The “insurance market reform” provisions of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (together, the Act) generally require health insurance issuers in the individual and group markets, and employer-sponsored group health plans, to comply with a series of rules regarding internal claims and appeals and external review processes (collectively, the “claims procedure rules”). The claims procedure rules build on similar requirements enacted more than 30 years ago under the Employee Retirement Income Security Act of 1974 (ERISA), which were designed to ensure that participants in employee benefit plans had access to a full and fair review of disputed claims. They are set out in a new provision of the Public Health Service Act (PHSA) that is carried over into both ERISA and the Internal Revenue Code (the Code).
On July 23, 2010, the Departments of Health and Human Services, Labor, and the Treasury (the Departments) issued interim final regulations (the July 2010 IFR) implementing the Act’s claims procedure rules. There followed additional guidance—formal and informal—further elaborating on these requirements and selectively extending some enforcement dates. Most recently, in response to a large volume of public comments, and mindful of the need to work in conjunction with state insurance regulators, the Departments issued:
- An amendment to the July 2010 IFR entitled “Group Health Plans and Health Insurance Issuers: Rules Relating to Internal Claims and Appeals and External Review Processes; Amendment to Interim Final Rules with Requests for Comments” (the June 2011 IFR);1 and
- Technical Release No. 2011-02 entitled “Guidance on External Review for Group Health Plans and Health Insurance Issuers Offering Group and Individual Health Coverage, and Guidance for States on State External Review Processes” (Technical Release 2011-02).2
This client advisory explains these two new developments relating to the Act’s claims procedure requirements.
Under prior law, most private sector employer-sponsored group health plans, whether self-funded or fully-insured, were subject to ERISA’s claims procedure requirements. Fully-insured group health plans were (and remain) also subject to state-law claims review rules in addition to those prescribed by ERISA. First adopted in 1977, the ERISA claims procedure rules were most recently overhauled in regulation that took effect for plan years beginning on and after July 1, 2002 but no later than January 1, 2003.3 The 2003 regulations designated claims as “pre-service” (e.g., requests for preauthorization), “concurrent” (e.g., relating to ongoing care), and “post-service” (i.e., claims for care that has already been rendered) and prescribed different decision deadlines for each. Claims and appeals for pre-service and concurrent care were treated more expeditiously than claims and appeals related to post-service claims. An even more stringent set of standards applied in the case of care that was deemed “urgent.” (A claim involving urgent care is generally a claim for medical care or treatment with respect to which the application of the time periods for making non-urgent care determinations could, among other things, seriously jeopardize the life or health of the claimant or the ability of the claimant to regain maximum function.) The decision by a plan to deny a claim for benefits (either completely or partially) is referred to as an “adverse benefit determination.” An adverse benefit determination must be in writing and must include an explanation of the denial. Where the denial involved a determination of medical necessity or experimental treatment, plan participants had the right to request, without charge, an explanation of the scientific or clinical judgment for the determination. The pre-Act rules also established a process for appealing adverse benefit determinations under which the plan was obligated to provide the claimant with all documentation examined in the process of making the determination.
The Act requires group health plans and health insurance issuers to incorporate the internal claims and appeals processes set forth in the pre-Act regulations (described above) and to update these processes in accordance with standards established by the Departments. In addition, health insurance issuers must at least initially comply with internal claims and appeals processes set forth in applicable State law, as updated in accordance with standards established by the Secretary of Health and Human Services. Specifically, the Act establishes internal claims and appeals and external review standards that apply to group health plans and health insurance issuers in the individual and group markets other than grandfathered arrangements. Plans and issuers must have in place internal claims and external review processes; provide appropriate notices to enrollees; permit enrollees to review their files and present evidence; and provide continued coverage pending the outcome of an appeal. The Act’s claims procedure requirements carry over by reference into the Code and ERISA. Accordingly, the claims procedure rules apply to licensed carriers and group health plans irrespective of whether they are subject to ERISA, and jurisdiction over the rules implementing the claims procedure mandate is shared among the Departments.
The July 2010 IFR and Related Guidance
In implementing the Act’s claims procedure requirements, the Departments took as their starting point the Department of Labor (DOL) claims procedure rules, to which they added some additional rules to conform to the Act’s demands.
The July 2010 IFR
The standards which the July 2010 IFR added to the pre-Act DOL claims procedures include the following (as explained below, items 2, 5, and 6 are modified in the June 2011 IFR):
- Adverse benefit determinations include rescissions
The scope of adverse benefit determinations includes a rescission of coverage (whether or not the rescission has an adverse effect on any particular benefit at the time).
- Urgent care notification period shortened to 24 hours
Under prior law, notification in the case of urgent care claims was required to be made not later than 72 hours after the receipt of the claim. This period was shortened to no later than 24 hours after the receipt of the claim by the plan or issuer.
- Disclosure of new or additional evidence
Plans and issuers must provide the claimant (free of charge) with new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan or issuer in connection with the claim, as well as any new or additional rationale for a denial at the internal appeals stage, and a reasonable opportunity for the claimant to respond to such new evidence or rationale.
- Conflicts of interest
Decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to an individual, such as a claims adjudicator or medical expert, must not be based upon the likelihood that the individual will support the denial of benefits.
- Culturally and linguistically appropriate notices
Notices must be provided in a culturally and linguistically appropriate manner.
- Additional content for notices to claimants
Notices to claimants must provide additional content. Specifically, (1) any notice of adverse benefit determination or final internal adverse benefit determination must include information sufficient to identify the claim involved, including the diagnosis code and the treatment code; (2) the plan or issuer must ensure that the reason or reasons for an adverse benefit determination include the denial code and its corresponding meaning, as well as a description of the standard, if any, used in denying the claim; (3) the plan or issuer must provide a description of available internal appeals and external review processes, including information regarding how to initiate an appeal; and (4) the plan or issuer must disclose the availability of, and contact information for, an applicable office of health insurance consumer assistant or ombudsman, as required under the Act.
- Strict adherence
If a plan or issuer fails to strictly adhere to all of the new claims procedure requirements, the claimant is deemed to have exhausted the internal claims and appeals process, regardless of whether the plan or issuer asserts that it has substantially complied, and the claimant may initiate any available external review process or remedies available under ERISA or under state law.
DOL Technical Releases 2010-02 and 2011-01
The Act’s claims procedure rules generally apply to plan years beginning on or after September 23, 2010 (i.e., January 1, 2011 for calendar year plans). DOL Technical Release 2010-02 sets forth an enforcement grace period until July 1, 2011 for compliance with certain new requirements relating to internal claims and appeals. These include items 2, regarding the timeframe for making urgent care claims decisions; 5, regarding providing notices in a culturally and linguistically appropriate manner; 6, requiring broader content and specificity in notices; and 7, regarding exhaustion, above. This enforcement grace period was further extended by Technical Release 2011-01 with respect to item 2 (regarding the timeframe for making urgent care claims decisions), item 5 (regarding providing notices in a culturally and linguistically appropriate manner), and item 7 (regarding exhaustion). With respect to item 6, requiring broader content and specificity in notices, the enforcement grace period was extended in part. The requirement to disclose certain diagnosis codes and treatment codes was pushed off until plan years beginning on or after January 1, 2012, while the grace period for the remaining requirements would end on the first day of the first plan year beginning on or after July 1, 2011 (i.e., January 1, 2012 for calendar year plans). Click here to see a table that summarizes the effective dates of the requirements added by the July 2010 IFR, as subsequently extended.
The Act for the first time adds a federal external review requirement. In this respect, the federal rules lag behind the efforts of many states that have external review regimes in place for fully-insured arrangements. By virtue of the ERISA preemption rules, states are generally barred from regulating self-funded plans. As a consequence, the Act’s external review requirements are laid over an existing patchwork of state laws and on two fundamentally different plan types—fully insured and self-funded. Moreover, that some state external review laws are fairly robust, while others are less so, poses a separate set of challenges to the regulators.
Self-funded plans subject to ERISA must comply with a federally prescribed external review process. In Technical Release 2010-01, the DOL promulgated a safe harbor for self-insured plans subject to ERISA under which these plans are allowed to contract with accredited independent review organizations (IROs) to perform reviews. This process is referred to as the “Private Accredited IRO Process.” States may, however, choose to expand access to their state external review process on a voluntary basis to plans not subject to applicable state laws (such as self-insured ERISA plans). In these instances, plans may choose instead to complying with the provisions of that state external review process. Separate rules apply to “self-insured, nonfederal governmental plans” (i.e., plans of state and local governments). Since these plans are not subject to ERISA, state laws can and do apply. These plans are generally treated in a manner similar to fully-insured plans.
During a transition period that originally ended for plan years beginning before July 1, 2011, all state external review processes were deemed to comply with the Act. For states with no external review law (i.e., Alabama, Mississippi, Nebraska, Guam, American Samoa, U.S. Virgin Islands, and the Northern Mariana Islands), the Department of Health and Human Services (HHS) prescribed a separate process that is based on the Uniform External Review Model Act promulgated by the National Association of Insurance Commissioners (NAIC).
The June 2011 IFR
The June 2011 IRF makes the following changes to the claims procedure rules:
Modifications to specific requirements
Urgent Care Claims (Item 2 above)
The period for urgent care claim decisions is modified to remove the 24 hours requirement from the July 2010 IFR. Under the June 2011 IFR, such claims must be made as soon as possible consistent with the medical exigencies involved but in no event later than 72 hours, provided that the plan or issuer defers to the attending provider with respect to the decision as to whether a claim constitutes “urgent care.” In the preamble to the June 2011 IFR, the Departments emphasized that:
the 72-hour timeframe remains only an outside limit and that, in cases where a decision must be made more quickly based on the medical exigencies involved, the requirement remains that the decision should be made sooner than 72 hours after receipt of the claim.
Form and Manner of Notice (Item 5 above)
Under the Act’s claims procedure requirements, group health plans and health insurance issuers must provide relevant notices in a culturally and linguistically appropriate manner. The July 2010 IFR required notices to be furnished in a non-English language based on rules adapted from the DOL regulations regarding style and format summary plan descriptions. For group health plans, these requirements varied depending on the number of participants in the plan. For a plan that covers fewer than 100 participants at the beginning of a plan year, the threshold is 25% of all plan participants being 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 threshold is 500 participants or 10% of all plan participants (whichever figure is lower) being literate only in the same non-English language. The June 2011 IFR amends this requirement to provide for a single threshold of 10% or more of the population residing in the claimant’s county, as determined based on American Community Survey data published by the United States Census Bureau. Under the amended rule, each notice sent by a plan or issuer to an address in a county that meets the 10% threshold must include a one-sentence statement in the relevant non-English language about the availability of language services. The Plan or Issuer must also make these language services available, and provide a notice in the non-English language upon request. The Departments note that, for ease of administration, some plans and issuers may choose to use a one-sentence statement for all notices within an entire state (or for a particular service area) that reflects the threshold language or languages in any county within the state or service area. The DOL has issued model notices containing sample statements in several non-English languages.
Additional Content for Notices (Item 6 above)
The requirement to automatically provide the diagnosis and treatment codes as part of a notice of adverse benefit determination (or final internal adverse benefit determination) is eliminated. Instead, plans and issuers must provide diagnosis and treatment codes (and their meanings) upon request and include a notice of this opportunity in all notices of adverse benefit determination (and notices of final internal adverse benefit determination). Moreover, a plan or issuer must not consider a request for such diagnosis and treatment information, in itself, to be a request for (and therefore trigger the start of) an internal appeal or external review.
Deemed Exhaustion/Strict Adherence (Item 7 above)
Under the July 2010 IFR, claimants could seek immediate review (either in court or through an external review process) if a plan or issuer failed to strictly adhere to all of the regulations’ requirements for internal claims and appeals processes. That a plan or issuer substantially complied was no defense. Further, in the absence of strict adherence, the plan’s or issuer’s decision was not entitled to any special deference; rather, any reviewer would resolve the dispute de novo. The June 2011 IFR modifies this rule to provide an exception to the strict compliance standard for errors that are minor and meet certain other specified conditions. Under the amended approach, any violation of the procedural rules will permit a claimant to seek immediate external review or court action, as applicable, unless the violation is (1) de minimis, (2) non-prejudicial, (3) attributable to good cause or matters beyond the plan’s or issuer’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. In addition, the claimant must be provided, upon written request, with an explanation of the plan’s or issuer’s basis for asserting that it meets these requirements.
External Review Transition Periods
According to the July 2010 IFR, following the close of the transition period described above, if state laws do not meet the minimum consumer protections of the NAIC Uniform Model Act, insurance coverage is generally subject to the requirements of an external review process under federal standards such as the HHS-administered process. Under the July 2010 IFR, the transition period applied in plan years beginning before July 1, 2011. The June 2011 IFR extends the transition period to December 31, 2011.
Scope of the Federal External Review Process
Where insured coverage and self-insured nonfederal governmental plans are concerned, state law determines the scope of claims eligible for external review. Under the July 2010 IFR any adverse benefit determination (or final internal adverse benefit determination) could be reviewed unless it was related to eligibility. The 2011 IFR limits the scope of external review under the federal external review process to claims that involve (1) medical judgment (excluding those that involve only contractual or legal interpretation without any use of medical judgment), as determined by the external reviewer, or (2) a rescission of coverage. The Departments note that this more narrow scope is similar to the scope of claims eligible for external review under the NAIC Uniform Model Act.
Binding Status of External Review Decisions
The July 2010 IFR generally provides that an external review decision by an IRO is binding on the plan or issuer, as well as the claimant, except to the extent that other remedies are available under state or federal law. The June 2011 IFR clarifies that a plan or issuer may not delay payment because the plan disagrees and intends to seek judicial review of a decision on external review. Instead, while the plan may be entitled to seek judicial review, it must act in accordance with the IRO’s decision (including by making payment on the claim) unless or until there is a judicial decision otherwise. The Departments further clarified that the requirement that the IRO’s decision be binding does not preclude the plan or issuer from making payment on the claim or otherwise providing benefits at any time, including following a final external review decision that denies the claim or otherwise fails to require such payment or benefits.
Technical Release 2011-02
Department of Labor Technical Release 2011-02, which was issued contemporaneously with the June 2011 IFR, provides guidance, modifies effective dates, and provides a new transition rule relating to the state- and federally-administered external claims review procedures. In addition, it makes available updated versions of the three model notices previously issued by the Departments in connection with the July 2010 IFR. Its purpose is to give states some additional time and latitude to bring their external review laws into line with the Act.
Technical Release 2011-02 identifies two broad classes of plans and policies: those that are subject to state external review laws, and those that must adhere to a federal standard. The state standards apply to fully-insured arrangements and to self-funded plans that are subject to state law (i.e., plans, such as non-federal governmental plans and church plans that are exempt from regulation under ERISA). In contrast, federal rules apply to ERISA-covered plans; plans in jurisdictions with no external review standards, and from after January 1, 2012; and plans in jurisdictions with non-compliant external review standards. Where state external review laws are concerned, before 2014 there are three possibilities. Click here to see a table of the respective consequences.
Beginning in 2014, a state external review process will need to satisfy the requirements set out in the NAIC Uniform Model Act (i.e., have an NAIC parallel process) or else the plan or issuer will become subject to a federally-administered external review process. HHS determines whether each state external review process meets the standards for NAIC-parallel processes or the standards for NAIC-similar processes. It is expected that this determination process will be completed by July 31, 2011. States that disagree have certain appellate rights. The federal external review process, which was first prescribed in Technical Release 2010-01, is modified by Technical Release 2011-02. Generally, self-insured nonfederal governmental health plans, as well as health insurance issuers in the group and individual market in states whose external review processes are deficient, must participate in a federally-administered external review process. Plans subject to ERISA or the Code are permitted to choose to comply with either the HHS-administered process or a Private Accredited IRO Process.
Separately, Technical Release 2010-01 established an interim enforcement safe harbor regarding self-insured plans subject to ERISA and/or the Code under which no enforcement action would be taken against a group health plan that either complied with the standards set forth in the technical release, or voluntarily complied with a state external review process. One of the technical release’s standards was a requirement that plans were to contract with at least three accredited IROs and rotate assignments among them (or incorporate other independent, unbiased methods for selection of IROs, such as random selection). But as a result of comments by plans and issuers, the Departments issued a set of frequently asked questions that provided that, for those plans that did not meet the safe harbor, compliance was still possible and would be determined on a case-by-case basis. Technical Release 2011-02 again modifies this rule. To be eligible for the enforcement safe harbor described above, self-insured plans will be required to contract with at least two IROs by January 1, 2012 and with at least three IROs by July 1, 2012 and to rotate assignments among them.
The crafting and implementation of the Act’s claims procedure rules is proving to be a daunting task, with respect to which the June 2011 IFR and Technical Release 2011-02 are generally welcome developments. While there is bound to be disagreement in some quarters, the rules are now at least marginally more administrable. Compliance with the Act’s claims procedure rules is not, however, merely a matter of modifying a few policies and procedures and adopting accompanying IT “patches.” Rather, changes will need to be made in institutional culture, particularly among plan vendors and health insurance issuers. These rules are granular, highly prescriptive and demanding, and the costs of failing to comply can be substantial for plans and issuers. As a consequence, the new operational standard is perfection, or something very close to it.