The Employee Retirement Income Security Act of 1974 or “ERISA” applies to most private sector employee benefit plans. Federal law already requires that participants under an ERISA disability benefits plan receive (1) adequate, written notice stating the specific reasons for a denial of a claim and (2) a full and fair review by the appropriate named fiduciary of the denial. 29 U.S.C. § 1133. The Secretary of Labor is authorized to prescribe regulations to implement these protections. See 29 U.S.C. § 1135; § 1001(b). In new regulations poised to take effect April 1, 2018, the Department of Labor has made requirements for handling ERISA disability claims even more stringent. To gauge the significance of the new rules, it is helpful to review the rules already on the books.
Current Rules: Reasonable Claims Procedure
For example, current regulations require that every employee benefit plan:
- Have and maintain reasonable procedures governing the filing of benefit claims, notification of claim determinations, and appeals;
- A description of all claims procedures and applicable time frames included as part of the summary plan description; and
- Do not unduly inhibit or hamper the initiation or processing of a claim or appeal of an adverse determination, e.g., charge a fee. See 29 C.F.R. § 2560-503-1.
For disability benefit plans specifically, claims procedures are reasonable only if they:
- Do not contain any provision and are not administered in such a way as to require a claimant to file more than two appeals prior to suing in federal court (as authorized by 29 U.S.C. § 1132);
- In case of voluntary appeals, the plan agrees to waive the right to assert that a claimant failed to exhaust administrative remedies by electing not to submit a dispute to voluntary appeal, the deadline to file suit (the statute of limitations) or other defense based on timeliness is extended (tolled) during the time that the voluntary appeal is pending, and the plan provide, on request, sufficient information to allow the claimant to make an informed judgment as to whether to submit to a voluntary appeal; and
- Limit mandatory arbitration.
See id. There are also timing and appeal requirements. See id.
What Prompted the New Rules?
According to the Department of Labor, it was prompted to revisit disability claims procedures based in part on the number of disability claims litigation relative to other ERISA disputes. See Claims Procedure for Plans Providing Disability Benefits; Extension of Applicability Date, 81 Fed. Reg. 92316 (Dec. 19, 2016). The DOL cited concerns over conflicts of interest and fairness, which were addressed in enhanced regulations for group health benefits in the Affordable Care Act and, according to the Department, equally applicable to disability claims. See id., 92316-17. Such provisions include the right of claimants to respond to new and additional evidence and the requirements of independence and impartiality of the persons involved in the benefit determinations. See id. As summarized by the Department, the Final Rule includes additional requirements for the processing of claims and appeals for disability benefits:
- Disclosure Requirements. Benefit denial notices must contain a more complete discussion of why the plan denied a claim and the standards it used in making the decision. For example, notices must include a discussion of the basis for disagreeing with a disability determination made by the Social Security Administration (“SSA”) if presented by the claimant in support of his or her claim.
- Claim File and Internal Protocols. Benefit denial notices must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. Currently, this statement is required only in notices denying benefits on appeal. Benefit denial notices also must include the internal rules, guidelines, protocols, standards, or other similar criteria of the plan that were used in denying a claim, or a statement that none were used. Currently, denial notices are not required to include these internal rules, guidelines, protocols, or standards; instead denial notices may include a statement that such rules, guidelines, protocols, or standards were used in denying the claim and that a copy will be provided to the claimant upon request.
- Review and Respond to New Information. Plans may not deny benefits on appeal based on new or additional evidence or rationales that were not included when the benefit was denied at the claims stage, unless the claimant is given notice and a fair opportunity to respond.
- Conflicts of Interest. Plans must ensure that disability benefit claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. For example, a claims adjudicator or medical or vocational expert could not be hired, promoted, terminated, or compensated based on the likelihood of the person denying benefit claims.
- Deemed Exhaustion. If a plan does not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other conditions are met. If the claimant is deemed to have exhausted the administrative remedies available under the plan, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary and the claimant may immediately pursue his or her claim in court. A plan also must treat a claim as re-filed on appeal upon the plan’s receipt of a court’s decision rejecting the claimant’s request for review.
- Coverage Rescissions. Rescissions of coverage, including retroactive terminations due to alleged misrepresentation of fact (e.g., errors in the application for coverage) must be treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures. Rescissions for non-payment of premiums are not covered by this provision.
- Communication Requirements in Non-English Languages. Benefit denial notices have to be provided in a non-English language in certain situations, using essentially the standard applicable to group health benefit notices under the Affordable Care Act (“ACA”). Specifically, if a disability claimant’s address is in a county where 10 percent or more of the population is literate only in the same non-English language, benefit denial notices must include a prominent statement in the relevant non-English language about the availability of language services. In such cases, plans also would be required to provide oral language services in the relevant non-English language and provide written notices in the non-English language upon request.
Claims Procedure for Plans Providing Disability Benefits; Extension of Applicability Date, 82 Fed. Reg. 47409, 47410 (Oct. 12, 2017).
Rules Set to Take Effect Despite Delay, Criticism
The Final Rule was made effective January 18, 2017, but applicability was initially delayed until January 1, 2018 to provide adequate time for disability benefit plans and their affected service providers to make adjustments, as well as to give time for consumers and others to understand the amendments. Id. at 47410. It was further delayed in response to concerns by stakeholders and members of Congress that the regulations will increase disability benefit plan costs and litigation, and, as a result, decrease access to such benefits. See id., 47411. In a confidential survey of carriers, average premium increases were estimated at between 5-8%. Id., 47411. Delay was also in response to the issuance of executive order 13777 (“Enforcing the Regulatory Reform Agenda”) on February 24, 2017.
The Department indicated that it would use the additional time to review data including cost estimates on each of the provisions in the Final Rule and detrimental impacts on access to coverage, and reach a decision on “whether and how long to delay the applicability date.” See 82 Fed. Reg. 47410, 47412-13. In a news release on January 5, 2018, however, the Department noted receipt of approximately 200 comment letters but little substantive information concerning added cost and litigation. See Dep’t of Labor, News Release, 1/5/2018.
As such, the Department confirmed that the new rules will take effect on April 1, 2018. To that end, careful review of 29 C.F.R. 2560.503-1 as amended is recommended to ensure compliance with the new requirements.