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Final Rule Regarding Disability Claims and Appeals

The Department of Labor (DOL) has issued a final rule adopting revisions to the claims and appeals process for disability benefits covered by the Employee Retirement Income Security Act (ERISA).1 The revisions are intended to strengthen the current rule and to provide disability benefit claimants with protections that parallel those that were introduced by the Affordable Care Act for claimants covered by group health benefit plans.2 The final rule took effect on January 18, 2017, and applies to all claims for disability benefits filed on or after January 1, 2018.3 The final rule does not alter either the definition of what constitutes a disability benefit subject to the rule or the notice and decision-making time frames in the current rule.4

Benefits Subject to the Final Rule

Generally, a benefit is a “disability benefit” subject to the final rule if, under the terms of the plan, the availability of the benefit is conditioned upon a determination of disability. The new rule applies to any ERISA-covered plan that provides disability benefits — health and welfare plans as well as pension plans — unless the disability determination is made by a party that is not the plan and for a purpose that is not related to the plan. As noted above, the determination of when the disability benefit claims rule applies was not revised in the final rule.5

Conflict of Interest Requirements

Reviews of disability claims require a process guaranteeing decision makers’ independence and impartiality. Decision makers include claims adjudicators and medical and vocational experts. Claims decisions may not be linked to the hiring, compensation, termination, promotion or other similar criteria related to decision makers (e.g., bonuses based on benefit denials). Additionally, a plan cannot contract with a medical or vocational expert based on the expert’s reputation for outcomes in contested cases, rather than the expert’s professional qualifications.

Denial Notice Disclosure Requirements

Notices of adverse benefit determinations are required both when a claim is initially denied (initial denial notice) and if it is denied on appeal (appeal denial notice). In addition to all of the information previously required to be provided:

  • The initial denial notice must contain a statement that the claimant is entitled to receive access to and copies of all relevant documents upon request and without charge. The appeal denial notice must contain a description of any applicable contractual limitations period and its expiration date, in addition to the description of the claimant’s right to bring an action under ERISA Section 502(a).6
  • Both the initial denial notice and the appeal denial notice must include a discussion of the decision, including the basis for disagreeing with or not following: the views of a treating physician or vocational professional; the views of medical or vocational experts obtained by the plan; and/or a disability determination by the Social Security Administration; and
  • Both the initial denial notice and the appeal denial notice must be provided in a culturally and linguistically appropriate manner, if a claimant’s address is in a county where 10 percent or more of the county’s resident population is literate only in the same non-English language.7 In such situations, disability denial notices must include prominently stated information about the availability of non-English language services.

As under existing rules, the notices must contain any plan internal rules, guidelines or other criteria used in denying the claim and, if the decision is based on a medical necessity or experimental treatment exclusion, either an explanation of the scientific or clinical judgment for the determination or a statement that such explanation will be provided free of charge upon request.

Right to Review and Respond to New Information While Appeal Pending

Under the final rule, disability claimants have a right to review and respond to new evidence and rationales developed by the plan while an appeal is pending. During the appeal process, the plan must provide, free of charge, the claimant with:

  • Any new or additional evidence considered, relied upon or generated by the plan in connection with the claim;
  • Any new or additional rationale for a denial (e.g., a new medical report); and
  • A reasonable opportunity to respond to new information by presenting written evidence and testimony.

New information must be provided to the claimant automatically, as soon as possible, and sufficiently in advance of any applicable deadline, including extensions, to give the claimant a reasonable opportunity to respond before that date.

Deemed Exhaustion of Claims and Appeals Processes

As was generally the case under the previous rule, if a plan fails to strictly comply with all of the final rule’s requirements, the claimant is deemed to have exhausted his or her administrative remedies available under the plan, and the claimant is then entitled to go directly to a court. The final rule also specifies that his or her claim is deemed denied on review “without the exercise of discretion by an appropriate fiduciary,” which is intended to result in a more stringent judicial review than might otherwise be the case.

However, administrative remedies will not be deemed to be exhausted if the plan’s violation was de minimis and did not cause, and is not likely to cause, prejudice or harm to the claimant, provided the plan demonstrates that the violation was for good cause or due to matters beyond its control and that the violation occurred in the context of an ongoing, good-faith exchange of information between the plan and the claimant. This exception is not available if the violation is part of a pattern or practice of violations by the plan.

Coverage Rescissions

Under the final rule, a rescission of disability coverage triggers an adverse benefit denial. “Rescission” is defined as a retroactive coverage cancellation or discontinuance of disability benefits (in whole or in part), except to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage. It appears that the DOL is likely to consider a rescission to have occurred (and a claim triggered) even if a claimant commits fraud or makes an intentional misrepresentation of material fact.

Generally, however, for defined benefit pension plans that are in critical or critical and declining status, and that offer a disability benefit that is subject to the disability claims procedures, the DOL indicates that the rescission rule does not apply to benefit adjustments or suspensions that reduce or eliminate a disability pension benefit in accordance with Section 432 of the Internal Revenue Code.8

Implications for Plan Sponsors

Although the content of the final rule was intended to make the disability claims rules parallel the claims rules introduced under the Affordable Care Act, the Trump Administration did not try to stop or modify the final rule, and it has gone into effect as finalized. Modification of the rule now would require notice and a public comment period. Consequently, plan sponsors should review their disability benefit claims and appeals procedures and required disclosures to ensure they are compliant with the final rule.

Plan sponsors should review health and welfare and pension plans to determine if they are subject to the final rule. Most plans will have already made this determination in response to the original regulations issued in 2000, but if the responsibility for making the disability determination has changed through the years, plan language should be reviewed and revised as necessary. Summary plan descriptions (SPDs) must be amended to add language implementing the new rules. In addition, a determination should be made as to whether document language and administrative practices remain in alignment.

All disability-related denial letters and appeals determination letters should be reviewed to ensure that they contain required language. Appropriate provisions regarding language assistance must be included.

Discussions with disability benefit carriers or third party administrators should be initiated to determine their readiness to comply with the rule. In addition, inquiries will need to be made to whether the enhanced administrative requirements will affect the cost of coverage or administration.

Employers with disability management programs that integrate various systems (e.g., long-term disability, workers’ compensation, disability accommodations programs, other leave programs) may wish to review the disability management process with their plan administrators and determine whether the new rule will have any impact on the processes currently in place.

How Sibson Can Help

Sibson works with plan sponsors and their legal counsel on compliance issues. For example:

  • We can work with legal counsel on necessary amendments for plan documents and SPDs.
  • We can review required disclosures (including extension notices as well as denial notices) and work with legal counsel to revise them as necessary.
  • We can provide an operational review of the claims process (or just the disability claims process) to help ensure that it complies with the rule and with the plan documents.
  • We can review the governance structure of the plan’s disability claims review and the related procedures for compliance with the final rule.
  • We can assist employers in finding competent medical reviewers who can draft compliant denial notices.

Questions?

For more information about how the final rule may affect your plan, please contact your Sibson consultant or the Sibson office nearest you.

 

1 The final rule was published in the December 19, 2016 Federal Register.

2 Although the Affordable Care Act’s protections for disability benefit claimants apply to all group health plans, the DOL final rule does not apply to plans that are not subject to ERISA.

3 The final rule includes several transition rules for the period January 18, 2017 to December 31, 2017. The transition rules are for the sole purpose of avoiding a “guidance gap.” They keep the substance of certain previously existing provisions that are deleted by the final rule, but included in a new provision, in effect until the January 1, 2018 applicability date of the new provisions.

4 Under 29 CFR 2560.503-1, a plan must make a determination on an initial disability benefit claim within 45 days after the claim is submitted (with an additional 30 days for circumstances beyond the control of the plan if prior notice is given) and appeal within 45 days after receipt of appeal (with an additional 45 days for special circumstances if prior notice is given).

5 See footnote 3 of the final rule, which can be accessed from footnote 1 above.

6 ERISA section 502(a) provides participants and beneficiaries with the right to bring a civil action in federal court for erroneous denials of benefits under the terms of the plan. (See 29 U.S.C. 1132(a).)

7 This county data is available on the Centers for Medicare & Medicaid Services website.

8 See the middle of third column on page 92328 of the December 19, 2016 Federal Register.

 

Update is Sibson Consulting’s electronic newsletter summarizing compliance news. Update is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

 

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Copyright © 2017 by The Segal Group, Inc. All rights reserved.

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Regulatory
Guidance:

 

  • Reviews of disability claims require a process guaranteeing decision makers’ independence and impartiality
  • Disability denial notices must be provided in “a culturally and linguistically appropriate manner” to claimants who live in counties where at least 10 percent of the population is literate only in the same non-English language.
  • Disability claimants have a right to review and respond to new evidence and rationales developed by the plan while an appeal is pending.