This is the twenty-first issue in our series of alerts for employers on selected topics in health care reform. (Click here to access our general summary of health care reform and other issues in this series). This series of Health Care Reform Management Alerts is designed to provide an in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.

This supplements Issue 11 of our Health Care Reform Management Alert Series, which addressed the new claims and appeals rule that applies to non-grandfathered plans under the Patient Protection and Affordable Care Act (PPACA). On June 24, 2011, the Department of Treasury, Department of Health and Human Services and Department of Labor jointly issued an amended interim final rule governing the new claims and appeals requirements under PPACA (the Amended Regulation). The Amended Regulation includes significant changes to this rule, as described below.

Internal Claims & Appeals Requirements

Urgent Care Claim Determination Timeline. The Amended Regulation removes the requirement that non-grandfathered plans decide urgent care claims within 24 hours. Instead, the existing requirement will apply (as soon as necessary, given medical exigencies, but no longer than 72 hours). However, the Amended Regulation requires plans to defer to the attending physician's determination as to whether a claim is "urgent."

Denial Notice Requirements - Diagnosis Codes & Treatment Codes. The interim final rule required plans to expand claim denial notices to include diagnosis codes, treatment codes and their meanings. Many plan sponsors expressed concern that this expanded notice requirement (a) was too cumbersome, and (b) ran the risk of violating privacy requirements under HIPAA. In light of these concerns, the Amended Regulation removes the requirement to automatically include these codes in claim denial notices. Denial notices must still inform participants that these codes are available upon request.

Loss of Deferential Standard of Review for Failure to Strictly Adhere to Claims Requirements. The interim final rule required non-grandfathered plans to strictly adhere to the new requirements. Any failure to do so resulted in (1) deemed exhaustion of the claims and appeals process (thus giving the participant the right to immediately seek external review or bring a claim in court), and (2) a loss of the deferential standard on judicial review. The Amended Regulation creates an exception to the strict adherence requirement for errors that are (a) de minimis, (b) non-prejudicial, (c) attributable to good cause, (d) in the context of an ongoing good-faith exchange of information, and (e) not reflective of a pattern or practice of noncompliance.

Culturally and Linguistically Appropriate Notice. The interim final rule created two thresholds to determine when a plan must provide claim denial notices in another language for non-English speaking individuals (one threshold for small plans and one for large plans). Under the interim final rule, once a participant requested a notice in the other language, the plan would be required to provide that participant with non-English benefit communication materials going forward (thus, creating a "tagging and tracking" requirement).

The Amended Regulation moved to a uniform threshold for all plans. Claim denial notices must include information regarding the availability of a non-English communication only if the claimant lives in a county that has a non-English speaking population greater than 10 percent. The Amended Regulation also purports to remove the "tagging and tracking" requirement, which presumably means plans only need to provide a notice upon request, and there is no ongoing requirement to provide non-English communications to that participant going forward (unless the participant continues to request non-English communications).

External Review Requirements

Narrowed Scope of Claims Eligible for External Review. The interim final rule provided that all claims other than eligibility determinations were eligible for external review. This included legal and contractual claims (i.e., plan document interpretation). The Amended Regulation temporarily suspends the right to seek an external review for all claims other than medical claims and claims relating to rescissions of coverage. The agencies expect this suspension will be lifted no later than January 1, 2014.

Binding Nature of IRO Decision on External Review. The Amended Regulation clarifies that (a) plans are still permitted to pay a claimant following an independent review organization (IRO) denial, but (b) if the IRO grants a claim, the plan cannot delay payment, even if the plan intends to dispute the matter in court.

Requirement to Contract with Three IROs. The interim final rule required self-funded plans to contract with at least three IROs to review external appeals. Later Department of Labor FAQs clarified that, in light of the difficulties plans were facing contracting with IROs, the safe harbor would be loosened to treat plans with fewer than three IROs as compliant as long as they implemented other safeguards to ensure the review was independent and without bias. The Department of Labor expressed concerns that this was resulting in IRO bias (i.e., a small IRO's dependence on a large plan contract could influence its decisions). As a result, going forward the safe harbor will only be available for plans that have contracted with at least two IROs by January 1, 2012, and at least three IROs by July 1, 2012. There are still other means of compliance (this is merely a safe harbor), but the DOL will more closely scrutinize plans with fewer than three IROs to verify IRO independence in decision-making.

Fully-Insured Plan External Review Changes. The Amended Regulation also made a number of changes to the external review procedures that apply to fully-insured plans. These obligations apply to the issuer of the insurance coverage rather than the plan sponsor.

Employer Action Steps

  • Determine whether your plan is grandfathered.
  • If not, implement external appeals procedures and ensure your plan complies with internal claims and appeals requirements not extended by the grace period (see Issue 11 and Supplement to Issue 11). Be sure to contract with two IROs by January 1, 2012 and three IROs by July 1, 2012, or take other precautions to ensure IRO independence.
  • Determine when additional provisions will apply following the end of the grace period (if at all), based on plan year, and prepare to comply with those requirements.
  • Determine whether to roll back provisions that were already implemented (or that are in the process of being implemented) but are now delayed or removed entirely.
  • Ensure that your plan documents are accurate and determine how to communicate changes to participants.