Absolutely not. Under Public Health Service Act (PHSA) Sec. 2712, group health plans and issuers, as well as issuers offering individual health coverage, are generally not allowed to rescind health coverage unless the person seeking coverage makes an intentional misrepresentation of material fact or fails to pay timely premiums, including COBRA premiums. According to frequently asked questions from the HHS, Labor Department, and IRS, termination of the employee’s coverage effective May 31 would be an unacceptable rescission because:
(1) It is a cancellation of coverage that has retroactive effect;
(2) It is not attributable to failure to timely pay premiums;
(3) The employee did not commit fraud or make a material misrepresentation of material fact to the plan; and
(4) No other limited exceptions in the implementing regulations under PHSA Sec. 2712 apparently apply.
The plan may, of course, terminate coverage prospectively, subject to the provisions of any relevant collective bargaining agreements or state laws.
Source: Employee Benefits Management Newsletter, 609, May 3, 2016; FAQs about Affordable Care Act Implementation (Part 31), April 20, 2016, https://www.dol.gov/ebsa/pdf/faq-aca31.pdf.