by Jennifer S. Kiesewetter
As has been the case for several months now, health care legislation has been front and center. However, the Department of Labor (DOL) has recently issued final regulations impacting health and welfare plans which will become law, and are not up for debate, as are other health care changes. On December 16, 2016, the DOL published final regulations on disability benefits claims procedures for any group plans governed by the Employee Retirement Income Security Act of 1974, as amended (ERISA) that provide for disability benefits (the “Final Rule”). This Final Rule applies to any disability claims filed on or after January 1, 2018, and will apply not only to health and welfare plans that provide for disability benefits, but also any qualified retirement plans that may offer disability benefits.
The DOL originally proposed amendments on November 18, 2015, to align disability benefits claims procedures with those for group health and welfare plans under the Affordable Care Act. The Final Rule, issued just a month later, is substantially the same as the proposed November rule. In revising the claims procedures, the DOL concluded that enhancements in procedural safeguards similar to those required by the Affordable Care Act in group health plans were just as important in the case of claims for disability benefits.
Some key provisions of the Final Rule are:
Independence and Impartiality – Avoiding Conflicts of Interest
Consistent with the Affordable Care Act’s claims and appeals’ rules, the DOL’s Final Rule explicitly provides that the new disability claims and appeals procedures are adjudicated in a manner to ensure independence and impartiality of all persons involved in making such decisions. Thus, under the Final Rule, any decisions regarding hiring, compensation, termination, promotion, or any other similar decisions with respect to employment (including third party claims adjudicators, medical experts, or vocational experts) must not be made based upon the likelihood that those individuals would support a denial of disability benefits. The preamble of the Final Rule notes that this independence and impartiality does not just extend to those who contribute to the final denial decision but also any individual who contributes to the benefit denial process.
Improvements to Disclosure Requirements
Based on its review of claims procedure requirements and its review of litigation trends, the DOL has determined that not all plans are complying with the claims procedure requirements under ERISA as it is currently written. Thus, the DOL has set forth additional requirements, some of which already apply under current law, to reinforce the need to comply with claims procedures in a transparent way and to encourage an appropriate dialogue between a claimant and the plan regarding adverse benefit determinations.
Thus, under the Final Rule, three components are now required: (1) a provision that expressly requires adverse benefit determinations on disability claims to contain a “discussion of the decision,” including the basis for disagreeing with any disability determination by the Social Security Administration or other third party disability payer, or any view of health care professionals treating a claimant to the extent the determination or views were presented by the claimant to the plan; (2) notices of adverse benefit determinations must contain the internal rules, guidelines, protocols, standards, or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist); and (3) consistent with the current rule applicable to notice of adverse benefit determinations at the review stage, a notice of adverse benefit determination at the initial claims stage must contain a statement that the claimant is entitled to receive, upon request, relevant documents.
For example, with respect to the “discussion of the decision,” the Final Rule now requires that the adverse benefit determinations contain a discussion of the basis for disagreeing with the views of the health care professionals who treated the claimant or the vocational professionals who evaluated the claimant, when the claimant presents those views to the plan. The Final Rule requires the same when such outside experts’ advice was obtained on behalf of the plan, without regard to whether the advice was relied upon in making the benefit determination.
With respect to the disability determination by the Social Security Administration, the DOL decided to limit this scope to the Social Security Administration determinations, as such benefit determinations, definitions, and presumptions are set forth in publicly available administrative law judge decisions, regulations, and guidance, whereas disability determinations under other employee benefit plans are not generally available to the public.
Additionally, the DOL takes the position that the internal rules, guidelines, protocols, or other similar criteria constitute instruments under which an ERISA plan is established or operated, and as such, these documents must be disclosed to participants and beneficiaries.
Right to Review and Respond to New Information Before Final Decision
The DOL believes that a full and fair review entitles a claimant to the right to review and respond to any new information developed by the plan during the pendency of the appeal before rendering the final decision on the disability claim. Further, the claimant has the right to fully and fairly present his or her case at the administrative level with respect to such new information, as opposed to simply reviewing the information after the claim has been denied on appeal.
The purpose of these changes is so claimants have the right to obtain a full and fair review of a denied disability claim by explicitly allowing them the right to review or respond to new evidence during the pendency of the appeal, as opposed to after the final decision has already been rendered, as some courts have held under the current ERISA claims procedure regulations. This additional protection, like some of the protections mentioned above, is a direct import from the Affordable Care Act claims and appeals procedures governing health and welfare plans. By importing this language into the Final Rule, the DOL hopes to correct this procedural issue, which the DOL asserts that without it, claimants are deprived of a full and fair review, as required by the current ERISA claims and appeals procedures, when such claimants are prevented from responding at the administrative stage to new information in their case.
Deemed Exhaustion of Claims and Appeals Processes
Like the above key provisions, the “deemed” exhaustion of claims and appeals process provision also tracks the Affordable Care Act claims and appeal final rule. The DOL’s Final Rule provides that if a plan fails to adhere to all the requirements in the claims procedure regulations, the claimant would be deemed
to have exhausted administrative remedies, with a limited exception where the violation on the part of the plan was (1) de minimis; (2) non-prejudicial; (3) attributable to good cause or matters beyond the plans’ control; (4) in the context of an ongoing good-faith exchange of information; and (5) not reflective of a pattern or practice of non-compliance. Thus, the DOL has adopted a stricter than a mere “substantial compliance” requirement.
Coverage Rescissions – Adverse Benefit Determinations
The DOL’s Final Rule amends the definition of an adverse benefit determination to include a rescission of disability benefit coverage that has a retroactive effect, except to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage.
With respect to some further guidance about what constitutes rescission of coverage, the DOL has stated that if a plan provides for the payment of disability benefits for a pre-determined, fixed period (such as a certain number of months or until a certain date), the termination of benefits at that set time does not constitute an adverse benefit determination under the Final Rule.
Additionally, the DOL has stated that a retroactive reduction or elimination of disability pension benefits in multiemployer plans is not a rescission of coverage. However, a retroactive reduction or elimination of disability pension benefits that results from a finding by the plan that the claimant was not disabled within the meaning of the plan when the disability provisions were reduced or eliminated under ERISA’s multiemployer plan provisions would in fact be an adverse benefit determination under the Final Rule.
Culturally and Linguistically Appropriate Notices
The Final Rule requires plans to provide notice to claimants in a culturally and linguistically appropriate manner. Again, like the provisions above, this is imported from the Affordable Care Act’s claims and appeals rule. If a claimant’s address is in a county where ten percent (10%) or more of the population residing in that county are literate only in the same non-English language as determined in guidance based on American Community Survey data published by the United States Census Bureau, notices of adverse benefit determinations to the claimant would have to include a states prominently displayed in the applicable non-English language clearly indicating how to access language services provided by the plan. Additionally, plans must provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon request.
As we are heading into the second quarter of 2017, plan sponsors will want to add this to their “to do” lists in the third or fourth quarter of this year to be up and running for the effective date of January 1, 2018. Plan Sponsors should update any and all relevant ERISA plan documents, summary plan descriptions, wrap documents, claims forms, denial letters, and internal processes and procedures to comply with the Final Rule.