The health care reform provisions of the Affordable Care Act (the “Act”) will require significant changes in the procedures followed by most employer health plans when processing claims for benefits, as well as appeals from denials of those claims. The only plans that need not comply with these new claims and appeals procedures are those that are “grandfathered” under pre-Act law (in accordance with the guidance addressed in our June 2010 article). All non-grandfathered plans must comply with these expanded claims and appeals procedures as of the first plan year beginning on or after September 23, 2010.
DOL Claims and Appeals Regulations
In general, the Act subjects all employer plans to the existing ERISA claims and appeals requirements (as set forth in Department of Labor (“DOL”) regulations found at 29 CFR Section 2560.503-1) — even if a plan is exempt from ERISA. Such non-ERISA plans would include those sponsored by governmental or church-related employers, as well as any “multiple employer welfare arrangement.” Moreover, insured plans will remain subject to state insurance requirements, to the extent those requirements are more stringent than the ERISA rules.
Changes to the DOL Regulations
The DOL has stated that it will soon be updating its claims and appeals regulations. As a part of this guidance, however, the following additional requirements have already been grafted onto those regulations:
- An “adverse benefit determination” (to which the claims and appeals procedures apply) will include any “rescission” of coverage. As defined in recently issued regulations, “rescission” refers to any retroactive termination of health coverage, other than for failure to pay a required premium.
- The deadline for notifying a claimant of the plan’s ruling on an “urgent care claim” (whether adverse to the claimant or not) will be shortened from 72 hours to only 24 hours. The only exception to this 24-hour rule is if the claimant has not yet submitted sufficient information for the plan to determine whether the proposed medical procedure is covered under the plan.
- Plans will have additional disclosure obligations to claimants, including any new or additional evidence considered in connection with a claim. Moreover, if a plan intends to deny an appeal on a rationale other than one already given to the claimant, that rationale must be disclosed before the appeal is denied. The claimant must then be allowed to respond to that rationale.
- Plans and their sponsors must take additional steps to avoid conflicts of interest on the part of any decision maker.
- Expanded notice rules will apply, including requirements for providing notices in foreign languages, better identifying the claim at issue, explaining any standards used in denying a claim, and describing any internal and external review processes. The agencies responsible for administering the Act will be issuing model notices for this purpose.
- Plans will now be held to a strict compliance standard. Responding to a series of judicial decisions approving of either “substantial compliance” with the claims and appeals regulations or excusing a “de minimis error,” the new rules will allow a claimant to proceed directly to court (or an external review) if a plan fails to comply with every element of the new procedures. Should that occur, a reviewing court is not to defer to the plan fiduciary’s determination.
Coverage During Appeal
The Act also requires that a plan provide continued coverage pending the outcome of any internal appeal procedure. The regulatory guidance appears to limit this requirement to the context of “concurrent care claims,” for which the existing ERISA claims and appeals regulations already require the continued provision of coverage pending the outcome of an appeal. Aside from applying this ERISA requirement to non-ERISA plans, the new rules will allow a claimant who is undergoing a course of treatment to proceed directly to the plan’s external review option — without awaiting a final resolution of the internal review process.
External Review Process
The other major change made by the Act — particularly for self-funded plans — involves a requirement that each plan establish an external review process. Most states already require an external review process for insured plans, so those plans must simply comply with the state-mandated process.
This will suffice, however, only if that state process meets certain federal standards. These are generally based on a “model act” developed by the National Association of Insurance Commissioners (“NAIC”). Although the federal agencies have concluded that most state laws do meet this standard, some do not. In order to allow those non-compliant states some time to modify their laws, the regulations treat all state external review requirements as complying with the federal standards for plan years beginning before July 1, 2011.
Plans that are not subject to the state insurance requirements (generally because they are self-funded, and therefore protected by ERISA’s preemption of state laws) must comply with federal standards for an external review process. The same will eventually be true for insured plans in states that do not bring their external review processes into line with the federal standards.
Those actual federal standards have yet to be developed, although the agencies state that they will be similar to the NAIC rules. Because non-grandfathered, self-funded plans must comply with the federal standards as of the first plan year beginning on or after September 23, 2010, we can assume that the federal agencies will be issuing these standards in the relatively near term.
Conclusion and Recommendations
Given the potentially adverse consequences of failing to comply with each and every requirement in these expanded claims and appeals procedures, plans that are subject to these rules will want to make every effort to come into compliance by the effective date. Moreover, sponsors of grandfathered plans will want to take these rules into account when deciding whether to make the effort required to maintain their plans’ grandfathered status. Maintaining that status might at least allow these sponsors to postpone the date by which they must comply with these more burdensome rules.