections. Relying on one of these alternatives could put you at risk of rescission.
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What is rescission?
Rescission is the insurance industry’s term for retroactively canceling a policy. That means the insurer or plan provider can deny payment for any past, present, or future claims on that policy. All past premiums are typically returned. All in all, it’s as if the contract never existed.
Some rescission scenarios:
A company could claim that your major illness existed before enrollment, even if it wasn't diagnosed until later. The company might use that as an argument for rescission.
An insurer or plan provider might conduct an extensive review of your medical history after you’ve enrolled and have begun filing claims. This post-claims underwriting can lead to rescission.
You make a mistake on your application and answer a medical history question incorrectly. The insurer or plan provider could try to rescind your policy, claiming you misled them.
Rescissions tend to occur when sick or injured people need coverage the most — that is, when they file claims for serious and costly medical care. After rescission, the patient is personally responsible for thousands of dollars’ worth of medical bills.
What’s the history of rescission?
Before the ACA, companies commonly rescinded health insurance policies bought by individuals. People experienced rescissions after a car accident, a cancer diagnosis, and even pregnancy. Sometimes, the rescission reason would have no connection to the claim that prompted the review. At particular risk of rescission were women and people with pre-existing conditions.
The ACA made rescission illegal except in cases of fraud or intentional deception. Importantly, this rule guarantees insurance coverage for people living with pre-existing conditions.
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So, the ACA got rid of rescission?
It did, but only for plans fulfilling the rules of the ACA. The regulation doesn’t apply to short-term, limited duration insurance (STLDI); healthcare sharing ministries; Farm Bureau coverage; or fixed-indemnity health insurance.
Short-term, limited duration insurance: Designed to be a temporary bridge between periods of coverage, STLDI can last from 1 month to 3 years. It usually has monthly premiums lower than those of ACA plans. This option may be attractive if you’re young and healthy, or if you’re changing jobs. But it’s still risky, because these policies can be rescinded based on pre-existing conditions.
Healthcare sharing ministries: People who choose these plans are often attracted to the lower costs and to the sponsoring group’s shared faith or ethical beliefs. Members pay a set amount each month and pool their money to cover shared medical expenses. Crucially, there is no legal guarantee that your medical bills will be paid, even bills for eligible expenses. Since these programs are run as nonprofit organizations and are not considered health insurance, they don’t offer the protections of the ACA. For example, these ministries do not have to cover pre-existing conditions or pay for benefits like birth control.
Excepted benefit plans: One type of excepted benefit plan is a fixed-indemnity plan. People might choose this if they want:
Predictable benefit amounts
The flexibility to enroll at any time of year
Lower monthly payments
This type of plan pays a pre-set, or “fixed,” amount of money directly to you for covered services. However, fixed-indemnity plans aren’t good substitutes for ACA plans. They don’t limit out-of-pocket expenses or protect against major or catastrophic medical costs. Also, they don’t have to cover pre-existing conditions. Instead, this option is best used as a safety net to go along with a major medical plan. That way, people can use the money to help with out-of-pocket expenses such as deductibles or copays.
Farm Bureau coverage: Anyone who joins a state’s Farm Bureau can enroll in these members-only health plans. They are especially popular within the high-risk agriculture industry. They are currently available in five states:
State and federal laws do not consider Farm Bureau plans to be insurance. They should not be mistaken for comprehensive coverage. However, some farm bureaus do team up with insurers to offer plans that comply with the ACA. Noncompliant plans have various drawbacks:
They may limit maternity and other benefits. In some cases, they cover pregnancy only if the woman is experiencing complications.
Without ACA protections, these plans may rescind health coverage based on pre-existing conditions.
Many limit yearly or lifetime benefit amounts.
Plan sponsors can create rules for charging higher premiums — without federal oversight.
How is rescission different from canceling my policy?
Rescission differs from cancellation in many ways.
| Rescission | Cancellation |
|---|---|
| Cancels coverage as of the policy start date, erasing the contract as if it never existed. | Ends coverage after a certain date (when you stopped paying monthly premiums, for example). |
| All premiums returned. | Premiums returned only if paid to cover months after cancellation. |
| Can be started by the insurer or group offering the coverage. | Can be done by the insurer, group offering coverage, or policyholder. |
| Can happen after diagnosis of a condition that requires expensive treatments or procedures. | Can happen if you don’t pay premiums, or if you choose to cancel your policy. |
| Can cause denial of benefits, leaving you responsible for all medical bills for treatments and procedures past and present. | Benefits end on the cancellation date. Medical bills from past claims are covered, but you are responsible for future healthcare costs. |
How can I protect myself from rescission?
Best option: Choose an ACA-compliant plan.
Work with a state-licensed or certified broker. Find help in your area through the U.S. Centers for Medicare & Medicaid Services’ Healthcare.gov website, where you can search by city and state or ZIP code.
Be an informed consumer. Don’t rely on internet searches alone, because you may be directed to websites for non-ACA plans. Also, avoid responding to spam emails.
Visit KFF.org's extensive database on the Health Insurance Marketplace and the ACA for answers to more than 300 frequently asked questions.
Alternative choice: Get help exploring a non-ACA plan.
If you’re working with an insurance broker, keep in mind that they must disclose payments they get from the insurance companies. You can also buy a policy directly from an insurer.
Seek help from an advocacy organization to make sure you understand your benefits and policy information.
Contact a patient advocate for help with specific needs:
Patient Advocate Foundation's National Financial Resource Directory
What can I do if my insurance is rescinded?
If your coverage is rescinded, you may still be able to pursue legal or other options:
Review your policy guidelines for information on any internal appeals process.
Go to the National Association of Insurance Commissioners website to:
Learn more about non-ACA plans
File an insurance complaint
Get contact information for your state department of insurance
Appeal the decision with the help of a lawyer.
The bottom line
People who select short-term health plans and other non-ACA insurance to save money on premiums may have much higher overall medical costs down the road. Many non-ACA plans can legally rescind coverage. They may lack other consumer protections as well. Choosing an ACA-compliant plan is likely to be the best way to both protect your health and avoid extreme financial hardship.
Why trust our experts?
References
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