Last year the Department of Labor (DOL) finalized new disability claims procedure rules, effective January 1, 2018, to add more procedural safeguards and provide claimants access to more information.
The new rules are not limited to disability plans. They apply to all ERISA welfare and pension plans that provide benefits based on a finding of disability (e.g., vesting or payment under pension, 401(k), and top hat plans or life insurance plans that require a determination of disability for purposes of receiving a premium waiver).
Not all plans with a disability provision are covered under the new rules. If a third-party is responsible for making the disability determination and the determination is not being made to obtain a benefit under the plan (e.g., pension benefits paid to a person who as been determined to be disabled by SSA or under the Employer’s LTD plan) the plan is not subject to the new rule and standard claims procedure rules apply.
In addition, short-term disability programs that are salary continuation programs that meet the ERISA payroll practice exemption are not covered.
Denials made during the 2017 calendar year must include additional disclosures if the denial is based on:
- an internal rule, guideline, protocol, or other similar criterion; or
- a medical necessity, experimental treatment or similar exclusion.
This information can be disclosed as part of the denial, or, the denial can include a statement that the information will be provided free of charge upon request.
Overview of Changes
- Avoids Conflicts of Interest. The new rule puts restrictions in place to ensure the independence and impartiality of the reviewer. Decisions regarding hiring, compensation, termination, or promotion of any individual (e.g., a claims adjudicator, medical expert or vocational expert) cannot be based on the likelihood of denials. If claims procedures are outsourced (or handled by the insurer) the plan sponsor should take steps (e.g., adding contractual terms and ongoing monitoring) to ensure the insurer or TPA is in compliance.
- Expanded Basis Disclosure Requirements. Denial notices need to include the basis for disagreeing with the views of the claimant’s medical or vocational expert or, if applicable, an SSA disability determination. In addition, if the plan consults with an expert but does not rely on the opinion it must discuss its basis for non-reliance.
- Denial Notices. Denial notices (not just appeals) must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. In addition, the denial notice must include the internal rules, guidelines, protocols, standard or other similar plan criteria that were used in denying a claim. It is still sufficient to include a statement that explanation of the scientific or clinical judgment relating to a claim denial for a medical necessity, experimental treatment or similar exclusion is available upon request.
- Right to Review and Respond. If new or additional information will be used as the basis to deny an appeal the claimant must be given notice and a fair opportunity to respond before the decision is finalized.
- Rescission of Coverage. A cancelation of disability coverage with a retroactive effect (e.g., a cancelation due to errors in application, etc.) is an adverse benefit determination that triggers the disability claims procedures. This would not include a rescission due to non-payment of premiums.
- Culturally and Linguistically Appropriate Notices Required. If a claimant’s address is in a county where at least 10% of the population is literate in the same non-English language the notice must include a prominent statement about the availability of a translation service in that language. The plan must also provide a verbal customer assistance process, such as a hotline, and written notices in the non-English language upon request. This is similar to the requirement for ACA claims procedure notices and plan sponsors may be able to leverage the work already in place for the group health plan notices.
- Contractual Provisions Limiting When a Civil Action May Be Filed. Many plans contain a provision that limits the timeframe a claimant may file a lawsuit (e.g., three years). The denial notice must clearly state the limit and expiration date. The preamble clarifies the DOL’s position that the claimant must be provided with sufficient time to complete the claims procedure process and then file a legal claim (e.g., a year or more to bring suit after the close of the internal claims procedure process).
- Failure to Comply with the New Rules. If the new rules are not followed (other than in a minor way) the claimant is generally deemed to have exhausted the claims and appeals process and may immediately file their case in court.
Self-funded plan sponsors should update covered plans, SPDs, internal claims procedures and claims and appeals notices prior to January 1, 2018. If claims are outsourced, TPA agreements and procedures will also need to be reviewed. For insured sponsors, the insurer will be responsible for making the majority of the changes, however, procedures should be discussed and contracts will need to be reviewed.
The new rules provide insight into the DOL’s views on contractual limitations and although the new rules only address disability claims, the DOL believes the contractual limitations provisions should apply to all claims. Therefore, sponsors should review all contractual provisions in their internal claims procedures and revise as necessary.