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Department of Labor Issues Final Rules on Claims Procedures and Summary Plan Descriptions

December 2000
By Jeffrey D. Mamorsky and Russell J. Mueller, Greenberg Traurig

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On November 21, 2000 the U.S. Department of Labor issued final regulations setting forth minimum claims procedure requirements for employee benefit plans covered under the Employee Retirement Income Security Act of 1974 (ERISA). The regulations, covering all plans except apprenticeship plans, apply with respect to "claims for benefits" filed on or after January 1, 2002.

On the same date, the Department also issued final rules amending the regulations governing the content of summary plan descriptions (SPDs) for such employee benefit plans. The rules repeal a former exception for federally qualified HMO coverage. The regulations, as summarized below, are generally applicable as of the first day of the second plan year beginning on or after January 20, 2001.

The claims regulations greatly expand the existing rules applicable to group health plans and disability plans while generally retaining and updating the 1977 regulations requiring "reasonable claims procedures" and a "full and fair" review process applicable to pension, long-term care and other employee benefit plans. To be considered a full and fair review, the plan’s procedure must (1) approve or deny an initial claim within 90 days and an appeal within 60 days while giving claimants at least 60 days to appeal an "adverse benefit determination" (except as described below for health and disability plans), (2) provide to claimants all relevant documents free of charge upon request, and (3) allow claimants to submit written comments and documents that must be taken into account in the review. Days refer to "calendar days."

Plan claims procedures will be deemed reasonable only if they:

1. Comply with the requirements of the regulations related to the type of plan involved, including the requirements of the regulations related to the timing of benefit determinations, the manner and content of notification of benefit determinations, appeals of adverse benefit determinations, the timing of notification of benefit determinations on review, and the manner and content of the notification of benefit determinations on review;

2. Are included in the summary plan description (SPD);

3. Do not contain provisions or are not administered in any way that unduly inhibits or hampers initiation of the processing of claims (such as imposition of fees or costs or the imposition of requirements that are impossible to comply with);

4. Do not preclude an authorized representative, under reasonable plan procedures, from acting on behalf of the claimant in pursuing a claim or appeal; and

5. Contain administrative processes and safeguards that ensure and verify that benefit determinations are made in accordance with governing plan documents and that plan provisions have been applied consistently with respect to similarly situated claimants.

In addition, certain plans subject to collective bargaining agreements will be deemed to be reasonable if the agreements set forth or incorporate by specific reference provisions concerning the filing of claims and initial benefit determinations and grievance and arbitration procedures to resolve adverse benefit determinations. 

Specific rules apply to group health plans in connection with (1) timeframes for claims decisions and extensions for incomplete claims, (2) circumstances requiring independent review, (3) the termination or reduction of granted benefits, (4) the disclosure of claims procedures and notice of inadequate filings of pre-service claim requests, (5) standards of review by "appropriate named fiduciaries," (6) permitted levels of review and arbitration, (7) the extent to which the regulation preempts state insurance law requirements for internal and external claims review, and (8) what constitutes and who is authorized to make a "claim for benefits" and when administrative remedies for such a claim have been exhausted. The existing exception to the rules applicable to federally qualified HMOs is repealed.

Disability plans must approve or deny initial claims within 45 days with two 30 day extensions possible for reasons beyond the control of the plan. The appeal of an adverse benefit determination must be resolved within 45 days with another 45 day extension possible for reasons beyond the control of the plan. More stringent and detailed timeframes apply to group health plans as described below. The requirements for a "full and fair" review of disability claims generally follow the rules for group health plans.

Significant Concerns Remain Under Final Regulations As Modified

The Department labels the regulations "significant" and estimates that 14 million claims, 1% of current claims, would violate the new rules. Start up costs to bring health and disability plans into compliance are estimated to amount to $119 million with annual costs afterward totaling about $399 million.

Although the Department explains the reasons for retaining or modifying the claims rules proposed on September 9, 1998, the final regulations do not address many of the criticisms and concerns expressed in the seven hundred letters of comment received by the Department.

For example, the Department describes its attempt to address concerns that the proposed regulations were unworkable and too costly by distinguishing between "pre-service" and "post-service" health claims and providing longer timeframes for the latter; by eliminating the requirement to disclose to claimants information on up to fifty similar denied health claims; by allowing two levels of appeal; by allowing arbitration; and by applying the more detailed rules only to health and disability plans.

Some of the concerns expressed about the proposed regulations that were not addressed in the final rules include the lack of federal preemption of similar claims procedures applicable to health insurance coverage under state law; the requirement that claims decisions be made "as soon as possible…."; the requirement that review by an appropriate health professional be made for claims involving "medical judgment"; the indeterminate nature of what constitutes "urgent care" that requires expedited claims treatment; the treatment of plan "eligibility" denials as adverse benefit determinations; and the ability of claimants to seek court review without exhausting administrative remedies if they show that any required plan claims procedure has been violated.

The regulations expose plans, plan administrators and plan fiduciaries to extensive and costly new rules that, if violated in any manner, may result in increased litigation under ERISA. It might be noted that the rules applicable to ERISA plans differ from and are more stringent than the claims rules applicable to the health plans under the Federal Employee Health Benefits Program that were rewritten to conform to a similar directive from the President.

Special "Claim for Benefit" Rules for Group Health Plans

Claim for Benefits: Urgent Care, Concurrent Care, Pre-Service and Post-Service Claims

A "claim for benefits" is a request for a plan benefit made by a claimant or authorized representative (including a health care professional in the case of urgent care), in accordance with a plan’s "reasonable procedure" for filing claims, relating to urgent care, concurrent care, pre-service and post-service claims.

A plan may not charge a fee or impose other requirements that "unduly inhibit or hamper" the filing or processing of claims (e.g. an unconscious claimant cannot be expected to obtain pre-authorization of care). The notice to a claimant of an adverse benefit determination must include the specific reasons and the plan provisions relied upon for the denial; a description of the review procedures (including expedited processes for urgent care), time limits involved and the claimant’s right to civil action; the description or availability of the description of any internal rule, guideline, protocol, etc., relied upon; and an explanation or the availability of the explanation of the scientific or clinical judgment used to deny a claim based on medical necessity or experimental treatment.

A "claim involving urgent care" is any claim for medical care or treatment where the application of the time periods for making non-urgent care determinations (1) could seriously jeopardize the life or health of the claimant or the claimant’s ability to regain maximum function, or (2) in the opinion of a physician with knowledge of the claimant’s medical condition, would subject the claimant to severe pain that cannot be adequately managed without the care or treatment requested. A determination of this type of claim must be made by a physician with knowledge of the claimant’s medical condition or otherwise by an individual acting on behalf of the plan applying the judgment of a prudent layperson who possesses an average knowledge of health and medicine. These rules give broad authority to treating physicians to designate a claim as "urgent care", thus placing plans in a position of having to treat a claim as such regardless of the actual facts of the case. In the absence of such a designation, it would appear that every other pre-service claim filed with a plan will have to be reviewed as to its urgent care status.

A "pre-service claim" is a claim which, under the terms of the plan, is conditioned, in whole or in part, on approval of the benefit in advance of obtaining medical care. A "post-service claim" is any claim for a benefit that is not a pre-service claim.

An appeal of the above claims for benefits must be allowed if the decision results in an "adverse benefit determination" of a claim for benefits. This term is defined as any of the following: a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including any such denial, reduction, termination, or failure to provide or make payment that is based on a determination of a claimant’s eligibility to participate in a plan, and includes a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review, as well as a failure to cover an item or service for which benefits are otherwise provided because it is determined to be experimental or investigational or not medically necessary or appropriate. The definition of this term would appear to sweep into the claims process activities that are not considered a "claim for benefits" under the present rules, such as determinations relating to plan participation and utilization reviews that do not rise to the level of coverage decisions.

In addition, if a plan has approved an ongoing course of treatment or a number of treatments, any reduction or termination of such "concurrent care" treatments before their completion (other than by plan amendment or termination) is considered an adverse benefit determination requiring the plan administrator to notify the claimant at a time sufficiently in advance to allow the claimant to appeal the determination before the benefit is reduced or terminated.

Timeframes and Notification for Initial Claims Determinations and Claims Appeals

Urgent care determinations:

Initial urgent care determinations must be made and claimants notified by the plan administrator "as soon as possible taking into account the medical exigencies," but not later than 72 hours after receipt of the claim (notification may be oral provided a written response is given within 3 days).  Notification to claimants of an incomplete claim must be made as soon as possible, but not later than 24 hours after receipt.  Claimants have at least 48 hours to provide the specified information after which plans must notify claimants of their determination as soon as possible, but not later than 48 hours.  Any "concurrent care" claim involving urgent care must be decided "as soon as possible, taking into account the medical exigencies," and the plan administrator must notify the claimant of the benefit determination, whether adverse or not, within 24 hours after receipt if it is made at least 24 hours prior to the expiration of the prescribed period of time or number of treatments.  This "earlier of" standard would appear to subject every urgent care claim to scrutiny as to whether the determination was made "as soon as possible….".  As described below, any failure to make the determination and provide notice within this stringent and subjective time-frame would permit claimants to bring suit under ERISA without exhausting additional administrative remedies.  

Appeals of initial urgent care determinations to an "appropriate named fiduciary" must be completed and claimants notified by the plan administrator "as soon as possible taking into account the medical exigencies," but not later than 72 hours after receipt of the appeal.

The bifurcated duties given "plan administrators" and "appropriate named fiduciaries" would seem to present plans with new challenges to allocate and coordinate the activities of these responsible parties in regard to every type of claim, whether urgent or not.

Pre-service claims determinations:

Initial pre-service claims determinations must be made and claimants notified by the plan administrator "in a reasonable period appropriate to the medical circumstances," but not later than 15 days after receipt of the claim. Notification to claimants of an improperly filed claim, which may be oral, must be made as soon as possible, but not later than 5 days after receipt. The 5-day rule applies only to claims that are submitted to the organizational unit customarily handling such claims and that specifies the claimant, the medical symptom or condition, and the treatment, service or product requested. Claimants have 45 days to provide the specified information. One extension of 15 days is permitted for circumstances beyond the control of the plan, including failure to obtain necessary information.

Appeals of initial post-service determinations to an "appropriate named fiduciary" must be completed and claimants notified by the plan administrator "in a reasonable period," but not later than 60 days after receipt of the appeal (30 days per appeal, if two appeals are required). A special rule applies to multiemployer plans with at least quarterly meetings.

Post-service claims determinations:

Initial post-service claims determinations must be made and claimants notified by the plan administrator "in a reasonable period," but not later than 30 days after receipt of the claim. Notification to claimants of an incomplete claim must be made within such reasonable period, but not later than 30 days after receipt. Claimants have 45 days to provide the specified information. One extension of 15 days is permitted for circumstances beyond the control of the plan, including failure to obtain necessary information.

Appeals of initial post-service determinations to an "appropriate named fiduciary" must be completed and claimants notified by the plan administrator "in a reasonable period," but not later than 60 days after receipt of the appeal (30 days per appeal, if two appeals are required). A special rule applies to multiemployer plans with at least quarterly meetings.

Standards of Review by Appropriate Named Fiduciaries and Required Medical Consultation

Additional plan requirements for a health claims appeal to be "full and fair" must include (1) a 180 day period for claimants to file an appeal, (2) a review that does not give deference to the initial determination by an "appropriate named fiduciary" who is not the initial reviewer nor a subordinate of such individual, (3) a consultation by the appropriate named fiduciary with a health care professional described in (4) who has appropriate training and experience in the field of medicine involved with respect to any adverse benefit determination based in whole or part on a "medical judgment including determinations with regard to whether a particular treatment, drug, or other item is experimental, investigational, or not medically necessary or appropriate," (4) retention of a health care professional as required in (3) who is neither the individual consulted in the initial determination nor a subordinate of such individual, (5) the identification of medical or vocational experts whose advice was obtained in connection with an adverse benefit determination regardless of whether their advice was relied upon to make the claim determination, and (6) a provision, with respect to a claim involving urgent care, that an appeal be allowed to be submitted orally or in writing by the claimant and provision that the plan’s response be transmitted to the claimant by phone, fax, or other expeditious method.

It should be noted that the regulation does not define what constitutes "medical judgment" involving a claim other than specifying that it does include claims involving experimental or investigational treatment and determinations of medically necessary or appropriate care. The indeterminate nature of this term raises a question as to whether claims determinations involving such medical judgment are or are not "administrative" determinations which have been consistently treated by the courts as falling within the federal preemptive framework under ERISA.

A plan’s claim procedure may require no more than two levels of appeal prior to the claimant’s bringing a civil action under ERISA section 502(a). Mandatory arbitration is also prohibited, except to the extent it is conducted as one or both of the two levels of appeals and the claimant is not precluded from challenging the decision in court under section 502(a). Additional voluntary binding arbitration or other methods of dispute resolution may be provided by a plan, but is subject to additional disclosure rules and requirements that the plan forego any assertion that use or rejection of such process constitutes a failure to exhaust administrative remedies and that any statute of limitations be tolled during such process.

Civil Action Permitted Upon Failure of Plan to Follow Required Procedures

The regulations include a requirement that a plan’s claims procedures include administrative safeguards and processes designed to ensure and to verify that claims determinations are made in accordance with governing plan documents and that, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants.

If a plan fails to establish or follow reasonable claims procedures under the regulation as described above, a claimant is deemed to have exhausted the administrative remedies available under the plan and is entitled to pursue any available civil remedies under ERISA section 502(a). It would appear that even actions taken in good faith that technically violate the stringent timeframes described above could trigger the application of expedited court review.

Extent of Preemption of State Insurance Law Regarding Internal and External Claims Review

The regulation states that the new claims procedure rules are not to be construed to supersede any provision of State law that regulates insurance, except to the extent that such law prevents the application of a requirement of the new rules (e.g. a state insurance law requiring more stringent timeframes would not be considered preempted). It might be noted that this preemption exception for state insurance laws that do not "prevent the application" of the federal rules is specifically contained in the Health Insurance Portability and Accountability Act in the context of the requirements relating to health insurance coverage under group health plans, but is not specifically contained in ERISA section 503, the subject of these claims regulations.In addition, a State law regulating insurance is not to be considered to prevent the application of a requirement of the regulation merely because such State law establishes a review procedure to evaluate and resolve disputes involving adverse benefit determinations under group health plans so long as the review procedure is conducted by a person or entity other than the insurer, the plan, plan fiduciaries, the employer, or any employee or agent of any of the foregoing (e.g. "external review" procedures required under state insurance law are considered to be beyond the scope of the regulation and would not, therefore, be considered preempted by the regulation). Note that recent federal court decisions have differed on this latter point and have upheld ERISA’s preemption of state insurance law external review procedures otherwise applicable to health insurance contracts issued to group health plans. The regulation also states that the State law procedures not so preempted are not part of the full and fair review required under section 503 of ERISA. Therefore, claimants need not exhaust such State law procedures prior to bringing suit under section 502(a) of ERISA.

Final Summary Plan Description (SPD) Regulations under ERISA

The final rules amending the regulations governing the content of ERISA summary plan descriptions require group health plan SPDs to include descriptions of any cost-sharing provisions and premiums; any annual or lifetime caps or other limits on benefits; the extent of covered preventive services; whether, and under what circumstances, existing and new drugs are covered; and whether, and under what circumstances, coverage is provided for medical tests, devices and procedures.

Group health plan SPDs must also describe plan provisions governing the use of out-of-network providers, the composition of such networks and whether, and under what circumstances, coverage is provided for out-of-network services. Descriptions of conditions or limits that apply to emergency medical care as well as provisions requiring pre-authorization or utilization review as a condition to obtaining a benefit or treatment must also be included in SPDs under the rule.

The regulation also finalizes an interim rule that requires SPDs to explain the rights of participants and beneficiaries under the Newborns’ and Mothers’ Health Protection Act of 1996 that requires plans to cover hospital stays of at least 48 hours after normal childbirth and 96 hours after cesarean sections.  

 

© 2000 Greenberg Traurig


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