ACTION REQUIRED BEFORE YEAR-END: Disability Plans Claims and Appeals Procedures

Employers who sponsor disability plans have work to do with respect to their claims and appeals procedures prior to year-end. Final regulations were recently released by the Department of Labor (“DOL”) revising the existing claims and appeals procedures regulations under ERISA for employee benefit plans providing disability benefits. According to the DOL, the intent of the final regulations is to strengthen the current procedures by adopting some of the additional procedural safeguards and protections for disability plan claims that are already in place for group health plan benefits pursuant to the Patient Protection and Affordable Care Act.

The newly issued final regulations took effect on January 18, 2017 and will apply to all disability benefits claims filed on or after January 1, 2018. Accordingly, it is imperative for employers to work with their disability plan insurance carriers, third party administrators, and attorneys to ensure that all underlying disability plans and associated documentation (including any ERISA wrap plans, Code section 125 cafeteria plans, and claims denial forms) are reviewed and updated to ensure legal compliance with the requirements for claims filings beginning January 1, 2018.

The final regulations are lengthy, comprehensive, and require detailed review and analysis. Some highlights of the final regulations for employers, plan sponsors, carriers, and administrators to consider, include the following:

1. Independent and Impartiality to Avoid Conflicts of Interest. Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination. Decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual (such as a claims adjudicator, medical expert, or vocational expert) cannot be made based upon the likelihood that the individual will support the denial of benefits. For example, the preamble to the final regulations notes that a plan cannot provide bonuses based on the number of denials made by a claims adjudicator.
2. Improvements to Disclosure Requirements.  Benefit denial notices must contain specified information, including but not limited to:
   1. A complete discussion of why the plan denied the claim and the standards applied in reaching such decision. Such discussion must include the basis for disagreeing with or not following: (i) the views of health care professionals and vocational professionals who treated/evaluated the claimant; (ii) the views of medical or vocational experts whose advise was obtained on behalf of the plan in connection with a denial (without regard to whether the advice was relied upon in making the determination); or (iii) a disability benefit determination made by the Social Security Administration. Thus, under this standard, merely stating that the plan or a reviewing physician disagrees with the treating physician is insufficient.
   2. If the denial is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination (applying the terms of the plan to the claimant’s medical circumstances), or a statement that such explanation will be provided free of charge upon request;
   3. Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in denying the claim, or a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist; and
   4. A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.
3. Right to Review and Respond to Additional Information Prior to Final Determination. A claimant must be given timely notice of his or her right to access his or her entire claim file and other relevant documentation. A claimant must also be guaranteed the right to present evidence and testimony in support of his or her claim during the review process. Further, a claimant must be given notice and a fair opportunity to respond before denials on review are based on new or additional evidence or rationales. More specifically, the claims procedures must require that: (a) plans provide claimants, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) during the pendency of the appeal in connection with the claim; and (b) before the plan can issue a denial on review based on a new or additional rationale, that the plan provides claimant, free of charge, with the rationale. Any rationale/evidence must be provided as soon as possible and sufficiently in advance of the date on which the notice of denial upon review is required in order to give the claimant a reasonable opportunity to respond prior to that date.
4. Deemed Exhaustion of Claims and Appeals Processes. Plans cannot prohibit a claimant from seeking court review under ERISA section 502(a) of a denial based upon a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedures requirements, unless the violation was (a) the result of a minor error; (b) non-prejudicial; (c) attributable to good cause or matters beyond the plan’s control; (d) in the context of a good-faith exchange of information; and (e) not reflective of a pattern or practice of non-compliance. Additionally, denial notices on review, among other information, must describe any applicable contractual limitations period that applies to the claimant’s right to bring an action under ERISA section 502(a), including the calendar date on which the contractual limitations period expires for the claim.
5. Coverage Rescissions. The final regulations clarify that certain rescissions of coverage must be treated as adverse benefit determinations triggering the plan’s appeals procedures.
6. Culturally and Linguistically Appropriate Notices. Required notices and disclosures issued under the final regulations must be written in a culturally and linguistically appropriate manner. If a claimant’s address is in a county where 10% or more of the county population are literate only in the same non-English language, notices of denials to the claimant must include a statement prominently displayed in the applicable non-English language clearly indicating how to access language services provided by the plan. Additionally, the plan must provide a customer assistance process with oral language services in the non-English language and provide written notices in the non-English language upon request.

This alert serves as a general summary of the lengthy and and comprehensive final regulations, which can be found by clicking HERE. Please feel free to contact us with any questions you may have regarding getting your plans into compliance with the newly issued regulations prior to January 1, 2018.

This email serves solely as a general summary of complex proposed legislation and government initiatives.  It does not constitute legal guidance.  Please contact us with any questions related to the Proposed Legislation and what impact finalization might have on your employer-sponsored plans.

Questions? Contact us to learn more.