The Department of Labor issued the final disability claims regulations on December 16, 2016. These regulations are effective for all claims filed on or after April 1, 2018.
The Department felt the update was needed to provide claimants a full and fair review, to promote fairness and accuracy, and to better protect participants. The Department also realized that long-term disability cases make up the lion’s share (64 percent) of the ERISA cases the Department reviewed for the six-year period beginning in 2010, while health care plans and pension plans account for only 14.4 percent and 9.3 percent, respectively. A review of recent disability cases indicated that often a conflict of interest was present when the decision maker was also the payer of the benefits.
Finally, the Department wanted to align the disability claims procedures with the Health Care Reform group medical plan claims procedures to provide better participant protections while recognizing the unique features attached to disability claims.
Final Regulations Overview
(1) Deemed Exhaustion of Claims and Appeals Procedures
If a plan does not comply with these procedures in other than a de minimis manner, the claimant will be deemed to have exhausted the claims procedures. This allows the claimant to sue in federal court. Because the plan fiduciary did not exercise its discretion to reach a determination, the court may apply what is known as the de novo standard of review, which favors claimants.
The de minimis exception requires satisfaction of the following:
(a) Must be non-prejudicial;
(b) Attributable to good cause or matters beyond the plan’s control;
(c) Is in the context of an ongoing good faith exchange of information; and
(d) Is not part of a pattern or practice of noncompliance.
(2) Steps to Avoid Conflicts of Interest by Ensuring Independence and Impartiality
Any individual involved in the decision-making process, whether hired by the plan or the third-party administrator (TPA), cannot be selected or paid based on the likelihood that claims will be denied. Included in this group are all health care professionals and vocational experts who opine about the claimant’s future job capabilities. The preamble notes that TPA service agreements should include provisions addressing the ongoing monitoring of providers to ensure that conflicts are avoided. Even though this concept is not included in the regulation, this may be the Department’s suggestion of a best practice.
(3) Improved Disclosure Requirements
Full Explanations Required. A denial must fully explain why the plan disagrees with the opinions presented by the claimant. To ward off “expert shopping,” the practice of a plan consulting several experts and only relying on the opinion that denies the claim, the denial must explain why the plan disagreed with these opinions, even if the plan did not rely on an opinion. This includes a Social Security determination finding disability.
Internal Rules and Protocols. All denials must include the internal rules, guidelines, protocols, standards or other similar criteria that the plan relied on in denying the claim, or a statement that such internal rules do not exist. A plan or TPA cannot refuse to provide such information because the information is confidential or proprietary. The Department’s view is that a claimant has a right to these documents because they are instruments by which a plan is established or operated. Currently, appeal denial notices only state that such internal rules are available upon request.
Relevant Documents. The denial notice must state that the claimant has the right to receive upon request all relevant documents. Relevant is defined to include all information relied upon that was submitted, considered or generated while coming to the denial without regard to whether such information was relied upon in making the decision. All information included in the claim’s file is relevant.
Plan’s Internal Deadline to Sue. If the plan has an internal deadline by which a claim must be filed in court, the denial notice must state the rule, and include the deadline by the specific date. For example, if the deadline is within one year after the final denial and a denial was final on November 3, 2018, the denial notice must state that the claimant has until November 3, 2019, to file suit in federal court.
No Automatic Deference to Claimant’s Physician’s Determination. Concluding that enough protections were included in the final rule, the Department did not adopt the rule requiring deference to the determination of the claimant’s physician.
(4) Claimant’s Right to Review and Respond to New Information Before Final Decision
Before denying the claim, the plan must provide free of charge any new or additional evidence considered, relied upon, or generated during the determination by the plan, the insurer or the TPA. New evidence must be provided to the claimant as soon as possible, giving advance notice so the claimant can respond prior to the denial.
(5) Retroactive Rescissions of Coverage Can Be Appealed
Rescinding a disability claim includes any retroactive cancellation or discontinuance of the benefit, unless the rescission is for the nonpayment of premiums. A rescission triggers the plan’s appeal procedures.
(6) Notices Written in Culturally and Linguistically Appropriate Language
Following the Health Care Reform standard, if the claimant lives in a county where 10 percent or more of the population is literate in the same non-English language, then all denial notices must include a prominent statement in the foreign language about the availability of foreign language assistance. This assistance must include oral assistance, such as a telephone hotline. Claimants also have the right that all documents be written in the foreign language.
To avoid claimants being deemed to have exhausted the plan’s claims procedures, enabling them to sue the plan with the favorable de novo standard of review, the claims procedures of all plans providing a disability benefit must be reviewed against these final regulations. This includes disability, pension, defined contribution plans (401(k) and 403(b)) and nonqualified deferred compensation plans.
If the employer (rather than the Social Security Administration or the employer’s LTD plan) determines whether the employee is disabled, and being disabled creates privileges, e.g., fully vests a participant regardless of vesting service, creates a distribution event not otherwise available, or entitles the participant to an unreduced normal retirement benefit, then the plan’s claims procedures must comply with these requirements when determining the participant’s disability status.