Changing Health Benefit Claims & Appeals Rules Create Challenges For Administrators & Insurers

Updated: April 09, 2011

Keeping track of these evolving requirements and responding effectively is becoming increasingly confusing and challenging for most employee benefit plan sponsors, their insurers and administrators, patients, health care providers and other parties and the attorneys working to guide these clients through the health coverage maze.

The opportunity to bone up on these evolving rules is one of the many educational opportunties offered to attorneys that attend the ABA RPTE RPTE 22nd Annual Spring Symposia on April 28-29, 2011 in Washington, DC.

Understanding the scope and requirements of the ACA Rules and their relationship to other federal rules and precedent recent Labor Department guidance and court decisions concerning claims and appeals regulations effective since 2000 under the Employee Retirement Income Security Act of 1974 ("ERISA") are a clear sign that all health plan sponsors, insurers and fiduciaries should audit and strengthen their claims and appeals practices to promote the sustainability of claims and appeals decisions and safeguard their plan and its plan administrators and fiduciaries against potential administrative penalties, judgments and other liabilities.

Evolving federal claims and appeals standards and guidance create the need for sponsors, insurers, and administrators of most employer-sponsored health plans and health insurance policies to update and strengthen their claims and appeals processes and related plan terms and documentation.

Evolving Regulations Impact All ERISA Health Plans

Since its enactment, ERISA has required the plans and their fiduciaries decide and administer covered health plan claims and appeals prudently using "reasonable claims and appeals procedures" that comply with Labor Department regulations and other ERISA standards. As updated and effective for all covered health plans since 2000, however, Labor Regulation § 2560.503-1 ("2000 Claims Regulation") defines the conditions that the Labor Department require be met before it will view a claims or appeals decision to comply with ERISA's reasonable claims and appeals procedures including a series of highly timelines, notification, conflict of interest and other requirements applicable when claims or appeals involve ‘medical judgment" decisions.

Under current law, all ERISA-covered health plans generally must administer any denial, reduction, termination of, or a failure to provide payment (in whole or in part) ("Benefit Claim" in conformity with the requirements of the 2000 Claims Regulation - whether or not the plan is a grandfathered plan under ERISA. Ten years later, many health plans, and their insurers and administrators still have not adequately updated their health plan claims and appeals policies and practices to comply fully and consistently with the requirements of these 2000 Claims Regulations.

Labor Department official statements clarifying the Labor Department's interpretation of the current 2000 Claims Regulations and announcements of plans to update the 2000 Claims Regulations in connection with its implementation of the 2010 ACA Rules make it clear the Labor Department sees room to improve the claims and appeals processes and conduct of both grandfathered and non-grandfathered health plans. These statements indicate that the Labor Department likely will tighten further the requirements of the 2000 Claims Regulations in the near future.

Therefore, group health plan sponsors, insurers, fiduciaries and administrators of all group health plans should review and tighten their claims and appeals procedures in response to the guidance recently published in connection with the 2010 ACA Rules. Consequently, whether or not a health plan qualifies as grandfathered under ACA, health plans should be reviewed and updated as necessary to comply with current or future requirements of the 2000 Claims Regulation as they become applicable to the health plan.

Health Care Reform Brings Added Changes

Beyond complying with the 2000 Claims Regulations, ACA Section 2719 requires that for all plan years beginning after September 21, 2010, non-grandfathered health plans and health insurers claims and appeals also must administer adverse benefit determinations involving Benefit Claims or a rescission of coverage (whether or not the rescission has an adverse effect on any particular benefit at the time) in accordance with ACA's new requirements for internal claims and appeals and external review. As implemented by interim final implementing regulations ("2010 ACA Rules") jointly published by the Departments of Labor, Health & Human Services, and Treasury on July 23, 2010:

When applicable, the new 2010 ACA Rules among other things will require that non-grandfathered group health plans and insurers issuing non-grandfathered health insurance plans and policies:

  • Implement specified internal and external review procedures that among other things mandate independent external review of medical judgment based decisions in accordance with the regulations for reviews of appeals of medical judgment based denials;
  • Provide continued coverage pending the outcome of an internal appeal; and
  • Comply with the 2010 ACA Rules' additional criteria for ensuring that a claimant receives a full and fair review in addition to complying with the requirements of existing Labor Department claims and appeals procedures.

Highlights of some of these fair review requirements include:

  • Timely allowing a claimant to review the claim file and to present evidence and reasonable opportunity to respond as part of the internal claims and appeals process;
  • Before issuing a final internal adverse benefit determination based on a new or additional rationale, timely proving the claimant free of charge, with the rationale and a reasonable opportunity to respond;
  • Impose new conflict of interest rules for the hiring, compensation, termination, promotion, or other arrangements with a claims adjudicator or medical expert to reduce to promote the independence and impartiality of the persons involved in making the decision; and
  • Dictate that plans provide more information and other disclosures in claims and appeal denial notifications and that those notifications be provided in a culturally and linguistically appropriate manner; and
  • Automatically deem a claimant to have exhausted the plan's required internal claims and appeals procedures whenever the plan or insurer fails to strictly fulfill all applicable claims and appeals procedural requirements of the governing regulations, regardless of whether the compliance defect materially impacted the outcome of the claims or appeals decision.

While Labor Department and other ACA enforcement agencies have granted non-grandfathered plans temporary relief against agency enforcement of some but not all of these new requirements as the agencies finalize further refinements to the 2010 ACA Rules and the 2000 Claims Rules, it is critical that plan sponsors, insurers and administrators not over-estimate the scope of this announced relief.

The agencies delay of agency enforcement of the identified requirements until July 1, 2011 announced on September 20, 2010 in Technical Release 2010-02 (T.R. 2010-02) as modified and extended on March 18, 2011 by Technical Release 2011-01 (T.R. 2011-01) (the "Grace Period Guidance") only temporarily protects plans and their administrators against enforcement by government regulators of a subset of the ACA requirements until certain impending clarification to the 2000 Claims Regulations and 2010 ACA Rules impacting the specifically listed ACA requirements covered by the Grace Period Guidance relief.

The Grace Period Guidance does not bar plan members or health care providers with benefit assignments or other plan beneficiaries from asking courts to sanction violations of the 2010 ACA Rules or 2000 Claims Regulations committed during the agency granted grace period by overturning health plan claims or appeals denials or imposing other penalties and sanctions against plans or their fiduciaries.

Additionally, the Grace Period only offers agency enforcement relief from certain new 2010 ACA Rules requirements. Specifically, the Grace Period only applies to agency enforcement of the 2010 ACA Rules shortening the allowable time for making urgent care claims decisions and that plan claims and appeals related notices include more information and be culturally and linguistically appropriate. Non-grandfathered plans and their administrators and insurers remain accountable for prudently administering claims and appeals in accordance with all other requirements of the 2010 ACA Rules and the 2000 Claims Regulations.

Finally, and perhaps most significantly, the Grace Period Guidance does not give non-grandfathered plans and insurers license make no effort to comply with the requirements covered by the relief during the Grace Period. On the contrary, the Grace Period Guidance expressly limits the availability of the Grace Period relief to plans that are working in "good faith" during the Grace Period to implement the required practices and policies covered by the Grace Period.

In the meanwhile, Labor Department guidance and commentary published in connection with the 2010 ACA Rules and the Grace Period Guidance clearly reflect that the Labor Department views the currently effective requirements of the 2000 Claims Regulations and other applicable requirements of ERISA also already to hold health plans and their insurers, plan administrators and fiduciaries accountable for complying with broader and more detailed standards of performance than currently applied by many group health plan administrators or fiduciaries in several respects including:

  • The specificity of evidence and other analysis considered in reviewing and deciding claims and appeals and the notification about this to claimants;
  • The specificity of the applicable standards governing the claims decisions and the notifications about these requirements and their implications included in notifications of claims denials provided to claimants; and
  • The scope of evidence that plan administrators and other fiduciaries making claims or appeals decisions must make available to claimants in connection with the claims and appeals process.

Plan sponsors, insurers and administrators that fail to take steps to ensure that claims and appeals administered under their health programs are administered in compliance with applicable requirements of the 2000 Claims Rules and, in the case of non-grandfathered plans, the 2010 ACA Rules and to tighten up written plan terms, plan communications and other practices clearly leave their plans and their sponsors, insurers, and administrators and other fiduciaries to greater costs and other liability risks.

Court Decisions Also Signal Advisability of Tighter Policies, Practices & Regulations

Beyond the ACA and other regulatory changes, judicial precedent already demonstrated the need for many health plans, insurers and their administrators to strengthen the defensibility of their health plan claims and appeals practices and the plan language and documentation administered with these practices.

The existing precedent clearly documents that substantial compliance with the timelines, claims investigation and processing and notification procedures detailed in the 2000 Claims Regulations helps promote the cost-effective defensibility of health and other employee benefit plan decisions. Since 2000, courts increasingly have pointed to non-compliance with the 2000 Claims Regulations or other procedural irregularities in the administration of claims or appeals practices, administration or documentation as justification for overturning health care or other medically based claim or appeals decisions, imposing civil penalties and other remedies against plan administrators and other fiduciaries under ERISA Section 502(c) or even in some cases, holding a plan administrator or other fiduciary liable for breach of fiduciary duties. Consequently, when evaluating the adequacy and defensibility of their health plan's claims and appeals procedures health plan sponsors, insurers, fiduciaries and administrative service providers mistakenly presume their existing claims and appeals practices meet the 2000 Claims Regulations. Consequently, in addition to responding to the Labor Department's 2010 ACA Rules, employer and other health and employee benefit plan sponsors, insurers, fiduciaries and administrators also should consider tightening and strengthening their claims and appeals decision-making, documentation and notice processes and procedures to reduce the risk that the courts will overturn benefit denials to guard against the growing willingness of federal courts to overturn benefit denials based upon their findings of process, documentation, notification, conflict of interest or other deficiencies that make the decision "arbitrary or capricious" or otherwise unsustainable under ERISA.

ERISA-covered health plans, their plan sponsors, insurers and administrators should heed these and other Federal court decisions and the tightening of federal claims and appeals rules as clearly signaling the advisability of strengthening claims and appeals documentation and practices, the precision of plan language and communications, the clarity of claim fiduciary and other selection, engagement and oversight, and other prudent steps to preserve and promote the defensibility of claims and appeal decisions. As existing claims and appeals requirements and this emerging judicial precedent affect all ERISA-covered group health plans whether or not the plan is grandfathered from the obligation to comply with the 2010 ACA Rules, the time to begin reviewing and strengthening of plan language, claims and appeals processes and documentation and other defenses already has arrived for all health plans.

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