In December 2016, the Department of Labor issued final regulations under ERISA governing claims procedures for group disability plans, which will become effective January 1, 2018. Generally, these regulations were drafted to be consistent with the regulations governing claims procedures for group health plans, as enhanced by the Patient Protection and Affordable Care Act. The new requirements under the final regulations are summarized below.
Most employers have fully-insured long-term disability plans, so in such a case, the employer’s obligation will be to ensure that its insurance carrier will be ready to comply with these new rules. An employer with a self-insured plan will likewise need to ensure that its third party claims administrator will be compliant with the new requirements.
1. Impartiality. A plan’s claims procedure must be designed to ensure impartiality. This means that a plan cannot make hiring, compensation, promotion, or termination decisions based on the likelihood that a claim adjudicator or supporting expert will support the denial of disability benefits. This rule applies to both medical and vocational experts.
Example: A plan cannot provide bonuses based on the number of denials made by a claims adjudicator.
Example: A plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases, rather than based on the expert’s professional qualifications.
2. Disclosure Requirements. Denial notices must include the following:
a. Disagreement with Experts. The notice must include a discussion of the basis for disagreeing with any health care professionals treating the claimant or any medical/vocational experts who evaluated the claimant.
The discussion must include explaining why the plan disagrees with any medical/vocational experts whose advice was obtained in connection with the determination process, regardless of whether the advice was relied upon when making the determination. This is designed to prevent “expert shopping” – which is when a plan continues to hire experts until an expert supports the denial of disability benefits.
b. Disagreement with SSA. If the claimant is considered disabled for Social Security purposes, the plan must discuss why it disagrees with the Social Security Administration (“SSA”) determination. A more detailed justification is required if the SSA definitions are similar to those under the plan.
c. Medical Necessity/Experiment Treatment. For denials based on medical necessity or experimental treatment, the denial notice must contain an explanation of the scientific or clinical judgment used for the denial, or a statement that such explanation will be provided free of charge upon request.
d. Internal Guidelines or Standards. If internal rules, guidelines or standards were relied upon, the plan must provide such rules, guidelines and standards.
This disclosure requirement is more onerous than the requirements applicable to group health plans. You must affirmatively provide the rule, guideline or standard (or state that none was relied upon). It is not sufficient to simply state that it will be provided upon request.
e. Relevant Documents. For claim denials, the notice must provide that all documents relevant to the claim denial will be provided upon request. This requirement already exists for appeal denials.
f. Contractual Limitations for Bringing Suit. For appeal denials, the notice must describe any time limit for filing suit in court set forth in the plan documents, and include the specific date by which a lawsuit must be filed to be considered timely.
Example: If a disability plan document provides that a claimant must file suit within one year after exhausting the plan’s internal claims procedure, this one year limit must be expressly referenced in the appeal denial and the notice must include the actual calendar date upon which the time period for filing suit expires.
3. Right to Respond to New Evidence or Rationales. A claimant must be given the right to respond to new evidence or rationales relied upon or generated during the pendency of an appeal (even if supportive of the claimant). The plan must provide such evidence and rationales to the claimant as soon as possible and sufficiently in advance of the date on which the plan will reach its determination, so that the claimant has the opportunity to respond prior to the plan’s appeal decision.
4. Deemed Exhaustation. If a plan fails to comply with these rules, the claimant is deemed to have exhausted the plan’s claims procedure, unless the violation was the result of a minor error and other conditions are met. If a claimant is deemed to have exhausted a plan’s claims procedure, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary and the claimant may immediately file suit in court.
Important: In most lawsuits involving disability claims under ERISA, the court will defer to the plan’s determination, unless the determination is found to be arbitrary or capricious (which is unlikely). However, the DOL suggests that deemed exhaustion might result in a court not providing any deference to the plan and instead reaching its own independent ruling.
5. Rescissions of Coverage. Rescissions of coverage (the termination of coverage with a retroactive effect) must be treated as a denial of a claim. As such, a participant is entitled to utilize the plan’s claims procedure to appeal a rescission of coverage. This does not apply to retroactive termination of coverage for failure to pay premiums.
6. Translation Requirements. If a denial notice is being mailed to a county where ten percent or more of the population is literate only in the same non-English language, the denial notice must include a prominent statement in the relevant non-English language about the availability of language services. The plan would also be required to provide a verbal customer assistance process (e.g., telephone hotline) in the non-English language and provide written notices in the non-English language upon request.