Health Care Reform – Regulations Regarding Internal Claims and Appeals and External Review Processes

As reported in our earlier Advisories (please go to the Employee Benefits Section of our website to find links to these Advisories), the Departments of Treasury, Labor, and Health and Human Services continue to churn out regulations regarding the new health care reform laws.  On July 22, 2010, the Departments issued yet another round of guidance addressing internal claims and appeals and external review processes.  The requirements set forth in these interim final regulations apply only to non-grandfathered group health plans and are effective the first plan year beginning after September 23, 2010 (for calendar year plans, January 1, 2011).  This Advisory will focus on those provisions in the regulations concerning group health plans sponsored by employers.

Internal Claim and Appeal Processes

ERISA-covered group health plans are not strangers to the claims procedure requirements imposed under ERISA.  Many non-ERISA health plans use ERISA-like claims and appeals processes as well to provide a kind of "safe harbor" for their claims procedures.  The regulations refer back to the ERISA claims procedure requirements and add six new requirements to implement an effective internal claims and appeals process:

Adverse Benefit Determination.  Under current regulations, appeal procedures are triggered by "adverse benefit determinations."  The regulations broaden the definition of an adverse benefit determination.  Specifically, the regulations add that a rescission of coverage must be treated as an adverse benefit determination that triggers appeal rights for the affected individual, regardless of whether the rescission has an adverse effect on any particular benefit at that time.

24-Hour Notice for Urgent Care Claims.  The current claims procedure regulations generally require that group health plans make a determination regarding urgent care claims within 72 hours.  In order to comply with the new requirements, a group health plan must notify a claimant of a benefit determination (whether adverse or not) with respect to an urgent care claim as soon as possible, taking into account the medical exigencies, but not later than 24 hours after receipt of the claim, unless the claimant fails to provide sufficient information to determine whether the benefits are covered or payable. 

Full and Fair Claim Review.  The ERISA claims regulations already provide some protections to ensure a full and fair review of claims.  Under health care reform, a group health plan now must allow a claimant to review its claim file and to present evidence and testimony as part of the internal claim and appeal process.  The regulations provide additional criteria to ensure that a claimant receives a full and fair claim review.  Specifically, in addition to complying with the requirements of the existing DOL claims procedure regulation, the plan must provide the claimant, free of charge:

• Any new or additional evidence considered, relied upon, or generated by the plan, and
• Any new or additional rationale that is intended to be used in making an adverse benefit determination upon review.

Such information must be provided to the claimant as soon as possible and sufficiently in advance of the date on which the final internal adverse benefit determination notice is required to be provided, in order to give the claimant a reasonable opportunity to respond prior to that date.

Conflict of Interest.  The regulations provide new criteria for avoiding conflicts of interest.  A group health plan must ensure that all claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the person involved in making the decision.  Thus, to prevent conflicts of interest, decisions regarding hiring, compensation, termination, promotion and similar matters with respect to any individual cannot be based upon the likelihood that the individual will support the denial of benefits.

Additional Disclosures and Content of Notice.  The regulations provide new standards for providing notice to participants of benefit determinations.  All required notices of available internal claim and appeal processes and external review processes must be provided in a "culturally and linguistically appropriate" manner.  This includes the need to provide the relevant notices in a non-English language, depending on the number of participants who are literate only in the same non-English language.  For a plan that covers 100 or more participants at the beginning of a plan year, the additional notice is required if the number of plan participants who are literate only in the same non-English language exceeds the lesser of 500 participants or 10 percent of all plan participants.  For those plans with fewer than 100 participants, the threshold requiring the additional notice is 25% of all plan participants.

The regulations also impose additional requirements on adverse benefit determinations, regardless of the language used.  All notices must include the reason for the adverse determination and information sufficient for the claimant to identify the claim involved, including the date of service, health care provider, claim amount, diagnosis and treatment codes, and the corresponding meanings of these codes.  The plan also must ensure that the reason for the adverse determination includes the denial code and its meaning, along with a description of the standard that was used in denying the claim.

Additionally, the plan must provide a description of available internal appeals and external review processes, including information regarding how to initiate an appeal.  Finally, the plan must disclose the availability of, and contact information for, any applicable office of health insurance consumer assistance or ombudsman to assist participants with the internal claims and appeals and external review processes.

Failure to Comply.  If a plan fails to strictly follow all of the requirements of the internal claims and appeals process with respect to a claim, the claimant is deemed to have exhausted the internal claims and appeals process.  The plan can no longer argue that it "substantially complied" with the claims and appeals procedures, or that any errors were of a de minimis nature.  Upon any failure to comply, the claimant may initiate an external review and pursue any available remedies under applicable law, such as filing a lawsuit.

Continued Coverage Pending Outcome of Appeal

The regulations require a plan and insurer to provide continued coverage pending the outcome of an appeal, including following the requirements of the DOL claims procedure regulation, which generally prohibits a plan from reducing or terminating an ongoing course of treatment without providing advance notice and an opportunity for advance review.  Note that the regulations do not require the plan to provide coverage other than the coverage for an ongoing course of treatment.

External Review Process

In addition to the internal claim and appeal provisions above, plans also must comply with either a State external review process or the federal external review process.

State Standards for External Review.  If a State external review process includes, at a minimum, the consumer protection provided in the regulations, and applies to and is binding on the health insurance issuer of a fully-insured group health plan, the plan and the employer maintaining that plan are required to comply with the State external review process, and not the federal external review process.

Transition Rule for Existing State External Review Processes.  In order to allow States time to amend their laws to meet the minimum consumer protections in the regulations, the regulations provide for a transition period so that existing State external review processes will be treated as meeting the minimum standards for plan years beginning before July 1, 2011.  Consequently, for plan years beginning before July 1, 2011, health insurers subject to an existing State external review process must comply with that process and not the federal external review process.

Federal External Review Process.  Self-insured plans and other plans that do not satisfy the State external review process must comply with the federal external review process.  The regulations describe the scope of claims eligible for this process but not the process itself; further guidance will be issued on this process.  Adverse determinations relating to an individual's failure to meet the requirements for eligibility under the plan are not subject to this external review process.  However, the regulations do provide that the additional standards and guidance yet to be issued will:

• Describe how a claimant will initiate an external review, procedures for determining whether a claim is eligible for an external review, minimum qualifications for independent review organizations (IROs), a process for random assignment of reviews to the approved IRO and rules for providing notice of the final external review decision;
• Establish an expedited external review process that will be available if there is serious jeopardy to the life or health of the claimant or if the internal adverse decision concerns an admission, continued stay or health care service for which the individual received emergency services and has not been discharged from the facility;
• Provide additional consumer protections for claims involving experimental or investigational treatments;
• Provide that the external review process will be binding, except to the extent other remedies are available under state or federal law; and
• Establish additional notice requirements to inform participants of these external review procedures.

The new claims and appeals requirements under health care reform will impose more time-consuming and expensive rules on plan administrators.  Plan sponsors considering the benefits of retaining grandfathered status will want to carefully consider these costs.  These additional costs may encourage employers to retain grandfathered status.  However, in many cases, if an employer has multiple benefit options, only some of which may be grandfathered, it may make more sense to apply all of the new claims procedures to all applicable group health plans in order to make the process consistent for everyone.

If you have any questions about this Client Advisory, please contact any member of our Employee Benefits Team.

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©2010 Sherman & Howard                                                             August 18, 2010