The US Department of Labor’s Employee Benefit Security Administration (DOL) recently released final rules on claims adjudication of disability claims under welfare and retirement plans (the Final Rule). The purpose of the Final Rule is to add procedural protections and safeguards that are aimed at providing a full and fair claims review process for disability benefit claims, similar to those applicable to group health plans under the Affordable Care Act (ACA). The Final Rule also contains helpful guidance for claims and appeals procedures under all types of ERISA plans.

Background

On November 18, 2015, the DOL proposed rules revising the claims procedure regulations for plans providing disability benefits under the Employee Retirement Income Security Act of 1974 (ERISA). McDermott’s detailed summary of the proposed regulations can be found here. The Final Rule adopts the procedural protections and other safeguards largely as set forth in the November 2015 proposed regulations with a few clarifications. As discussed at length in McDermott’s article on the proposed rules, the DOL believes that the new requirements will promote fairness and accuracy in the claims review process and protect participants and beneficiaries in disability plans covered by ERISA by ensuring that such individuals receive benefits that otherwise might have been denied under the prior claims procedure rules.

In Depth

The Final Rule reiterates the DOL’s goals in amending the disability claims procedure rules: (1) ensure that claims and appeals are adjudicated independently and impartially; (2) provide a full discussion of all reasons related to a claim denial, including the basis for disagreeing with the views of individuals consulted during the claims process; (3) require that claimants have access to their entire claim file and other relevant documents and be guaranteed the right to present evidence supporting their claim during the review process; (4) provide claimants with an opportunity to respond to new evidence and rationale at the appeal level; (5) ensure that claimants are given the opportunity to seek court review if the plan failed to comply with the new claims procedure requirements (unless the violation is due to a minor error); (6) provide that certain recessions of coverage will be treated as adverse benefit determinations, triggering a plan’s appeals procedures; and (7) require that claims and appeals notices and disclosures are written in a culturally and linguistically appropriate manner. The Final Rule applies to all claims for disability benefits filed on or after January 1, 2018.

Independence and Impartiality — Avoiding Conflicts of Interest

The Final Rule remains largely unchanged from the proposed rule and requires that decisions regarding hiring, compensation, termination, promotion or similar matters with respect to any individual must not be made based upon the likelihood that the individual (claims adjudicator) will support the denial of disability benefits. The Final Rule adds “vocational expert” to the list of individuals involved in the decision-making process who must be separated from a plan’s conflicts of interest. The preamble also notes that the need for independence and impartiality is not limited to final decision makers; it also includes others who may support the benefit denials.

Improvements to Disclosure Requirements

The proposed disclosure amendments were modified in the Final Rule as set forth below. The DOL notes that the Final Rule reinforces the need for plan fiduciaries to provide transparency regarding the administration of a plan’s disability claims procedure and seeks to encourage a dialogue between a claimant and a plan regarding adverse benefit determinations.

The Final Rule adopts the proposed rule’s requirement of a full discussion of all reasons related to a claim denial. The proposed rule required that a “discussion of the decision” include the basis for disagreeing with any disability determination by the Social Security Administration (SSA) or other third-party disability payer, or any views of health care professionals treating a claimant to the extent the determination or views were presented by the claimant to the plan. The Final Rule adds a “vocational professional” evaluating the claimant to the list of individuals with whom a disagreement must be explained, as these experts have a role similar to the role of a medical or health care professional in the group health plan claims process. The DOL also removed the obligation to discuss the basis for disagreeing with disability determinations made by other payers of benefits, limiting this only to SSA determinations. The DOL acknowledged commenters concerns that a determination that an individual is entitled to benefits under another employee benefit plan or other insurance coverage may not be governed by the same definitions or criteria, while the SSA determination definitions and presumptions are set forth in publicly available regulations and guidance.

The Final Rule also clarifies that the claims procedure for disability benefit must provide for not only a discussion of the basis for disagreeing views of health care professionals or vocational experts presented by the claimant to the plan, but also a discussion of the basis for disagreeing with the views of medical or vocational experts whose advise was obtained on behalf of the plan in connected with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination. The DOL believes such information is necessary to provide a reasoned explanation of a denial.

The Final Rule provides the claimant the right to access their entire claim file and other relevant documents. There is no definition of what constitutes a “claim file,” nor what it means to provide such a claim file to a claimant.

The Final Rule also includes an explicit requirement in the disability claims procedure to explain a denial based on medical necessity, experimental treatment or similar exclusion or provide a statement that such explanation will be provided free of charge upon request.

Rights to Review and Respond to New Information before the Final Claim Determination

The Final Rule adopts the proposed rules regarding a claimant’s right to review and respond to new evidence or rationales developed by the plan during the pendency of an appeal with few modifications.

The proposed rule required that the plan’s claims procedures allow a claimant to review the claim file and present evidence and testimony as part of the disability benefits claims and appeals process. This text was intended to parallel text in the regulation for group health plans under the final ACA rule regarding claims and appeals. However, the DOL agreed with commenters that this additional language is unnecessary in the disability claims procedure regulation, as the rights already exist under the current regulation. Therefore, the Final Rule deletes this provision.

The DOL requested comments on whether, and to what extent, any special tolling provisions should be added to the existing timing rules to ensure that disability claimants and plans have ample time to engage in back-and-forth dialogue that the proposed rules contemplated. After reviewing comments, the DOL concluded that the current disability claims procedure regulation “special circumstances” provision permits the extension and tolling added to the group health plan rule under the ACA claims and appeals regulations. Although it did not include special timing provisions in the Final Rule, the DOL noted that it may consider sub-regulatory guidance regarding the current provisions and extensions on tolling.

Deemed Exhaustion of Claims and Appeals Processes

The Final Rule adopts the proposed rule and provides that if a plan fails to adhere to all the requirements in the claims procedures regulation, the claimant would be deemed to have exhausted administrative remedies, with a limited exception where the violation was (1) de minimis; (2) non-prejudicial; (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 DOL noted that the provisions in the Final Rule supersede any and all prior DOL guidance with respect to disability benefit claims to the extent such guidance is contract to the Final Rule. The Final Rule mirrors the existing standard applicable to group health plans under the ACA and is now stricter than a mere “substantial compliance” standard.

Coverage Rescissions Considered Adverse Benefit Determinations

The definition of an adverse benefit decision is amended to include, for plans providing disability benefits, a rescission of disability benefit coverage that has a retroactive effect, except to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage. The DOL did not receive any comments objecting to this addition in the proposed rules. In response to commenters questions, the DOL states in the preamble that a retroactive reduction or elimination of disability pension benefits pursuant to Section 305 of ERISA, which corresponds to Internal Revenue Code Section 432, is not a rescission of coverage under the Final Rule. Notwithstanding the foregoing, a retroactive reduction or elimination of disability pension benefits that results from a finding by the plan that the claimant was not disabled within the meaning of the plan when the disability pension benefits were reduced or eliminated would be an adverse benefit determination under the Final Rule.

Culturally and Linguistically Appropriate Notices

The Final Rule adopts the proposed rule standards already applicable to group health plans under the ACA claims and appeals regulations, which requires that notices and disclosures issued under the plan’s claims procedures must be written in a "culturally and linguistically appropriate" manner.

Quarterly Meeting Rule Only Applies to Multi-Employer Plans

The DOL clarified that the extended time frames for deciding disability claims, provided by the quarterly meeting rule found in the current regulation at 29 CFR 2560.503–1(i)(1)(ii), are applicable only to multiemployer plans.

Contractual Limitations Periods for Challenging Benefit Denials

The proposed rule sought comments on whether the DOL should issue final regulations that requires plans to include a clear and prominent statement of any applicable contractual limitations period and its expiration date for bringing a civil action related to an adverse benefit determination on appeal. ERISA does not specify that period and federal courts have generally looked to analogous state laws to determine an appropriate limitations period. Many federal courts have held that plans should provide notice of any applicable limitations period, however those court decisions are not uniform. The DOL expressed its view that the statement of a claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review would be incomplete and potentially misleading if it failed to include limitations or restrictions in the documents governing the plan on the right to bring such action. Therefore, the Final Rule includes a requirement that the notice of an adverse benefit determination on review must include a description of any applicable contractual limitations period and its expiration date. The DOL also stated that although the Final Rule provision only technically applies to disability benefit claims, all plan types should include some disclosure about any applicable contractual limitations period in any notice of adverse benefit determination on review.

Next Steps

The Final Rule significantly increases the duties of plan administrators and fiduciaries in reviewing and rendering decisions on disability claims. Since the standards have been raised, plan administrators and fiduciaries must be diligent in performing their claims and appeals decision duties and responsibilities. Plan sponsors and administrators should review existing welfare and retirement plan documents, summary plan descriptions, disability claims and appeals administrative practices and procedures, and disability claims and appeals notices and update them to comply with these new rules.