August 27, 2010

Hon. Kathleen Sebelius, Secretary, U.S. Department of Health and Human Services 

Hon. Hilda Solis, Secretary, U.S. Department of Labor 

Hon. Timothy Geithner, Secretary, U.S. Department of Treasury 

Office of Consumer Information and Insurance Oversight 

Department of Health and Human Services 

Attention: OCIIO-9994-IFC 

P.O. Box 8016 

Baltimore, MD 21244-1850 

Submitted via the Federal Regulations Web Portal, http://www.regulations.gov 

Re: Comments on Interim Final Rule on Annual and Lifetime Limits, and 

Rescissions, and Patient Protections Relating to Emergency Services 

Dear Secretaries Sebelius, Solis, and Geithner: 

We are writing on behalf of the American Benefits Council (the "Council") and 

the HR Policy Association ("HR Policy") to provide comments to the Departments of 

Health and Human Services, Labor, and Treasury ( the "Departments") regarding the 

Interim Final Rule (the "IFR" or the "Regulation") on the Requirements for Group Health 

Plans and Health Insurance Issuers Under the Patient Protection and Affordable Care 

Act Relating to Preexisting Condition Exclusions, Lifetime and Annual Limits, 

Rescissions, and Patient Protections as issued in the Federal Register on June 28, 2010 

(75 Fed. Reg. 37188). 

The Council is a public policy organization representing principally Fortune 500 

companies and other organizations that assist employers of all sizes in providing 

benefits to employees. Collectively, the Council's members either sponsor directly or 

provide services to retirement and health plans that cover more than 100 million 

Americans. 
2

HR Policy represents the chief human resource officers of over 300 of the largest 

employers doing business in the United States. Representing every major industrial 

sector, HR Policy's members employ more than 18 million people worldwide and 

collectively spend more than $75 billion annually providing health insurance to millions 

of American employees, their dependents and retirees. 

We are filing these comments in response to the Departments' request for 

comments on the Regulation. Our comments include specific recommendations 

regarding suggested changes to the Regulation, as well as requests for clarification on 

particular areas of the Regulation. 

At the outset, we note that clarifying guidance regarding the items discussed 

below is needed urgently. Many employers and issuers are in the process of making 

final decisions with respect to their plans for the upcoming plan year. This is because, 

for those who sponsor and/or administer calendar year plans, they must begin printing 

the necessary materials for annual open enrollment, which frequently occurs in October 

preceding the start of the plan year. Furthermore, changes will need to be made to 

certain systems to ensure that claims for services incurred on or after January 1, 2011 are 

processed properly and that explanations of benefits ("EOBs") are accurate. 

Accordingly, we request that any clarifying guidance be issued as soon as possible to 

allow those employers and issuers that have not already finalized their plan terms for 

the upcoming plan year, to utilize the guidance for purposes of the upcoming plan year. 

I. ANNUAL AND LIFETIME LIMITS

A. Application of Annual Limits to Day and Treatment Limits 

Section 2711 of the Public Health Service Act ("PHSA"), as added by PPACA, and 

the IFR prohibit group health plans and health insurance issuers offering coverage to 

individual or group health plans from imposing annual or lifetime limits on the dollar 

value of essential health benefits.1 The PHSA and the IFR also provide that a group 

health plan or issuer may impose annual or lifetime dollar limits on specific covered 

benefits that are not essential health benefits.2

 The IFR also expressly states that an 

exclusion of all benefits for a condition is not considered an annual or lifetime limit for a 

group health plan or issuer offering group health insurance.3

 Finally, the IFR provides 

guidance on certain "restricted" annual limits that are permitted for plan or policy years 

beginning before 2014.4

 

 As noted above, plans and issuers are prohibited from imposing annual or 

lifetime limits on the dollar value of essential health benefits. The IFR does not provide 

that annual or lifetime limits apply to specific treatment limits, including day, visit, or 

 

1

 75 Fed. Reg. at 37190; 45 CFR § 147.126. 

2

 PHSA § 2711(b); 75 Fed. Reg. at 37191; 45 CRF § 147.126(b). 

3

 45 CFR § 147.126(b)(2). 

4

 45 CFR § 147.126(a)(2) and (d). 
3

per-procedure or device dollar limits, and thus, it appears that the restrictions on 

annual and lifetime dollar limits are not extended to such treatment limits. 

Treatment limits such as day or visit limits are a common and effective medical 

management tool. For example, a health plan may limit skilled nursing care to 20 days 

per year. Per-procedure or device dollar limits may be applied to benefits, such as 

durable medical equipment, with a plan providing a set dollar limit such as $500 per 

device, but no limit on the number of devices available. 

These types of limits do not appear to be the types of annual or lifetime dollar 

limits that are prohibited by the IFR because either they are not annual/lifetime limits 

and/or they do not involve dollars. However, if these types of treatment limits were 

considered as annual or lifetime dollar limits, we understand that many employers in 

order to effectively manage health care costs and promote value based insurance design 

would not be able to continue to cover these benefits if such limits were impermissible. 

The elimination of these benefits, which are used and valued by employees, would 

leave many employees without access to a number of health benefits, and a restriction 

on imposing these types of limits appears beyond the scope of the IFR. 

 We recommend that the final Regulation clarify that treatment limits, including 

day, visit, or per-procedure or device dollar limits, are not the type of limits considered 

to be annual or lifetime limits on the dollar value of essential benefits. 

B. Application of Annual Limits to Specific Benefits 

 As mentioned above, certain "restricted" annual limits are permitted for plan or 

policy years beginning before 2014. Utilizing a phased approach to the annual limits, 

the IFR provides that plans or policies may impose "restricted" annual limits on the 

dollar value of essential health benefits for plan or policy years beginning before 2014, 

provided the limits are at least: 

• $750,000 for plan years beginning on or after September 23, 2010, but before 

September 23, 2011; 

• $1.25 million for plan years beginning on or after September 23, 2011, but before 

September 23, 2012; and 

• $2 million for plan years beginning on or after September 23, 2012, but before 

January 1, 2014.5

 This phased approach recognizes that the elimination of annual limits on 

essential health benefits likely will have a financial effect on plans. Plans are permitted 

 

5

 45 CFR § 147.126(a)(2) and (d). 
4

to impose restricted annual limits on essential health benefits during the transition 

period while increasing the amount of the annual limit incrementally over a number of 

years. The incremental elimination of the annual limit affords plans time to prepare 

and budget for the total elimination of annual limits. 

 The IFR does not specify, however, whether a plan is permitted to apply benefitspecific annual limits on essential health benefits (for example, $200,000 annual limit on 

rehabilitative or habilitative services and devices, or $10,000 annual limit on 

prescription drugs), totaling the annual maximum allowed (for example, $750,000 for 

plan years beginning on or after September 23, 2010, but before September 23, 2011), or 

if plans are only permitted to have one overall annual limit on essential health benefits. 

 Employers may use annual limits on specific benefits to effectively manage the 

high and rising costs of health coverage. For employers with self-funded plans, it is not 

uncommon to have annual dollar limits on specific benefits, for example, a $250,000 

annual limit on inpatient hospital services, but no overall annual limits. This approach 

– annual limits on specific benefits with no overall annual limit – strikes a balance 

between managing high healthcare costs associated with specific benefits or services 

and ensuring that employees have access to comprehensive health coverage that does 

not have an unreasonable overall limit on all benefits. 

 Requiring employers to eliminate annual benefits on specific essential health 

benefits during the restricted annual limits period would create a hardship for many 

employers, and may result in the elimination of certain benefits that otherwise would 

have been provided had the employer been permitted to continue to apply benefitspecific annual limits on certain essential health benefits. Permitting employers to 

retain such benefit-specific annual limits would be consistent with the phased-approach 

to annual limits that the Departments adopted in the IFR and still protect plan 

participants in that the total annual limit for essential health benefits cannot be less than 

the maximum annual limit allowed for the plan year ($750,000 for the 2011 plan year). 

Permitting these limits for this transition period would assist employers in managing 

costs during the transition period while allowing them the time necessary to plan and 

budget for the total elimination of annual limits on essential health benefits. 

We recommend that the final Regulation specify that plans may apply benefitspecific annual limits on essential health benefits, provided that the benefit-specific 

limits total no less than the maximum annual limit allowed for the plan year. 

C. "Good Faith" Determinations of Essential Health Benefits

 Under section 2711 of the PHSA and the IFR, group health plans and issuers are 

prohibited from imposing annual or lifetime limits on the dollar value of "essential 
5

health benefits." Neither the PHSA nor the IFR defines "essential health benefit" beyond 

the following categories that are listed in PPACA, which are: 

• Ambulatory patient services; 

• Emergency services; 

• Hospitalization; 

• Maternity and newborn care; 

• Mental health and substance use disorder services; 

• Prescription drugs; 

• Rehabilitative and habilitative services and devices; 

• Laboratory services; 

• Preventive and wellness services and chronic disease management; and 

• Pediatric services, including oral and vision care. 

Until further guidance is issued more fully defining these categories, the Preamble 

to the IFR provides that the Departments will take into account "good faith efforts" to 

comply with a "reasonable interpretation" of the term "essential health benefits."6

 The 

Preamble further states that plans must apply the definition of "essential health 

benefits" on a consistent basis for purposes of applying the lifetime and annual limit 

restrictions. These standards – good faith efforts to comply with reasonable 

interpretations and consistent application – should be retained, and we recommend that 

the final Regulation include them explicitly. 

 Our members have indicated particular concern about a number of services that 

typically are not as "mainstream" as more traditional benefits, but that arguably could 

fall under the essential health benefits categories if the categories are broadly read. 

These services include, for example, benefits such as fertility treatments and orthodontic 

services for children. Plans often cover these services as an added value to complement 

the more traditional services under the plan, but usually with some type of limit, since 

these can be expensive and are not seen as "medically necessary" as more traditional 

benefits. If these types of benefits were considered essential so that no annual or 

lifetime limits were allowed, we believe that many employers could no longer offer 

coverage for these less traditional benefits because they would be unaffordable to 

continue. 

 

6

 75 Fed. Reg. at 37191. 
6

D. Limit Annual/Lifetime Maximum Restrictions to In-Network Providers 

Only, Similar to Preventive Care Rule 

 The IFR does not address whether employers may differentiate in the delivery of 

essential health benefits between in-network and non-network coverage. The Interim 

Final Rule for Group Health Plans and Health Insurance Issuers Relating to Coverage of 

Preventive Services Under the Patient Protection and Affordable Care Act7 

acknowledges the important role of value-based insurance designs by allowing costsharing for preventive care services delivered by an out-of-network provider and 

prohibiting cost-sharing for preventive care services delivered by an in-network 

provider. The same rationale for allowing value-based designs under the preventive 

care rule also would apply here – that is, providing an incentive for employees to utilize 

higher value in-network providers, which likely would result in the plan being better 

able to control rising health costs. Allowing a plan to differentiate between in-network 

and out-of-network providers still offers protection to plan participants, who would 

have no (or restricted, as applicable) annual or lifetime limits for essential health 

benefits received in-network. 

 We recommend that the final Regulation adopt the same value-based plan 

designs found in the preventive care rule. Specifically, we recommend that the final 

Regulation limit the restrictions on annual and lifetime maximums to services provided 

in-network and allow employers to design plans that are able to apply annual or 

lifetime limits on services provided by out-of-network providers. 

E. Application of Annual Limits to Stand Alone Health Reimbursement 

Arrangements

 As discussed above, section 2711 of the PHSA and the IFR prohibit group health 

plans and issuers from imposing annual or lifetime limits on the dollar value of 

essential health benefits.8 The IFR provides, however, that the annual limits apply 

differently to certain account-based plans, and do not apply at all to health flexible 

spending arrangements.9

 The Preamble clarifies that the rules also are not applicable 

to medical savings accounts or health savings accounts. 

 The Preamble to the IFR provides that the annual and lifetime limits are not 

applicable to a health reimbursement arrangement ("HRA") that is "integrated with 

other coverage," where the other coverage alone would comply with the limit 

requirements.10 The Preamble goes on to state that the fact that benefits under an HRA 

are limited does not violate the rule because the combined benefit satisfies the annual 

 

7

 75 Fed. Reg. 41726 (July 19, 2010). 

8

 75 Fed. Reg. at 37190; 45 CFR § 147.126. 

9

 75 Fed. Reg. at 37190; 45 CFR § 147.126(a)((2)(ii). 

10 75 Fed. Reg. at 37190. 
7

and lifetime limit requirements. Retiree-only HRAs also are expressly excluded from 

the requirements of the annual and lifetime limits rule due to the "retiree-only" 

exception discussed in the Preamble to the Interim Final Rule for Group Health Plans 

and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan 

Under the Patient Protection and Affordable Care Act,11 which relates to the small 

employer exception in ERISA § 732(a) and the Internal Revenue Code § 9831(a)(2). The 

Departments requested comments as to whether the annual and lifetime limits rule 

should apply to stand-alone non-retiree HRAs. 

 The Departments should except all HRAs — stand-alone or integrated — from 

the annual and lifetime limit rules. As a practical matter, this type of rule simply does 

not apply in the HRA context. While account balances may vary in an HRA (by 

employers and/or employees), most HRAs do not limit how much may be paid out of 

the account in a given year or over the life of the account. So, it is counterintuitive to 

apply an annual or lifetime maximum rule to this type of benefit. If such a rule were 

applied, employers would no longer be able to offer HRAs. 

While stand-alone HRAs are not as widely used by employers as traditional 

health plans and health FSAs, they are nevertheless an important and valuable benefit 

for the employees who are covered by them. HRAs have unique and desirable features, 

including that they are not subject to the "use it or lose it" rule (so carry-over to the next 

year is allowed), HRA accounts may be credited with earnings, and HRAs are funded 

with employer dollars, not employee salary reductions. Eliminating stand-alone HRAs 

likely would result in the loss of employer-sponsored health coverage for some 

employees. 

We recommend that the Departments provide that all HRAs, including standalone non-retiree HRAs, are not subject to the annual and lifetime limits requirements 

in the final Regulation. 

F. Recommendations for Waiver Process for Limited Benefit Plans ("MiniMed" Plans)

 Under the IFR, certain "restricted" annual limits are permitted for plan or policy 

years beginning before 2014.12 The IFR provides for the Secretary of Health and Human 

Services to establish a program to waive annual limits for a plan or coverage that has 

annual dollar limits below the restricted annual limit amounts if compliance with the 

new limits "would result in a significant decrease in access to benefits under the plan or 

health insurance coverage or would significantly increase premiums for the plan or 

health insurance coverage."13 The Preamble indicates that guidance on the application 

 

11 75 Fed. Reg. 34538 (June 17, 2010). 

12 45 CFR § 147.126(a)(2) and (d). 

13 75 Fed. Reg. at 37191; 45 CRF § 147.126(d)(3). 
8

process for a waiver is expected to be issued in the "near future." According to the 

Preamble, the waiver program would be established so that individuals with certain 

coverage, including coverage under limited benefit or so-called "mini-med" plans, 

would not be denied access to needed services or experience more than a minimal 

impact on premiums. 

 There are approximately 1.4 million workers nationwide that have group 

healthcare coverage under limited benefit plans that cover accident- and sicknessrelated medical expenses, and these plans typically have an annual dollar cap on overall 

benefits and/or an annual dollar cap on specific services. The individuals covered by 

such plans typically work for employers on a part-time, seasonal, or temporary basis 

and are ineligible for coverage under the employer's regular group health plan, or are in 

an eligibility waiting period for an employer's regular health plan. Many of our 

members provide limited benefit plans to their employees who otherwise have few 

options for finding affordable health coverage. There is a strong desire among our 

members to continue to be able to offer limited benefit plans to employees. 

 Our members are particularly concerned about how to apply for a waiver in 

what is a very short period of time (before September 23, 2010). We recommend that, 

under the waiver process, waivers be granted to insurers (and self-funded plans, as 

appropriate) on a product basis so that the waiver is granted to the limited benefit plan 

or policy rather than to the employer purchasing the plan or policy. A group waiver – 

based on a product rather than the employer providing the plan – would be consistent 

with the approach used by the Treasury Department for prototype retirement plans 

(and other prototype products such as IRAs) where a prototype plan is made available 

by a prototype sponsor (e.g., a financial institution or bank) and the prototype plan is 

adopted by employers. The prototype sponsor, not the adopting employer, is 

responsible for applying to the Internal Revenue Service for approval of the prototype 

product and for various other filings. A prototype process maximizes efficiency for the 

government and for employers because the plan or product is approved one time (when 

it is submitted by the prototype sponsor) rather than many times over, which would 

happen if it were submitted by each adopting employer. Adopting a similar process for 

the waivers for limited benefit plans would ease the burden on the government of 

having to review the same limited benefit plans several times and facilitate an efficient 

approval process in what will be a very short time period. 

We also recommend that granted waivers remain in effect until 2014, without the 

need to reapply for waivers on an annual or other periodic basis. This would also ease 

the administrative burden on the government, insurers, and plan sponsors (particularly 

since the process is temporary through 2014). 
9

G. Clarify HIPAA Excepted Benefits Provisions to Address Additional 

Types of Supplemental/Limited Plans 

The Preamble to the Interim Final Rule addressing grandfathered group health 

plans notes that HIPAA excepted benefits are not subject to the insurance market 

reforms of PPACA (which would include the annual and lifetime limit rules).14 HIPAA 

excepted benefit plans include those that are: (1) limited in scope, such as certain dental 

and vision benefits; (2) noncoordinated with group health plan coverage; and (3) 

supplemental to group health plan coverage. Each of these exceptions has its own 

requirements. 

Many of our employer members provide limited or supplemental-type coverage, 

usually in addition to comprehensive health coverage. These benefit plans may range 

from additional coverage for a specific group, such as disabled children, to providing a 

prescription-only policy or a wellness program that is intended to complement the 

underlying medical coverage. The HIPAA excepted benefits statute was adopted in 

1996 and the regulations last updated in 2004, so a variety of new types of benefits have 

emerged, which appear to be the type intended to be excepted under HIPAA, but which 

are not clearly addressed. As such, employers are uncertain as to how these ancillary 

benefits should be treated and, in many cases, the requirements of the HIPAA 

portability rules or the new insurance market reforms under PPACA would not be 

appropriate for these types of benefits. Employers are considering whether to continue 

these benefits, which provide additional benefits to employees, for fear of violating the 

new rules. 

We recommend that the Departments address the following types of benefits, 

about which we have routinely been receiving questions: 

• Limited Scope Benefits – HIPAA provides an exception for "limited" benefits that 

are offered separately and says the exception will apply to limited scope dental 

and vision benefits, long-term care coverage, and "such other similar, limited 

benefits as are specified in regulations."15 The HIPAA portability regulations, to 

date, have not specified any additional types of limited benefits that would fall 

under this category, even though employers are offering a number of limited 

benefits outside of just vision and dental. We recommend that the Department 

create a catch-all category that will allow employers to be flexible in the benefits 

they offer to complement their medical coverage, so that employers are not 

forced to stop offering these benefits. 

In addition, one requirement under the limited scope benefit exception is that 

benefits be provided under a separate policy, certificate, or contract of insurance, 

or not otherwise be an integral part of the plan.16 The HIPAA portability 

 

14 75 Fed. Reg. at 34539. 

15 ERISA § 733(c)(2). 

16 ERISA § 732(c)(1). 
10

regulations provide that a benefit is "not an integral part of the plan" if 

participants may elect not to receive the coverage and if they do elect to receive, 

must pay an additional premium.17 However, many employers offer these "addon" benefits either automatically (so no separate election is required) or as an 

employer pay-all benefit. For example, employee assistance programs and 

wellness programs typically are available to all employees or plan participants 

without an affirmative election required and at no cost to employees. Similarly, 

employers, particularly those participating in multi-employer plans, often 

provide dental and vision benefits at no cost without a separate election required 

(since coverage is provided automatically). We recommend that the regulation 

be revised to allow employer-pay-all benefits also to be considered "not an 

integral part of the plan" where offered separately. 

• Self-Funded Non-Coordinated or Supplemental Benefits – Non-coordinated 

benefits generally provide coverage for a specific disease or illness and are not 

intended to coordinate with a particular plan maintained by the same plan 

sponsor. For example, a cancer-only policy may augment comprehensive 

medical coverage. Supplemental benefits are designed to fill specific gaps in 

primary coverage, such as Medicare Supplement coverage. One requirement for 

both of these exceptions is that the coverage be provided under a separate policy, 

certificate, or contract of insurance. While these types of benefits typically may 

have been insured when HIPAA was drafted, many employers today offer these 

types of benefits on a self-funded basis. For example, an employer may offer an 

additional benefit plan for children with physical or developmental disabilities 

that augments the child's underlying coverage, or the employer may contribute 

to a supplemental plan that assists employees in paying their deductible or other 

cost-sharing. Where these are self-funded, it is not clear whether they would 

meet the exception requirement of being provided under a separate policy, 

certificate, of contract of insurance – specifically, whether they must be insured. 

The limited scope benefit exception (described above) specifies that benefits 

either be provided under a separate insurance policy or otherwise not be an 

integral part of the plan. We do not see a policy reason why non-coordinated or 

supplemental plans should be treated differently. We recommend that the 

Departments clarify that these exceptions may apply to insured or self-funded 

coverage that is offered separately (whether under a separate insurance policy or 

otherwise not an integral part of the plan), as long as the other regulatory 

requirements are met. 

 

17 See 29 CFR 2590.732(c)(3)(ii). 
11

H. Notice Related to Lifetime Limits 

Under the IFR, individuals who reached a lifetime limit under a plan or health 

insurance coverage prior to the applicability date of the IFR and are otherwise eligible 

under the plan or health insurance coverage must be provided with a notice that the 

lifetime limit no longer applies. If such individuals are no longer enrolled in the plan or 

health insurance coverage, the IFR also provides an enrollment opportunity for such 

individuals. 

It is unclear under the IFR how far back a plan must look to identify individuals 

for which it must provide notice. An open-ended “look back” period would be 

administratively burdensome and costly, particularly for plans that may have changed 

service providers over many years and may not have data readily available, if at all. 

 We recommend that the Departments clarify that that plans may use a “look 

back” period of two years or an otherwise reasonable period of time for purposes of 

providing notices to individuals who reached a lifetime limit under the plan. 

II. RESCISSIONS

A. Retroactive Terminations in "Normal Course of Business" Should Not 

Be Considered Rescissions 

 PHSA § 2712, as added by PPACA, and the IFR provide that a group health plan 

or health insurance issuer offering coverage to individual or group health plans shall 

not rescind coverage with respect to an enrollee except where the individual has 

performed an act or practice that constitutes fraud or makes an intentional 

misrepresentation of a material fact, as prohibited by the terms of the plan or coverage.18

The PHSA and the IFR also provide that a plan may cancel coverage only with prior 

notice to the enrollee and only as permitted under certain exceptions to the HIPAA 

guaranteed renewability rules (nonpayment of premium, fraud, violation of 

participation or contribution rules, termination of plan, movement outside service area, 

and association membership ceasing). The IFR defines a rescission as a cancellation or 

discontinuance of coverage that has a retroactive effect.19 The IFR states that a rescission 

would include a cancellation that treats a policy as void from the time of the 

individual's or group's enrollment or that voids benefits up to a year before 

cancellation. The IFR clarifies that a cancellation will not be considered a rescission if it 

is prospective or only is effective retroactively to the extent attributable to a failure to 

timely pay required premiums or contributions toward the cost of coverage. 

 

18 75 Fed. Reg. at 37192; 45 CFR § 147.128(a). 

19 75 Fed. Reg. 37192; 45 CFR § 147.128(a)(2). 
12

 Generally, when an employee terminates employment or a dependent no longer 

is eligible for coverage (for example, a dependent attains age 26 or divorces), employee 

or dependent health coverage terminates immediately or at the end of the month in 

which the employee terminates his or her employment or the dependent no longer is 

eligible (unless an employee or dependent elects COBRA continuation coverage). 

Typically, the employee or employer (as applicable, depending on the particular fact 

situation) notify the human resources department, who notifies the plan's eligibility 

vendor, who sends a data feed with a list of eligible individuals to the appropriate 

service providers (third party administrators or insurers). The data feed generally 

consists of identifying information on the participants (and, if applicable, dependents) 

in question, a code indicating the reason for cancellation, and coverage information 

including the date as of which coverage is to be canceled. This entire process usually is 

not instantaneous, but may take anywhere from a few days to a couple of weeks. 

However, coverage is still considered terminated as of the date employment is 

terminated or eligibility is lost, as generally described in the plan documents. 

Example. Employee A terminates her employment on June 15. On June 28, in its 

next regular data transmission to its group health plan's third-party 

administrator ("TPA"), A's employer includes data indicating that A's coverage 

should be terminated, the reason for the termination, and the effective date, June 

15. The TPA processes this data and transmits it in its next regular transmission 

to the insurance carrier, on July 5. On July 8 the insurance carrier processes the 

data file and terminates A's coverage, retroactive to June 15. 

 We are concerned that these types of "retroactive" terminations, which occur in 

the normal course of business (and often occur because the employee may not have 

notified human resources in a timely manner), will somehow be construed as 

rescissions. We do not think this type of routine termination is what PPACA intended 

to address under the rescission rule and arguably, this would be a termination based on 

failure to pay a premium since employees likely no longer are experiencing payroll 

deduction. 

 "Retroactive" terminations also occur in the normal course of COBRA 

administration when plan administrators receive notices of qualifying events. In such 

circumstances, a qualified beneficiary often will notify the plan administrator of the 

qualifying event, for example, divorce, after the divorce has occurred. Following such 

notification, the divorced spouse's coverage is terminated retroactively to the date of the 

loss of coverage (generally either the date of the divorce or the last day of the month in 

which the divorced spouse was eligible for coverage). We do not think PPACA 

intended to extend the rescission rules to these COBRA-related routine terminations. 

Applying the rescission rules to such COBRA-related terminations could result in 

adverse selection since qualified beneficiaries have 60 days to provide notice of such 

qualifying events. 
13

We recommend that the final Regulation clarify that retroactive cancellation in 

the normal course of business is not considered a rescission, as long as the time period 

involved is reasonable. Additionally, we recommend that the final Regulation clarify 

that retroactive cancellation made in the course of COBRA administration is not 

considered a rescission. 

B. Clarification of Intentional Misrepresentation of Material Fact

 As mentioned above, PHSA § 2712 and the IFR provide that a group health plan 

or health insurance issuer offering coverage to individual or group health plans shall 

not rescind coverage with respect to an enrollee except where the individual has 

performed an act or practice that constitutes fraud or makes an intentional 

misrepresentation of a material fact, as prohibited by the terms of the plan or coverage.20

The IFR is silent, however, on the meaning of "intentional misrepresentation of a 

material fact" except to state that the misrepresentation must be prohibited by the terms 

of the plan or coverage. 

Plan sponsors are unsure of what might constitute a misrepresentation of a 

material fact that would permit rescission of coverage. Occasionally, employees enroll 

— accidentally or intentionally — themselves and their dependents in coverage for 

which they are not eligible, or an employee may fail to notify the plan administrator 

when a dependent who was previously eligible for coverage is no longer eligible for 

coverage. The second of these types of errors — an employee failing to remove 

someone from his or her coverage — is often discovered by plan sponsors during a 

dependent audit.21 Plan sponsors often discover that divorced spouses who are 

ineligible for coverage under the plan because of the divorce (notwithstanding 

eligibility for COBRA coverage) are still covered under the plan and that the employee 

has failed to notify the plan administrator of the divorce. With divorce, employers are 

particularly dependent on employees to advise them of their change in marital status, a 

material fact for plan eligibility. Another common coverage error that is discovered in 

dependent audits is the coverage of individuals who are not, and have never been, the 

employee's legal spouse or domestic partner (as defined in the plan). 

For most plan sponsors, there has been clear communication with employees 

regarding who is eligible for coverage under the plan. Such communications include, 

for example, the summary plan description, COBRA general notices, open enrollment 

materials, and enrollment forms. Enrollment forms may even include a statement 

wherein the employee certifies that any dependents the employee is enrolling for 

coverage are eligible for coverage. 

 

20 75 Fed. Reg. at 37192; 45 CFR § 147.128(a). 

21 Dependent audits are used by plan sponsors to verify that all individuals covered by the plan are in fact 

eligible for coverage under the plan. 
14

 We believe that the plan should be permitted to deem the incorrect enrollment 

(or continued enrollment) an intentional misrepresentation of a material fact, which 

would allow rescission. The intentional misrepresentation of a material fact being the 

representation that the employee and/or the dependent was eligible for coverage. This 

would allow employers to rectify mistakes that otherwise would require the plan to 

provide benefits to ineligible individuals, which is impermissible under the fiduciary 

duties imposed by ERISA § 404(a)(1)(A).22

 We recommend that the final Regulation provide that incorrect enrollment may 

be deemed by a plan to be intentional misrepresentations of material fact that would 

permit a plan to rescind coverage. 

* * * 

Thank you for the opportunity to comment on the IFR and for considering our 

suggested recommendations. 

If we can be of further assistance, please contact Kathryn Wilber at 202-289-6700 

or kwilber@abcstaff.org or Marisa Milton at 202-789-8671 or mmilton@hrpolicy.org. 

Sincerely, 

Kathryn Wilber 

Senior Counsel, Health Policy 

American Benefits Council 

Marisa Milton 

Vice President, Health Care Policy & 

Government Relations 

HR Policy Association

 

22 ERISA § 404(a)(1)(A) provides that a plan fiduciary must "discharge his duties with respect to a plan 

solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits 

to participants and their beneficiaries."