On December 19, 2016, the Department of Labor ("DOL") released the final amendments to the regulations covering claims procedures for plans providing disability benefits, 29 C.F.R. § 2560.503-1. The vast majority of the changes are effective for claims filed on or after January 1, 2018, with one exception discussed in the final section in this alert. While the incoming administration has garnered much attention regarding the potential rollback of regulations created during the Obama administration, there is no indication yet that these particular rules will be part of any rollback.
New Independence Requirements
Section 2560.503-1(b)(7) requires ERISA plans must ensure that disability claims and appeals are handled by personnel free from incentives that would encourage denials. Claims adjudicators and medical and vocational experts must be hired, compensated, terminated or promoted in a manner that is not based on the likelihood that an individual would support a denial of benefits.
In its commentary the DOL makes clear that the rule applies to employees of insurance companies and also to experts hired by insurers on a contract basis. For example, an entity providing medical or vocational expertise to an insurer administering disability claims should not be incentivized to increase the likelihood that it would support the denial of benefits. The commentary provides guidance for those hiring such services to ensure, through the engagement process and ongoing monitoring, third party experts remain impartial and without bias.
This responsibility places a new level of due diligence on plans to review contract language with third party experts to ensure that it is clear that the plan is requesting an independent opinion and not a specific outcome.
The commentary also directly addresses the issue of conflict discovery in ERISA litigation. While new documents need not be retained by insurers to prove their experts are not biased (for example, metrics on the percentage of cases in which a third party doctor finds a disabling level of restrictions and limitations), rest assured that if a court permits discovery in a claim dispute, claimants' counsel will be looking to see what steps were taken and what evidence exists to ensure the impartiality of third party experts.
Disclosure Requirements in Adverse Benefit Determinations
Section 2560.503-1(g)(A) provides three new requirements in communications regarding adverse benefit denials. These protocols apply to both the initial stage of the claim and the appeal. While many plans are already providing these elements in their claim denial letters as a best practice, the regulations now require their inclusion.
First, denial letters must explain why a claim decision differs from the findings of the medical and vocational experts who evaluated and treated the claimant. Second, if the plan secures its own medical and vocational input, the denial letter must address those findings even if they were not relied on in making the final decision. Third, claim administrators must provide an explanation of a decision that differs from a decision made by the Social Security Administration ("SSA"). While most plans already provide or refer to the medical support finding that a claimant is not or is no longer eligible for benefits, it is probably rarer to find denial letters that address medical or vocational support that was solicited but not directly relied on in making a final decision. The amendments to the regulations change that. These amendments will make denial letters longer and will require training so that claims professionals can adequately address all expert advice that was gathered during the process that led to the denial of benefits.
The relevance of SSA decisions to ERISA disability claims has been a subject of debate for many years. The amended regulations end the debate and now require that claim administrators discuss the reasons why an ERISA-governed disability claim decision differs from a decision of SSA. Distinguishing SSA claims could prove difficult at least with respect to the level of detail because of the difficulty associated with retrieving and reviewing the files of SSA.
The original proposed amendments also included a requirement that the administrator distinguish its decision from other private disability claim decisions. That requirement was dropped on the basis that it would be difficult to learn all of the unique terms of other disability plans. The DOL reasoned that those same limitations did not exist as to SSA claims because the rules, definitions and plan provisions are a matter of public record. The commentary does suggest that plans must distinguish decisions with some particularity. Usually private insurers can distinguish SSA claims based on the current status of the information in their files. Whereas SSA typically continues to pay benefits with very little ongoing investigation after approval, private disability plans generally require regular certification of continuing disability. One way to distinguish an SSA decision from a private plan's decision would be to cite the more current medical information as a more accurate portrayal of the claimant's impairment.
The commentary also discusses the controversy surrounding the attending physician rule, which is a foundational element of the SSA decision-making process. The Supreme Court in Nord v. Black & Decker made clear that the attending physician rule does not pertain to private disability plans. The DOL considered the rule but decided not to make such a requirement mandatory in ERISA-governed disability plans. The rule itself is another example of how a private plan could distinguish its own decisions from those of the SSA. If an IME or other medical review provides a basis for an adverse claim decision, the fact that no special deference must be given to an attending physician can be an important factor supporting the distinction between the two decisions.
Sections 2560.503-1(g)(vii) (C) and (D) require additional disclosures. Plans must cite internal rules or guidelines relied upon to reach the adverse decision. If there was no rule or guideline that supported the decision, that must also be disclosed in the communication. And, in a significant departure from the original regulations, there is a new requirement that claimants can request copies of the information relevant to the claim decision at the time of the initial denial. Previously, claim administrators were required to provide this information only after an appeal was denied. Expect claimants who are represented by counsel in the early stages of a claim to request the file and all supporting information as early as possible to help with perfecting ERISA claim appeals.
Finally, the regulations require that communications regarding adverse benefit determinations be made in a culturally and linguistically appropriate manner. As detailed in §2560.503-1(o), if 10% or more of the population in a county where notices are being sent are literate only in the same non-English language, as determined by the DOL, then alternative language services must be provided. Plans must provide oral language services such as hotlines to answer questions and assist with the filing of claims. Upon request from claimants, the plan must provide notices in the non-English language appropriate for that county and claimant. And finally, plans must provide in all notices a prominent statement in the appropriate non-English language how language services can be accessed. A listing of counties subject to an analogous 10% rule applying to health insurers is available
Right to Review and Respond to New Information Before Final Decision
Section 2560.503-1(h) has been amended to further define what a "full and fair review" of a claim means for processing disability claims on appeal. The regulation requires that "new evidence" or a "new rationale" generated on appeal must automatically be provided to the claimant prior to an uphold of an adverse benefit decision. The claimant must be given a "reasonable opportunity to respond" to the new information or rationale before the claim administrator makes a final decision.
There is a lengthy discussion in the comments about how this will work practically. Claim administrators have 45 days to make a decision after an appeal is filed. As currently provided in the regulations, an additional 45 days can be requested by the administrator when there are "special circumstances" warranting the extension. The DOL commentary explains that if the new information or a new rationale on appeal occurs within a time frame too close to the end of the appeal period the administrator may request the "special circumstances" extension in order to give the claimant a reasonable opportunity to respond.
There has been concern that an endless loop of discussion will occur between the claimant and the plan over "new evidence" or to argue over a "new rationale," but the DOL makes light of the concern by stating that claimants will not be able to afford generating new evidence (especially new medical evidence) and that claim administrators will ultimately decide to stand firm on the investigation that has already been done to support their decisions. The challenge will be to get new evidence and new rationales generated on appeal into the hands of the claimant as quickly as possible so that they have time to respond before a final decision is made. Since there are no hard and fast rules about what a "reasonable opportunity to respond" means, disputes will likely arise if a final decision is made and no response was received from the claimant. It is advisable that administrators contact the claimant before a final decision is made to establish that a reasonable opportunity to respond was provided.
Notice of Actual Date on Contractual Limitations to file Suit
Section 2560.503-1(j)(4)(ii) responds to recent case law on contractual limitations to filing suit in ERISA litigation. The Supreme Court in Heimeshoff v. Hartford Life generally upheld plan provisions limiting the time to file suit, even if that period was relatively short compared to limitations periods provided under state law. The DOL has responded by requiring that claim administrators describe any applicable limitations period in the plan and provide the calendar date on which the period expires. Most disability plans have contractual limitation periods like the one referenced in Heimeshoff. Those limitation periods often begin to run on the date that proof of loss is required to be submitted at the outset of a claim. Plans will need to calculate the limitations period so that it can be provided to a claimant in the event of an adverse benefit determination. This calculation can be done at the outset of a claim if the limitation period begins to run from the date proof of loss is required. If done administratively and uniformly, inconsistences among various claim professionals trying to calculate the right date can be avoided.
In the commentary the DOL suggests that if a circumstance arises where the date to file suit provided in an adverse benefit determination letter is less than a year it would likely be unenforceable. This is contrary to case law addressing what is a reasonable period and therefore subject to challenge. In a footnote the DOL states that additional public input would be needed before a minimum period of time to file suit could be defined as being unreasonable. The commentary also points out that plans providing voluntary levels of appeal beyond those that are required in the regulations or dispute resolution services must toll the running of the applicable limitations during those time periods.
Deemed Exhaustion of Claims and Appeals Processes
Section 2560.503-1(l) permits a claimant to file suit under ERISA section 29 U.S.C. §1132 (a) if the plan does not strictly adhere to all the requirements in the regulations. If a claimant uses the deemed exhaustion process then the claim is considered to have been denied without the exercise of discretion by an appropriate fiduciary. This language would support a strong argument by a claimant that any subsequent court review should be done on a de novo basis.
There is an exception to the "strict adherence" standard. If the alleged violation of the regulation is de minimus or not likely to cause prejudice or harm to the claimant and the violation was for good cause or due to matters beyond the control of the plan or made during a good faith exchange with the claimant, then the deemed exhaustion argument will not be allowed. However, even de minimus violations could be cause to seek immediate judicial review if the claimant can show it was part of a pattern and practice by the claim administrator. Claimants can also request explanations from the plan about violations of the regulations and why such violations should not be cause to deem the administrative remedies under the plan to be exhausted. Plans must respond to such requests within 10 days.
If a claimant files suit under the deemed exhaustion provisions and the court denies the request for immediate review the regulations provide that the appeal will be considered re-filed with the plan upon the date the plan receives the decision of the court.
As with other parts of the amendments it is difficult to predict whether claimants and their counsel will want to rush to court based on an argument that violations of the claim regulations have occurred. It is, however, a reminder of the importance of training claims staff on the strictures of ERISA and the importance of keeping an ongoing and productive dialogue with the claimant even when the claim may be headed for an adverse decision.
Rescissions Considered an Adverse Benefit Determination
Section 2560.503-1(m) now defines an "adverse benefit determination" as including a rescission of coverage even in circumstances where there is no claim for benefits being made. The only exception is a cancellation of coverage based on non-payment of premiums. Consequently, if coverage is being rescinded, the same adverse benefit denial protocols and appeal rights must be afforded to the participant or beneficiary as would be the case with a claim denial.
Temporarily Applicable Provisions from January 18, 2017 to December 31, 2017
Section 2560.503-1(p)(4)(i)(A) provides one aspect of the amended regulations that is applicable for claims filed under a plan from January 18, 2017 to December 31, 2017. That section requires a plan, if it relied upon a "specific rule, guideline, protocol or other similar criterion", to provide a statement to that effect in the adverse benefit determination letter and, upon request by the claimant, provide free of charge a copy of the rule, guideline or protocol. This applies to claims both at the initial stage of determination and on appeal.
Finally, §2560.503-1(p)(4)(ii) states that a plan's claim procedures will not be considered to have provided a full and fair review of a claim or adverse benefit determination unless the claim procedures comply with paragraphs (h)(2)(ii) through (iv). These sections pertain to the rights of claimants on appeal to submit written comments or documents, the right to request free of charge access to relevant documents and the obligation of plans on appeal to review all information submitted by a claimant whether or not it was relied upon during the initial claim determination. Also, plans must comply with sections (h)(3)(i) through (v). These sections relate to the time allowed for an appeal, the required lack of deference to the initial decision, consulting the right level of expertise pertinent to the claim, the identification of experts who consulted on the appeal and a requirement that the appellate experts were not subordinates of the professionals engaged on the initial benefit determination. Since these elements are all currently required in the handling of disability claims this should not present a new burden on plans.