ACA Rescission After an Omitted Sleep Apnea Diagnosis
Marcus, age 58, is self-employed and buys an individual major medical policy. On the application he discloses hypertension and medication but does not mention a sleep apnea diagnosis from two years earlier. The policy takes effect January 1. In September he is hospitalized for complications of sleep apnea; claims total $80,000. The insurer reviews the file, finds the omitted diagnosis, and sends a rescission letter effective in 30 days, refunding all premiums. Marcus argues the omission was an oversight and that the sleep apnea was controlled with a CPAP machine. The policy has no preexisting-condition exclusion because it is ACA-compliant. The insurer has not alleged intentional fraud.
1. May the insurer rescind the policy under these facts? Explain the ACA rescission standard and the effect of the 30-day notice.
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Probably not. Under the ACA, an individual policy can be rescinded only for fraud or intentional misrepresentation of a material fact. Marcus disclosed hypertension but omitted sleep apnea; that looks like an oversight, not intentional fraud, especially since he was using a CPAP and the insurer did not allege fraud. The insurer must give 30 days' advance written notice before rescission. During that notice period, coverage remains in force. If the insurer cannot prove intentional misrepresentation, it must honor the claim and cannot impose a preexisting-condition exclusion because the policy is ACA-compliant. The $80,000 claim should be paid, subject to normal cost-sharing.
2. What would change if Marcus had intentionally concealed the diagnosis? How would the outcome differ, and what remedies remain?
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If Marcus intentionally concealed the diagnosis, the insurer could rescind even under the ACA, because intentional misrepresentation of a material fact is the exception. The insurer would still need to give 30 days' notice and return premiums. Rescission would make the policy void, so the $80,000 claim would generally be denied, although state law may give Marcus rights to challenge the materiality. The insurer could also pursue a fraud claim. The burden is on the insurer to show intent, not just that the answer was wrong.
3. How does the 30-day notice affect coverage and claims during that period?
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The 30-day notice does not immediately end coverage. Marcus remains covered during the notice period, and claims incurred before the rescission effective date may still be payable depending on the policy and state law. He should keep paying premiums if he wants to preserve his position and appeal. If the rescission is later overturned, the insurer must process the claim. If the policy is rescinded, the insurer must refund premiums, but it may offset unpaid claims. The notice period is a consumer protection, not a grace period for the insurer to avoid claims.