Under the ACA, when may a health insurer rescind an individual health insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The ACA sharply limits rescission, the retroactive cancellation of a policy as if it had never existed. An individual policy may be rescinded only when the insured has committed fraud or made an intentional misrepresentation of a material fact on the application. Nonpayment of premiums is not a ground for rescission: it leads to cancellation or lapse, which is a prospective termination rather than a rescission, and it is expressly carved out of the rescission definition in 45 CFR 147.128(b). An honest, unintentional mistake on an application is not grounds for rescission, and a policy cannot be rescinded simply because the insured became sick or filed large claims. These limits protect consumers from losing coverage after claims arise, and they distinguish rescission from ordinary cancellation or nonrenewal for premium nonpayment.
Why the other options are wrong
- B) Unintentional application errors do not justify rescission under the ACA; the misrepresentation must be intentional and material.
- C) Developing a serious illness is the very risk insurance exists to cover and can never be a basis for retroactive cancellation.
- D) High claim costs are not grounds for rescission; renewal rights are protected instead by the guaranteed renewability rules.
Memory hook
Rescission is a fraud-only trap door; honest mistakes and bad health cannot yank the policy away.