On July 22, 2010, the Departments of Treasury, Labor, and Health and Human Services jointly released interim final regulations regarding new requirements for the internal claims and appeals procedures for group health plans, and a new requirement for an external appeals process. The new requirements generally apply to insured and self-insured group health plans beginning with the first plan year commencing on or after Sept. 23, 2010 (Jan. 1, 2011, for calendar-year plans), but do not apply to group health plans that are treated as “grandfathered plans.” The 24-hour deadline for urgent claim responses, the requirement to continue coverage pending the outcome of the internal review process, and the need for an additional external review process will prove to be cumbersome for most employers.

Changes to internal claims and appeals procedures

Health care reform requires group health plans to implement new processes for internal claims and appeals under ERISA. The regulations create the following six new requirements that supplement the existing ERISA claims and appeals procedures:

  1. The definition of an “adverse benefit determination” that is subject to the new internal appeals procedures has been expanded to include a “rescission of coverage.”
  2. The maximum time period within which a plan must notify a claimant of the determination of an urgent care claims is reduced from 72 hours to 24 hours after receipt of such claim, unless the claimant fails to provide sufficient information for the plan to determine whether, or to what extent, benefits are covered or payable.
  3. Claimants must be allowed to review the claim file and present “evidence and testimony” as part of the internal claim and appeal process. Upon review of a denial of a claim, plans must now provide to the claimant, free of charge:
    1. any new or additional evidence considered, relied upon, or generated by the plan in connection with the claim, and
    2. any new or additional rationale that will be used as a basis for the denial of the claim on appeal or review.
  4. Plans must provide such information in advance of any final internal adverse benefit determination so that the claimant has a reasonable opportunity to respond prior to the determination.
  5. Plans must take additional steps to avoid conflicts of interest and ensure independence and impartiality in the appeals process. For example, plans must not make decisions regarding hiring, compensation, and promotion with respect to any individual based on the likelihood that such individual will support a denial of benefits.
  6. A notice of an adverse benefit determination must include significantly more disclosures, including diagnosis, treatment, and denial codes and an explanation of those terms. In addition, for a notice of a final internal adverse benefit determination, the notice must include a discussion of the decision. Model notices will be issued on the websites for the Departments of Labor and Health and Human Services.
  7. If a plan fails to comply with all requirements of the internal claims and appeals process, a claimant will be deemed to have exhausted the process and therefore will be eligible to seek external review or judicial review of the claim. This remedy is available even if the plan has substantially complied with these requirements or the error was de minimis.

In addition, the regulations require group health plans to continue coverage pending the outcome of an internal appeal of an adverse benefit determination. Plans are generally prohibited from reducing or terminating an ongoing course of treatment without notice and an opportunity to review, and individuals in urgent care situations and those receiving an ongoing course of treatment may be allowed to proceed with an expedited external review at the same time as the internal appeals process. However, the regulations do not make it clear whether this continued coverage requirement applies to appeals of eligibility claims and rescissions.

New process for external review of appeals

The regulations also provide details of the new external review process for appeals of final internal adverse benefit determinations and rules determining whether a state or federal external review process applies.

Under the new regulations, an insured group health plan that is already subject to an existing state external review process must continue to comply with the applicable state process if such process includes, at a minimum, the consumer protections set forth in the National Association of Insurance Commissioners’ Uniform Model Act as in effect on July 23, 2010 (the “NAIC Model Act”). The Department of Health and Human Services will determine whether a state’s external review process complies with the requirements of the NAIC Model Act. However, the regulations provide for a transition period, such that all existing state external review processes, including those adopted by Washington, Oregon, and California, are deemed to be in compliance with the requirements until the first day of the first plan year beginning on or after July 1, 2011.

Plans that are either not currently subject to a state external review process, such as self-insured plans, or (for plan years beginning on or after July 1, 2011) are subject to state external review processes that do not meet the minimum standards of the NAIC Model Act must comply with a federal external review process. Standards for this process will be similar to those found in the NAIC Model Act and detailed in future guidance.

New notice requirements for internal appeals and external reviews

Under the regulations, group health plans must provide notices of an adverse benefit determination and of available internal claims and appeals procedures and external review processes in a culturally and linguistically appropriate manner, including in a non-English language if 25 percent of all participants are literate in the same non-English language (for plans with 100 or more participants, if the lesser of 500 participants or 10 percent of all participants are literate in the same non-English language).

If the threshold is met, the plan must provide notice in the non-English language and include a statement in the English version of all notices, prominently displayed in the non-English language, that such notices are available in the non-English language. Once a request for a non-English notice has been made, all future notices to the claimant must be provided in that non-English language. In addition, any other customer assistance offered by the plan (for example, a telephone hotline) must be available in the non-English language.