Health Reform WK-EDGE Safe harbor offered to insurance issuers that breach product discontinuation notice requirement
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Friday, June 9, 2017

Safe harbor offered to insurance issuers that breach product discontinuation notice requirement

By Jessica Y. Washington, J.D.

CMS announced that in connection with the open enrollment period for coverage in the 2018 benefit year in the individual market, it will not take enforcement action against health insurance issuers that fail to meet the 90-day product discontinuation notice requirement. Consistent with prior guidance, CMS will offer a "safe harbor" to issuers who fail to send a product discontinuation notice relative to individual market coverage at least 90-days prior to the discontinuation, as long as the issuer provides notice consistent with applicable renewal notice timeframes (CMS Letter, June 1, 2017).

Applicable renewal notice timeframes. The renewal notice timeframes vary depending on the type of health plan. The renewal notice for non-grandfathered, non-transitional health plans is before the first day of the next annual open enrollment period. For grandfathered health plans and transitional health plans, the renewal notice is at least 60 days prior to the date of renewal. CMS also encourages states to offer similar flexibility in product discontinuation notice requirements for health insurance issuers.

Background. Pursuant to the guaranteed renewability provisions of Title XXVII of the Public Health Service Act, a health insurance issuer that elects to discontinue offering a product (as defined by 45 CFR 144.103) in the group or individual market must, generally, provide notice of the discontinuation at least 90 calendar days prior to the date of the discontinuation. The purpose of the requirement is to provide timely notice to consumers regarding the termination of their health coverage in order to enable them to secure adequate replacement coverage. Due to the timing of qualified health plan certification for the 2015, 2016, and 2017 benefit years, health insurance issuers were often unable to finalize their plan offerings until close to the beginning of the annual enrollment period—after the 90-day discontinuation notice deadline. As a result, consumers could receive product discontinuation notices so late that they would be unable to secure new coverage. Moreover, issuers would be unable to offer consumers suggestions for replacement coverage.

Therefore, in connection with the open enrollment period for coverage in each of these benefit years, CMS announced that it would not take enforcement action against issuers that failed to meet the 90-day notice requirement in the individual market, under certain circumstances. Specifically, in conjunction with the open enrollment coverage period in benefit year 2017, CMS relied on the temporary safe harbor provisions in Section VII of the Updated Federal Standard Renewal and Product Discontinuation Notices (September 2, 2016). The Updated Federal Standard Renewal and Product Discontinuation Notices (or where applicable, state-specific standard notices) must be used by issuers in the individual market relative to product discontinuations, coverage renewals, and terminations based on enrollees’ movement outside of the product’s service area, beginning with 2018 policy years.

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