Under PPACA, an insurer may rescind an individual health insurance policy retroactively only when:

Why A is correct

PPACA sharply limits rescission, which unwinds a policy back to its inception date as if it never existed. The law permits retroactive cancellation of an individual policy only for fraud or intentional misrepresentation of a material fact on the application — a high bar that protects consumers from after-the-fact cancellation based on innocent mistakes or newly discovered conditions. Rescission is thus distinguished from nonpayment and nonrenewal, which are forward-looking and follow separate notice rules. The policyholder's own culpable conduct, not the insurer's hindsight or claim activity, is what unlocks the rescission remedy.

Why the other options are wrong

• B) The number of claims filed does not trigger rescission; PPACA requires fraud or intentional misrepresentation as the basis for retroactive cancellation, so high claim volume alone is never a lawful ground.
• C) Non-disclosure by a previous insurer is irrelevant; the standard looks to the applicant's own fraudulent or intentional misrepresentation, not to what any prior insurer knew or failed to disclose.
• D) A clerical error is not intentional misrepresentation and cannot support retroactive rescission under the PPACA standard, which is why innocent application mistakes do not cost the insured their coverage.

Memory hook

Rescission needs a lying applicant, not a costly one — fraud, not frequency, unlocks the cancellation door.

Why B is correct

Rescission cancels a policy retroactively, as if it never existed, and is a far stronger remedy than cancellation. The ACA bars rescission of individual coverage except for fraud or an intentional misrepresentation of a material fact on the application. Innocent misstatements, oversights, or later medical problems do not justify rescission, because the law is designed to protect insureds from losing coverage retroactively at the moment they need it most.

Why the other options are wrong

• A) The two-year window is the contestability period used in life insurance; health rescission is restricted to fraud or intentional material misrepresentation.
• C) Nonpayment is handled by cancellation or termination provisions, not by retroactive rescission of the entire policy.
• D) The development of a costly condition can never support rescission; that would defeat the purpose of health coverage.

Memory hook

Rescission = erase the policy retroactively. Only fraud or intentional lie on the application triggers it.