By Marti Cardi, VP-Product Compliance
Claimants under ERISA disability plans will soon have a better chance to understand and contest any denial of disability benefits. After years of litigation flowing from disability benefits denials, the U.S. Department of Labor decided it was necessary to re-examine the ERISA regulations governing the handling of disability benefits claims. Section 503 of the Employee Retirement Income Security Act (ERISA) requires every employee benefit plan to:
- Provide notice in writing in understandable language explaining the specific reasons for the denial of a claim, and
- Provide an individual with an opportunity for a full and fair review of the denial.
On December 16, 2016, the DOL issued a Final Rule amending the regulations governing claims handling procedures for ERISA disability claims filed on or after January 1, 2018. The Final Rule allows plans a year to conform their claims handling procedures – and a good thing that is! The new rule and its explanatory preamble are heavy slogging indeed – measuring a full 28 pages in the Federal Register’s typical small print – and will require plans to revamp their denial procedures and communications, and likely the terms of the plans themselves.
The revised regulations themselves are a short 3 pages, but the preamble is a must-read for those deeply involved in disability claims administration. The preamble discusses the comments received by the DOL during the public comment period and the Department’s rationale for the positions it has taken in the Final Rule. Thus, it provides significant assistance in understanding the new rules and how the DOL will interpret them.
Key Changes at a Glance
Here is a summary of the major changes to the ERISA regulations, which will apply to new disability claims filed on or after January 1, 2018.
- Independence and impartiality of claims adjudicators. Claims and appeals must be decided in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination. For example, employment decisions regarding compensation, promotion, or similar matters cannot be made based upon the likelihood that an individual will support the denial of disability benefits.
- Improvements to disclosure requirements. Benefit denial notices must contain the following:
— A complete discussion of why the plan denied the claim and the standards applied in reaching the decision.
— The basis for disagreeing with the views of health care or vocational professionals whose opinions were provided by the claimant or obtained at the behest of the plan.
— The basis for disagreeing with a finding of “disability” by the Social Security Administration (SSA), if applicable. A disability plan is not bound by an SSA determination, but in the past a failure to explain the plan’s reason for disagreement has been one ground for court scrutiny of the plan’s denial decision. Now that explanation will be mandatory.
— The specific internal rules, guidelines, protocols, standards or other similar criteria the plan relied upon in making the adverse determination or, alternatively, a statement that such guidelines etc. do not exist.
— 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, or a statement that such explanation will be provided free of charge upon request.
- Claimant’s right to access entire claim file. A claimant must be given timely notice of his or her right to access to the entire claim file and other relevant documents and be provided the right to present evidence in support of his or her claim during the review process. For this reason, an initial adverse benefits determination must contain a statement that the claimant is entitled to receive, upon request and without charge, the documents relevant to the claim for benefits. Currently, this is only required in notices of adverse benefits determinations on appeal.
- Notice of new or additional evidence or rationales before adjudication. According to the DOL, a full and fair review of an adverse determination requires that a claimant has a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal. This allows the claimant the opportunity to fully and fairly present his or her case at the administrative appeal level, as opposed to having a right to review such information on request only after the claim has already been denied on appeal. The evidence or rationale must be provided to the claimant as soon as possible, and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required of the plan, in order to give the claimant a reasonable opportunity to address the evidence or rationale prior to that date. However, the new regulations do not extend the time deadlines for the plan’s determination; the notice of a new rationale or evidence, the claimant’s opportunity to respond, and the plan’s determination must all be accomplished within the existing time for an appeal determination (45 days from the filing of the appeal, with a possible 45-day extension).
- Claimant is deemed to have exhausted administrative remedies if a plan fails to comply with claims procedure requirements. Plans cannot prohibit a claimant from seeking court review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements. The new regulations provide an exception to this rule when the violation was (i) the result of a minor error; (ii) nonprejudicial to the claimant; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of noncompliance by the plan.
- Expanded definition of “adverse benefit determination” that triggers appeals procedures. The current ERISA regulations provide that the term ‘‘adverse benefit determination’’ includes any denial, reduction, or termination of, or a failure to provide or make full partial payment for, a benefit. Under the new rule, rescissions of coverage, including retroactive terminations due to alleged misrepresentation of fact (e.g., errors in the application for coverage) must be treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures. This will apply whether or not, in connection with the rescission, there is an adverse effect on any particular benefit at that time. Rescissions for non-payment of premiums are not covered by this provision.
- Notices and denials must be written in a “culturally and linguistically appropriate” manner. If a disability claimant’s address is in a county where 10 percent or more of the population is literate only in the same non-English language, benefit denial notices must include a prominent statement in the relevant non-English language about the availability of language services. Such services must include assistance with filing claims and appeals in the non-English language. The plan must provide written notices in the applicable non-English language upon request.
Here’s what employers should be working on during 2017 to be ready on January 1, 2018, with the top of the list being a review of your disability benefits plans to determine if changes are needed. Most disability plan procedures will have to undergo changes to comply with the new regulations. Even if no changes are necessary for that reason, this is a good time to consider whether your plans need revisions or updates.
- Review your current claims handling procedures. This is also an opportune time to take a deep dive into your disability claims practices start to finish. Are they compliant with current existing regulations that will remain in effect in 2018? What changes do you need to make to comply with the new regulations?
- Review your internal rules, guidelines, protocol, or other similar criterion that are relied upon in making adverse determinations. These will now become public documents in the case of every denial. Better polish them up and ensure that they accurately reflect your procedures. The new regulations do allow a plan to state that no such internal rules exist, but question whether that is a wise approach.
- Prepare new templates for denial letters – for both initial denials and upholding a denial on appeal. A template will guide your claims examiners through the correct considerations and elements required by the new (and existing) regulations in the denial.
- Provide training to claims examiners. Make sure your examiners are well-schooled on the new processes – old practices may not be compliant.
- Analyze the language make-up of your work force. If you will be required to provide information in one or more non-English languages, engage a language service for phone calls, translation of denial notices, and other claims assistance.
What is Matrix Doing to Comply with the New Regulations?
Not to worry – Matrix’s disability claims handling procedures will embrace the new rules and will continue to be best in class!
We will be ready to administer our clients’ disability plans in compliance with the new regulations by January 1, 2018. We have assembled a task force of experts in disability plans, claims handling procedures, ERISA, and customer service. We will undertake the steps recommended for employers above, and will review and update our claims handling software as needed.
Our practice leaders and account managers will be in touch with clients during 2017 to discuss changes to plan notifications, procedures, and more. If you have questions in the meantime, contact your account manager or sales representative, or send us an email at email@example.com.