Employee Benefits Security Administration
August 27, 2010
Page 5

1. A retroactive termination of coverage is not a “rescission” for purposes of
PHSA Section 2712 (as added by Section 1001 of PPACA) to the extent that (i) an event
clearly specified by the plan as a terminating event (ii) the plan clearly identifies the date
coverage ends under the plan as a result of such event (iii) the coverage is
administratively terminated, and confirmation of the termination is provided to the
affected individuals, within a reasonable period of time following the date the plan
administrators knows or reasonably should know of the event exercising reasonable
diligence. The reasonable period requirement set forth above is satisfied if the coverage
is administratively terminated and confirmation of the termination is provided by the plan
administrator within the time period that notice of a COBRA election right is otherwise
required, without regard to whether COBRA applies. Moreover, a retroactive
cancellation of coverage is not a rescission for purposes of PHSA Section 2712 if the
individual is entitled to COBRA continuation coverage as a result of the event and all of
the applicable notice requirements under COBRA are satisfied.

2. Coverage is only deemed provided for purposes of these rules (ie.
coverage is provided such that a rescission would be possible) to the extent that the
individual has a reasonable expectation under the facts and circumstances that coverage,
even erroneous coverage, is effective.

3. If the covered individuals are required by the plan or by law to provide
notice of events that cause termination of coverage under the plan, failure to provide
information within the plan’s reasonable notice period, or the minimum required by law
(where applicable), constitutes a rebuttable presumption of fraud.

Thank you in advance for your consideration of these issues.
Sincerely yours,
ra
Ashley Gillihan, Esq.
Alston & Bird, LLP

1201 W. Peachtree St.

Atlanta, GA 30309
ashley. gillihan@alston.com

LEGALO1/13147490v2



Employee Benefits Security Administration
August 27, 2010
Page 4

and that payment of all claims must be repaid incurred
during the period following March 31, 2011.

In the above examples, coverage ends under the plan on a specific date due to an
event that is clearly identified in the plan; however, the employer has no knowledge of
the event at the time it occurs and, as a result, coverage is provided until such time as the
information regarding that event is received. Once the employer in the above examples
has the requisite knowledge to terminate the coverage, it takes steps to terminate the
coverage without undue delay. The employer is not in error in either of the above
examples, which clearly distinguish them from the above mentioned example from the
Regulations. However, since the extra-contractual coverage is not due to the employee’s
fraud or intentional misrepresentation, the Regulations prohibit the plan from
retroactively terminating the coverage as of the date it is otherwise scheduled to end
under the clear terms of the plan. If plans are not permitted to retroactively terminate
coverage in situations where knowledge of the terminating event can only be gained after
the fact, and the plan administrator has not unreasonably delayed or impeded the
collection of the requisite information, then covered employees and their dependents will
receive coverage beyond that which is reasonably expected or bargained for. The net
result is that plans will no longer be permitted to terminate coverage as of the date of an
event and instead will only be permitted to terminate coverage “as soon as they receive or
collect the necessary information”. Unfortunately, this will inadvertently provide legal
incentive for individuals to delay providing notice or, worse, to not provide it all and they
will be rewarded by Regulations with coverage they are otherwise not entitled to and for
which they do not have a reasonable expectation so long as they did not defraud or
intentionally mislead the employer. We assert that this was not the intent of Congress.

An analysis of this issue is incomplete without mentioning that many of the
events referred to in our letter provide individuals with a COBRA continuation right; a
federally mandated right that generally permits retroactive reinstatement of coverage
back to the date of the terminating event. For example, even though a plan retroactively
terminates an. ex-spouse’s coverage to the date of the divorce, the ex-spouse will
generally have a right to retroactively reinstate that coverage as of the date of the divorce
so long as the ex-spouse provides timely notice of the event (generally 60 days after the
event) and pays all premiums required to be paid by COBRA. By way of another
example, an individual who loses coverage during a month because he/she fails to work
the requisite number of hours for that month would be entitled to COBRA continuation
coverage, which would allow him/her to retroactively reinstate the coverage back to the
first day of the month in which the requirements weren’t satisfied.

Overview of Requests

In light of the above, we respectfully request the following clarification and
guidance from the agencies:



ALSTON&BIRD tp

One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424

404-881-7000
Fax:404-881-7777
www.alston.com

Mr. Ashley Gillihan Direct Dial: 404-881-7390 E-mail: ashley.gillihan@alston.com

August 27, 2010

VIA E-MAIL to E-OHPSCA715.EBSA@dol.gov

Employee Benefits Security Administration
Room N-5653

U.S. Department of Labor

200 Constitution Ave. N.W.

Washington, D.C. 20210

Attention: RIN 1210-AB43

Re: Interim Final Regulations Regarding Rescissions
Dear Sirs/Madam:

Alston & Bird, LLP (‘A&B”) appreciates this opportunity to submit comments on
behalf of its employer/plan sponsor clients regarding the recently issued interim final
regulations on rescissions of group health coverage.

A&B is a national law firm with offices in 8 different cities. We represent
employers of varying sizes throughout the country that sponsor group health plans for
their employees and their dependents. The complexity of the health insurance reforms
(“Reforms”) added by Sections 1001 and 1201 of the Patient Protection and Affordable
Care Act (“PPACA”), the breadth of the changes required by the Reforms, and the
relatively short period plan sponsors have to make those changes has created significant
administrative challenges for our clients. Consequently, both A&B and our clients are
appreciative of the speed at which the Department of Labor (“DOL”) and the other
agencies have drafted and issued clear, concise and comprehensive guidance on the
Reforms, including but not limited to the Interim Final Regulations published in the
Federal Register on June 28 regarding rescissions (the “Regulations”).

Nevertheless, we wish to express our concerns that the Regulations, as written,
are overly broad. More specifically, we have concerns regarding the fact that the
Regulations will prohibit retroactive cancellations of coverage in situations where
coverage is automatically terminated but it cannot be reasonably terminated
administratively until a later date. For example, there are often events that terminate
coverage under the plan (e.g., divorce or failure to work the requisite hours) for which a

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Employee Benefits Security Administration
August 27, 2010
Page 2

plan administrator must rely on others to provide notice of the event and coverage is
typically provided until such time as that notice is provided or the information is
reasonably collected by the plan administrator. In such situations, the plan and plan
administrator are not at fault and should not be penalized simply because information
regarding the terminating event is not immediately available. We respectfully request
specific guidance herein that would alleviate these concerns in a manner that is consistent
with the Regulations generally.

Overview of Rule

Section 2712 of the Public Health Service Act (as added by Section 1001 of the
Patient Protection and Affordable Care Act; as incorporated into new ERISA Section 715
and IRC Section 9815) prohibits a group health plan from rescinding health coverage
except in the case of fraud or intentional misrepresentation of a material fact. The new
prohibition on rescissions applies to plans and insurers in the group and individual
markets (including grandfathered plans) for plan years beginning on or after September
23, 2010. The Regulations define “rescission” as a cancellation or discontinuance of
coverage that has retroactive effect except with respect to cancellations due to failure to
make premiums or contributions (see new 29 C.F.R. 2590.715-2712). A cancellation or
discontinuance of coverage is not a rescission if it has prospective effect.

The Regulations provide examples to illustrate the application of the rule. The
following example provides the primary basis for our concern:

An employer sponsors a group health plan that provides
coverage for employees who work at least 30 hours per
week. Individual B has coverage under the plan as a full-
time employee. The employer reassigns B to a part-time
position. Under the terms of the plan, B is no longer
eligible for coverage. The plan mistakenly continues to
provide health coverage, collecting premiums from B and
paying claims submitted by B. After a routine audit, the
plan discovers that B no longer works at least 30 hours per
week. The plan rescinds B’s coverage effective as of the
date that B changed from a full-time employee to a part-
time employee (See 29 C.F.R. 2590.715-2712).

In this example, B presumably did not commit fraud or intentional
mispresprentation nor did he fail to pay his premiums. Therefore, the plan could not
retroactively cancel the coverage despite the fact that it was provided in error and B was
otherwise not entitled to the coverage. .



Employee Benefits Security Administration
August 27, 2010
Page 3

Overview of the Issues

Nothing in the above example suggests that the employer’s error played a role in
the conclusion. In fact, the example seems to re-affirm the general principle set forth in
the Regulations that a group health plan is prohibited from retroactively canceling an
individual’s group health coverage in all situations other. than the covered individual’s
fraud, intentional misrepresentation, or failure to pay premiums. For example, plan
administrators must often rely on notice from employees or other business units
(especially where the employer’s human resources is decentralized across the nation) that
a terminating event has occurred. Without the requisite knowledge, the plan
administrator cannot be expected to administratively terminate coverage on the date of
the event; therefore, coverage will be provided until such time as the necessary
information regarding the event is received. Consider the following examples that
illustrate this situation:

Example #1: ABC enters into a collectively bargained
agreement with Union K that requires ABC to provide
health plan coverage to employees that are members of
Union K during a month if they work a specified number of
hours during the month. ABC collects hours of service
information from its various human resources offices on the
5" day of each month. The information is processed and
notices of termination and the right to elect COBRA are
sent on the 20" day of each month. Bob, a member of
Union K, works the requisite number of hours in January
for ABC but does not work the requisite hours in February.
Since ABC did not know until March that Bob failed to
work the requisite hours in February, a few of Bob’s claims
in February are paid by the plan. Bob receives a notice on
March 23" that his coverage ended January 31---the last
month in which he worked the requisite hours---and that he
must repay the plan for the claims incurred in February.

Example #2: ABC provides coverage to spouses of
employees. Coverage ends under the plan on the date a
divorce is final. In the event of a divorce, notice must be
provided to ABC within 31 days. Employee A and her
spouse divorce on March 31, 2011. Employee A provides
notice to ABC on April 25, 2011. During period between
March 31, 2011 and April 25, 2011, the employer collects
premiums from A and pays claims for A’s spouse. Upon
receiving notice, ABC informs A and A’s ex-spouse that
coverage ended March 31, 2011 as a result of the divorce