The Pension and Welfare Benefits Administration of the U.S. Department of Labor (DOL) recently issued two sets of final rules setting forth new minimum standards for the benefit claims procedures and summary plan descriptions of employee benefit plans governed by ERISA. The rules were published at 65 Fed. Reg. 70225-70244(SPD contents) and 70245-70271(claims procedures), November 21, 2000. Both sets of rules are effective January 20, 2001, but the claims procedure rules will first apply to benefit claims filed on or after January 1, 2002. The SPD rules will apply to plans on the first day of their second plan year beginning on or after January 22, 2001.
Claims Procedure Requirements for Group Health Plans
Purpose and Scope
The new rules, to be codified at 29 C.F.R. § 2560.503-1, set forth minimum requirements for the benefit claims procedures of employee benefit plans covered by Title I of ERISA. These are pension and welfare benefit plans established or maintained by employers, employee organizations or both, other than "governmental plans" and "church plans." The rules establish new detailed standards for processing benefit claims under group health plans and disability benefit plans (and clarify existing standards for other welfare benefit and pension benefit plans). The new requirements for group health plans reflect the significant changes in the design and administration of such plans that have taken place since the DOL issued the current claims procedure rules in 1977, such as the widespread adoption of prior authorization and medical necessity as prerequisites to the payment of plan benefits.
Compared to the current rules, the new rules require (a) greater disclosure to participants of plan claims procedures and provision to claimants of the complete and specific reasons for any claim denials and all information relevant to such denials; (b) more procedures intended to assure fair treatment of claimants and (c) faster decisions on both initial claims and appeals of denied claims. The rules will affect plan participants and beneficiaries (including health service providers to which participants and beneficiaries may assign their rights to plan benefits), plan sponsors, fiduciaries, insurers, HMOs and third party administrators. Most, if not all, group health and disability benefit plan descriptions, summary plan descriptions, and related claims administration policies and procedures will need to be revised to comply with the new requirements.
Time Frames for Claims Decisions
All claims decisions are required to be made within a reasonable period of time, appropriate to the circumstances, after a request for plan benefits has been made in accordance with the plan’s claim filing procedures, but no later than the end of the maximum time periods set forth in the rules. Different time limits apply to initial and appeal decisions on urgent care claims, pre-service claims and post-service claims. A pre-service claim is a request for the approval of a benefit that the plan wholly or partly conditions on approval prior to receipt of the service. An urgent care claim is a claim for medical care with respect to which applying the time periods for making pre-service claims decisions could seriously jeopardize the claimant’s life, health or ability to regain maximum function or would subject the claimant to severe pain that cannot be adequately managed without the care that is the subject of the claim. A claim that a physician who knows the claimant’s medical condition determines meets any of these criteria must be treated as an urgent care claim. A claimant’s request to extend a previously approved course of treatment that is an urgent care claim must be decided within 24 hours. Additionally, claimants must be notified of any decision to terminate or reduce previously granted benefits for an ongoing course of treatment ("concurrent care decisions") early enough to complete an appeal before the reduction or termination becomes effective. The chart below shows the applicable time limits, including the extensions that are permitted upon prior notice to the claimant.
Initial claims decisions must be made no later than:
72 hours for urgent care claims (24 hours for requests to extend previously granted benefits for a course of treatment)
15 days for pre-service claims
30 days for post-service claims
One 15-day extension for reasons beyond plan control for pre-service and post-service claims
Appeal decisions must be made no later than:
72 hours for urgent care claims
30 days for pre-service claims (15 days each, if two appeals required)
60 days for post-service claims (30 days each, if two appeals required)
The new standards include a variety of requirements intended to assure that claims procedures are fair to claimants. A plan’s claim procedures may not include anything which would unduly inhibit the initiation or processing of benefit claims and may not preclude a claimant’s authorized representative from pursuing claims or appeals on behalf of the claimant. The procedures must include safeguards to assure claims decisions are made in accordance with the plan’s governing documents and plan provisions are applied consistently to similarly situated claimants.
Claimants must be given at least 180 days to appeal an initial adverse benefit decision to an appropriate named plan fiduciary who did not make the initial decision. The review on appeal may not accord any deference to the initial decision and must take into account all information submitted by the claimant, regardless of whether it was submitted or considered in the initial decision. In deciding an appeal of an initial decision based wholly or partly on a medical judgment (including decisions about whether a particular item or service is experimental, investigational or not medically necessary or appropriate), the plan fiduciary must consult with a qualified health care professional who was not consulted in connection with the adverse decision that is the subject of the appeal.
A claimant may not be required to file more than two appeals prior to filing a civil suit under ERISA § 502(a). Plans may offer claimants additional voluntary levels of appeal, such as arbitration or other forms of dispute resolution, only after the required appeal(s) is exhausted. Election of any such voluntary appeal cannot affect the claimant’s rights to any other plan benefits, and no fees or costs may be imposed on a claimant for filing or appealing any claim.
Notice and Disclosure
Under the new rules a full description of all claims procedures and applicable time frames must be included as part of the summary plan description required to be provided to plan participants and beneficiaries. In the case of group health plans, this must include a description of any procedures for obtaining prior approval as a prerequisite for obtaining a benefit, and prompt notice to a claimant who fails to follow the plan’s procedures for filing a pre-service claim so as to permit the failure to be cured quickly, if possible.
Claimants must be provided with written or electronic notice of any adverse benefit determination that describes in a manner calculated to be understood by the claimant the specific reason(s) for the determination with reference to the specific plan provision(s) on which it is based; any additional information needed for the claimant to perfect the claim and an explanation of why it is needed; the plan’s review procedures and applicable time limits, including the right to sue under ERISA § 502(a) following an adverse benefit determination on review; any internal rule, guideline, protocol or similar criterion relied on in making the adverse determination and an explanation of the scientific or clinical judgment for any determination based on a medical necessity or experimental treatment or similar exclusion or limitation. Finally, the claimant must be given the name of any medical expert whose advice was obtained on behalf of the plan in connection with the claimant’s adverse benefit determination, regardless of whether the advice was relied on in making that determination.
In addition to providing the information described above, notices of adverse appeals decisions must include a statement that the claimant is entitled to receive on request and free of charge reasonable access to and copies of all information relevant to the claim. For this purpose, "relevant" means information that was relied on in making the benefit determination or that was submitted, considered or generated in the course of making the determination, without regard to whether it was relied on, and information that demonstrates compliance with the plan’s administrative procedures and safeguards for assuring and verifying that plan provisions are applied consistently in making benefit determinations.
Preemption of State Law
Consistent with ERISA’s general preemption provision and "insurance savings clause," the claims procedure rules expressly provide that they do not preempt state law that regulates insurance, except to the extent such law prevents the application of any requirement of the rules. According to the DOL’s interpretation, state insurance law that prescribes standards for claims procedures and internal review of claims would not be preempted unless the plan insurer subject to such law literally could not comply with both the state and federal requirements.
However, the DOL takes the further position that state insurance regulation that establishes procedures to review and resolve disputes about plans’ adverse benefit determinations is not preempted if it provides for the procedure to be conducted by someone other than the insurer, plan, plan fiduciaries, employer or any of their employees or other agents. Such state "external" review procedures are not part of the ERISA-required full and fair review of denied benefit claims by an appropriate named fiduciary. Claimants, therefore, need not exhaust such procedures before filing a civil suit under ERISA § 502(a).
This DOL view that non-preempted state insurance regulation may establish external claims dispute resolution procedures for insured plans, which implies the provision of state law remedies for claimants who are denied benefits pursuant to their plan’s internal claims procedures, points anew to the unresolved legal issue of whether the civil remedies available to disappointed claimants under ERISA § 502(a) are, in fact, their exclusive remedies. The U.S. Supreme Court is likely to answer this question in the near future.
While nothing said about preemption in the new claims procedure rules or the preamble to the rules will settle the continuing legal controversies over the scope of ERISA preemption which embroil health insurers and HMOs, the appearance of these detailed federal standards for claims procedures following a period during which many states also have adopted new requirements for claims procedures and benefit disputes, assures that HMOs and insurers that provide group health plan benefits will find compliance with the dual regulatory schemes to be a complicated matter. It promises to become more complicated yet if, as appears likely, the next Congress amends ERISA to prescribe new and different group health plan claims procedures.
Summary Plan Description (SPD) Requirements for Group Health Plans
The new SPD final rule amends the regulations at 29 C.F.R. Part 2520 that govern the content of summary plan descriptions that ERISA requires to be furnished to welfare and pension benefit plan participants. Most significant are the clarifications of group health plan information that must be disclosed in SPDs and the repeal of the 1981 exemption from SPD disclosure for certain information about federally qualified HMOs offered as plan coverage options. In explaining its rationale for this repeal in the preamble to the final rule, the DOL points out that the information that must be disclosed in group health plan SPDs is no less important to plan participants who elect coverage under a federally qualified HMO option than it is to those who elect a non-federally qualified HMO or other plan coverage option, and expresses its doubt that the disclosure requirements of the federal HMO Act alone assure the receipt of timely and useful information.
The information provided by group health plan SPDs in particular must include clear descriptions of:
- any cost-sharing for which participants and beneficiaries are responsible, including premiums, deductibles, coinsurance and copayments;
any annual, lifetime or other limits on benefits;
- the coverage for preventive services, existing and new drugs, and medical tests, devices and procedures;
- the composition of any provider network, provisions governing the use of network providers, any coverage for out-of-network services and any conditions or limitations on the selection of primary or specialty care providers;
- conditions or limits on coverage for emergency care;
preauthorization and other utilization review requirements which are a condition to obtaining a benefit;
- circumstances which may result in disqualification, ineligibility or denial, loss, forfeiture, suspension, offset, reduction or recovery of any benefits a participant might otherwise expect the plan to provide on the basis of the description of benefits in the SPD;
- claim procedures; and
- identification of any health insurance issuer responsible for the financing and/or administration of the plan, a description of the extent to which plan benefits are guaranteed under the issuer’s contract or policy of insurance, if any, and of the nature of any administrative services the issuer provides.