The Department of Labor (DOL) recently issued proposed regulations that would strengthen claim procedures for disability claims made under retirement and welfare plans subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). The proposed rules would apply to both retirement and welfare plans that provide benefits conditioned upon a participant’s disability. Unlike the enhanced claims procedures added by the Affordable Care Act, which apply only to non-grandfathered health plans, these proposed regulations amend ERISA’s claims regulations for all plans, and therefore appear to apply to both grandfathered and non-grandfathered health and welfare plans. Below is a summary of the major provisions contained in the proposed regulations.
Independence and Impartiality (Avoiding Conflicts of Interest)
The proposed regulations augment existing standards for avoiding conflicts of interest in disability claims. The proposed rules provide that a plan may not make any decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as claims adjudicators or medical experts) based on the likelihood that the individual will support the denial of benefits. Under the proposed rules, plans would not be permitted to contract with, or provide bonuses or additional compensation to, outside medical experts based on the expert’s reputation for outcomes in contested cases for disability benefits (as opposed to the expert’s professional qualifications).
Enhanced Disclosure Requirements
The proposed rules amend the current disclosure requirements for disability claims in three ways:
- Basis for disagreeing with disability determinations. Adverse benefit determinations at both the initial claim stage and appeal stage must include a discussion of the decision, including the basis for disagreeing with any disability determination made by the Social Security Administration (SSA), a treating physician, or other third party disability payer, to the extent that the plan does not follow those determinations presented by the claimant.
- Statement of the criteria used to deny the claim. Under the proposed rules, an adverse benefit determination must state the internal rules, guidelines, protocols, standards, or other similar criteria the plan used to deny a claim, or a statement that such criteria do not exist.
- Notice of the right to review relevant documents at initial claim stage. Under the proposed regulations, adverse benefit determinations at the initial claim stage must contain a statement that the claimant is entitled to receive, upon request, any relevant documents used in adjudicating the claim. Under the current claims procedures, such a statement is required only in adverse benefit determinations at the appeal stage.
Right to Review and Respond to New Information before Final Decision on Appeal
The proposed regulations provide that during the appeal stage of an adverse benefit determination, the claimant must have the opportunity to review and respond to any new information or evidence considered, relied upon, or generated by the plan that was not considered at the initial claim level before a final decision is made on appeal. Under the current claims regulations, claimants only have the right to receive such new information upon requestafter a final decision has already been made during the administrative review process.
Specifically, the proposed rules require that during the pendency of an appeal, the plan must automatically furnish (not only upon the claimant’s request) to the claimant any new information not considered at the initial claim stage, and give the claimant a reasonable opportunity to respond to the new evidence. The plan would be required, under the proposed rules, to furnish such new information to the claimant as soon as possible, and would also be required to consider any response, in the form of written testimony or evidence, from the claimant to the new information.
The DOL is seeking comments on whether this back-and-forth exchange of information contemplated in the proposed rules would require modifications to the timing rules for disability claim appeal determinations, e.g. a rule that tolls the deadline for a plan to adjudicate an appeal in order to furnish new information to the claimant and allow the claimant a reasonable opportunity to respond. The DOL’s current position is that such a tolling provision is not needed for disability claims because the existing disability claim procedures already permit plans extensions to decide claims at the appeals stage.
“Deemed Exhaustion” of Claims and Appeals Processes with Minor Error Exception
Under the proposed rules, if a plan fails to adhere to all of the requirements set forth under the DOL’s claims procedures, the disability claimant will be deemed to have exhausted the plan’s administrative remedies and be permitted to file suit immediately. The rules provide that when a claimant is deemed to have exhausted administrative remedies, his/her claim is deemed to have been denied on review without the exercise of fiduciary discretion. Accordingly, in such a case, the reviewing court should not give special deference to the plan’s decision, but rather review the dispute de novo, according to the DOL.
However, the proposed regulations also set forth an exception for minor claims procedure violations committed by the plan. Under the proposed rules, a disability claimant is not deemed to have exhausted administrative remedies if the plan’s violation of the claims procedures was (1) de minimis; (2) non-prejudicial to the claimant; (3) attributable to good cause or matters beyond the plan’s control; (4) in the context of an ongoing good-faith exchange of information; and (5) not reflective of a pattern or practice of non-compliance. The claimant would be entitled, upon request, to an explanation of the plan’s basis for asserting that it meets the standard to invoke this exception.
In addition, the proposed rules provide protection for claimants who erroneously conclude that their administrative remedies have been deemed exhausted due to a plan’s violation of the claims procedures, and decide to take their claims directly to court. If a court rejects the claimant’s request for immediate review on the basis that the plan meets the minor error exception, the claim is considered re-filed on appeal upon the plan’s receipt of the court’s decision. At this juncture, under the proposed rules, the plan is required to provide the claimant notice of the refiling, and the claimant then has the right to pursue the claim at the plan’s internal appeal stage.
Coverage Rescissions as Adverse Benefit Determinations
Under the proposed regulations, a rescission of disability coverage (cancellation or discontinuation of coverage with retroactive effect, except due to non-payment of premiums) would be considered an “adverse benefit determination” for purposes of the claims procedures, even without an accompanying denial of a claim for benefits. Under the current rules, a rescission of coverage would be considered an adverse benefit determination only if the rescission is the basis for a denial of a claim for benefits (e.g. a plan denies an individual’s welfare claim because it discovers that the individual is not eligible for welfare coverage under the plan); a rescission of coverage without an accompanying denial of benefits is not generally considered an adverse benefit determination, and would not subject to ERISA’s claims procedures under the current rules. The proposed rules provide, however, that a rescission of disability benefit coverage, even in the absence of an accompanying denial of a claim, would be considered an adverse benefit determination, and would therefore trigger applicable procedural rights under the claims procedures for disability claims.
Culturally and Linguistically Appropriate Notices
The proposed regulations provide that where an adverse benefit determinations is sent to a claimant who lives in a county where 10 percent or more of the population is literate only in the same non-English language, the notice of adverse benefit determination must include a prominent one-sentence statement in the relevant non-English language about the availability of language assistance services. In addition, the plan would be required, under the proposed rules, to provide, upon request, an assistance process (such as a telephone hotline) with oral language services and written notices in the non-English language. Oral language services include answering questions and providing assistance with filing claims and appeals in the applicable non-English language.
The counties that meet the 10 percent threshold are determined based on Census Bureau population data and are listed here. Only four non-English languages currently meet the 10 percent threshold in any county: Spanish (which is the applicable non-English language in the vast majority of the counties that exceed the 10 percent threshold), Chinese, Tagalog, and Navajo.
Notice of Applicable Internal Limitations Period for Filing Claims
The DOL is seeking comments on whether the final version of these proposed rules should require plans to provide claimants a clear and prominent statement in the notice of final adverse benefit determination of any internal limitations periods and expiration dates that apply to the claims at issue, and an updated notice of that expiration date if tolling or some other event causes that date to change.
As we have written in prior alerts, courts have held that an ERISA plan’s internal limitations period is enforceable as a general matter as long as it is unambiguously spelled out in the plan’s governing documents. However, there is currently a circuit split on whether plans must also provide notice of the limitations period in claim and appeal denial letters. Providing notice of internal limitations periods in claim and appeal denial letters is easy to do, and we always advise clients to err on the side of caution and include clear and complete notice of a plan’s internal limitations period in every claim and appeal denial letter.
If finalized, these proposed regulations would impose several additional obligations on plan administrators with respect to claim and appeal determinations for disability claims. Plan sponsors may be required to amend their plans and claims procedures to comply with the more stringent rules set forth in these proposed regulations, and ensure that claim and appeal determinations are handled in compliance with these rules.