Don’t Make This Error When Discontinuing Health Insurance

Are you in compliance with the Affordable Care Act (ACA) when you terminate a teacher’s or other employee’s health insurance coverage after their resignation? The Department of Labor (DOL) recently highlighted a case where a district violated ACA rules when terminating coverage.

Ms. Brown had a 10-month teaching contract from August 1 - May 31. The district’s health plan coverage was effective from August 1 - July 31. Ms. Brown tendered her resignation on July 31, letting the district know that she would not be back for the next school year. Once she gave her notice, the district terminated her coverage retroactively to May 31. Ms. Brown believed that her coverage should have been terminated on July 31 because her insurance premiums had been paid in full and she had not requested her coverage to be termed retroactively.

The DOL agreed with Ms. Brown that the district mishandled her termination and they were in violation of ACA rules. According to PHS (Public Health Service) Act Section 2712, coverage cannot be rescinded unless the individual commits fraud, makes an intentional misrepresentation of the plan, premium payments are unpaid or other exceptions are met that are grounds for retroactive termination. Since premiums were paid in full and Ms. Brown didn’t commit fraud/misrepresent herself, her coverage could not be termed on May 31. The DOL went on to say that termination of coverage can also be subject to other applicable Federal and State laws or collective bargaining agreements.

So it is extremely important for school districts to be careful and diligent when discontinuing coverage for their terminated employees. This can be especially difficult at the end of the school year when turnover is at its peak. Districts need to be aware of the ACA rules, as well as know their health plan’s provisions about terminations of coverage and eligibility. Collective bargaining agreements and employment contract language must also be taken into advisement when terminating coverage.

For more information on this topic, contact your National Insurance Services Employee Benefits Consultant.