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The "insurance market reform" provisions of thePatient Protection and Affordable Care Act as amended by the HealthCare and Education Reconciliation Act of 2010 (together, the Act)generally require health insurance issuers in the individual andgroup markets, and employer-sponsored group health plans, to complywith a series of rules regarding internal claims and appeals andexternal review processes (collectively, the "claims procedurerules"). The claims procedure rules build on similarrequirements enacted more than 30 years ago under the EmployeeRetirement Income Security Act of 1974 (ERISA), which were designedto ensure that participants in employee benefit plans had access toa full and fair review of disputed claims. They are set out in anew provision of the Public Health Service Act (PHSA) that iscarried over into both ERISA and the Internal Revenue Code (theCode).
On July 23, 2010, the Departments of Health and Human Services,Labor, and the Treasury (the Departments) issued interim finalregulations (the July 2010 IFR) implementing the Act's claimsprocedure rules. There followed additionalguidance—formal and informal—furtherelaborating on these requirements and selectively extending someenforcement dates. Most recently, in response to a large volume ofpublic comments, and mindful of the need to work in conjunctionwith state insurance regulators, the Departments issued:
- An amendment to the July 2010 IFR entitled "Group HealthPlans and Health Insurance Issuers: Rules Relating to InternalClaims and Appeals and External Review Processes; Amendment toInterim Final Rules with Requests for Comments" (the June 2011IFR);1 and
- Technical Release No. 2011-02 entitled "Guidance onExternal Review for Group Health Plans and Health Insurance IssuersOffering Group and Individual Health Coverage, and Guidance forStates on State External Review Processes" (Technical Release2011-02).2
This client advisory explains these two new developmentsrelating to the Act's claims procedure requirements.
Background
Pre-Act Law
Under prior law, most private sector employer-sponsored grouphealth plans, whether self-funded or fully-insured, were subject toERISA's claims procedure requirements. Fully-insured grouphealth plans were (and remain) also subject to state-law claimsreview rules in addition to those prescribed by ERISA. Firstadopted in 1977, the ERISA claims procedure rules were mostrecently overhauled in regulation that took effect for plan yearsbeginning 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 alreadybeen rendered) and prescribed different decision deadlines foreach. Claims and appeals for pre-service and concurrent care weretreated more expeditiously than claims and appeals related topost-service claims. An even more stringent set of standardsapplied in the case of care that was deemed "urgent." (Aclaim involving urgent care is generally a claim for medical careor treatment with respect to which the application of the timeperiods for making non-urgent care determinations could, amongother things, seriously jeopardize the life or health of theclaimant or the ability of the claimant to regain maximumfunction.) The decision by a plan to deny a claim for benefits(either completely or partially) is referred to as an "adversebenefit determination." An adverse benefit determination mustbe in writing and must include an explanation of the denial. Wherethe denial involved a determination of medical necessity orexperimental treatment, plan participants had the right to request,without charge, an explanation of the scientific or clinicaljudgment for the determination. The pre-Act rules also establisheda process for appealing adverse benefit determinations under whichthe plan was obligated to provide the claimant with alldocumentation examined in the process of making thedetermination.
The Act
The Act requires group health plans and health insurance issuersto incorporate the internal claims and appeals processes set forthin the pre-Act regulations (described above) and to update theseprocesses in accordance with standards established by theDepartments. In addition, health insurance issuers must at leastinitially comply with internal claims and appeals processes setforth in applicable State law, as updated in accordance withstandards established by the Secretary of Health and HumanServices. Specifically, the Act establishes internal claims andappeals and external review standards that apply to group healthplans and health insurance issuers in the individual and groupmarkets other than grandfathered arrangements. Plans and issuersmust have in place internal claims and external review processes;provide appropriate notices to enrollees; permit enrollees toreview their files and present evidence; and provide continuedcoverage pending the outcome of an appeal. The Act's claimsprocedure requirements carry over by reference into the Code andERISA. Accordingly, the claims procedure rules apply to licensedcarriers and group health plans irrespective of whether they aresubject to ERISA, and jurisdiction over the rules implementing theclaims procedure mandate is shared among the Departments.
The July 2010 IFR and Related Guidance
In implementing the Act's claims procedure requirements, theDepartments took as their starting point the Department of Labor(DOL) claims procedure rules, to which they added some additionalrules to conform to the Act's demands.
The July 2010 IFR
The standards which the July 2010 IFR added to the pre-Act DOLclaims procedures include the following (as explained below, items2, 5, and 6 are modified in the June 2011 IFR):
1. | Adverse benefit determinations include rescissionsThe scope of adverse benefit determinations includes arescission of coverage (whether or not the rescission has anadverse effect on any particular benefit at the time). |
2. | Urgent care notification period shortened to 24 hoursUnder prior law, notification in the case of urgent care claimswas required to be made not later than 72 hours after the receiptof the claim. This period was shortened to no later than 24 hoursafter the receipt of the claim by the plan or issuer. |
3. | Disclosure of new or additional evidencePlans and issuers must provide the claimant (free of charge)with new or additional evidence considered, relied upon, orgenerated by (or at the direction of) the plan or issuer inconnection with the claim, as well as any new or additionalrationale for a denial at the internal appeals stage, and areasonable opportunity for the claimant to respond to such newevidence or rationale. |
4. | Conflicts of interestDecisions 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 basedupon the likelihood that the individual will support the denial ofbenefits. |
5. | Culturally and linguistically appropriate noticesNotices must be provided in a culturally and linguisticallyappropriate manner. |
6. | Additional content for notices to claimantsNotices to claimants must provide additional content.Specifically, (1) any notice of adverse benefit determination orfinal internal adverse benefit determination must includeinformation sufficient to identify the claim involved, includingthe diagnosis code and the treatment code; (2) the plan or issuermust ensure that the reason or reasons for an adverse benefitdetermination include the denial code and its correspondingmeaning, as well as a description of the standard, if any, used indenying the claim; (3) the plan or issuer must provide adescription of available internal appeals and external reviewprocesses, including information regarding how to initiate anappeal; and (4) the plan or issuer must disclose the availabilityof, and contact information for, an applicable office of healthinsurance consumer assistant or ombudsman, as required under theAct. |
7. | Strict adherenceIf a plan or issuer fails to strictly adhere to all of the newclaims procedure requirements, the claimant is deemed to haveexhausted the internal claims and appeals process, regardless ofwhether the plan or issuer asserts that it has substantiallycomplied, and the claimant may initiate any available externalreview process or remedies available under ERISA or under statelaw. |
DOL Technical Releases 2010-02 and 2011-01
The Act's claims procedure rules generally apply to planyears beginning on or after September 23, 2010 (i.e., January 1,2011 for calendar year plans). DOL Technical Release 2010-02 setsforth an enforcement grace period until July 1, 2011 for compliancewith certain new requirements relating to internal claims andappeals. These include items 2, regarding the timeframe for makingurgent care claims decisions; 5, regarding providing notices in aculturally and linguistically appropriate manner; 6, requiringbroader content and specificity in notices; and 7, regardingexhaustion, above. This enforcement grace period was furtherextended 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 andlinguistically appropriate manner), and item 7 (regardingexhaustion). With respect to item 6, requiring broader content andspecificity in notices, the enforcement grace period was extendedin part. The requirement to disclose certain diagnosis codes andtreatment codes was pushed off until plan years beginning on orafter January 1, 2012, while the grace period for the remainingrequirements would end on the first day of the first plan yearbeginning on or after July 1, 2011 (i.e., January 1, 2012 forcalendar year plans).The following table summarizes the effectivedates of the requirements added by the July 2010 IFR, assubsequently extended:
July 2010 IFR Provision | Effective Date |
1. Adverse benefit determinations include rescissions | First day of the plan year beginning after September 23,2010 |
2. Urgent care notification period shortened to 24 hours | First day of the plan year beginning on or after January 1,2012 |
3. Disclosure of new or additional evidence | First day of the plan year beginning after September 23,2010 |
4. Conflicts of interest | First day of the plan year beginning after September 23,2010 |
5. Culturally and linguistically appropriate notices | First day of the plan year beginning on or after January 1,2012 |
6. Additional content for notices to claimants | For purposes of disclosure of diagnostic and treatment codes:first day of the plan year beginning on or after January 1,2012; For all other purposes: first day of the plan year beginning onof after July 1, 2010 |
7. Strict adherence | First day of the plan year beginning on or after January 1,2012 |
External Review
The Act for the first time adds a federal external reviewrequirement. In this respect, the federal rules lag behind theefforts of many states that have external review regimes in placefor fully-insured arrangements. By virtue of the ERISA preemptionrules, states are generally barred from regulating self-fundedplans. As a consequence, the Act's external review requirementsare laid over an existing patchwork of state laws and on twofundamentally different plan types—fully insured andself-funded. Moreover, that some state external review laws arefairly robust, while others are less so, poses a separate set ofchallenges to the regulators.
Self-Funded Plans
Self-funded plans subject to ERISA must comply with a federallyprescribed external review process. In Technical Release 2010-01,the DOL promulgated a safe harbor for self-insured plans subject toERISA under which these plans are allowed to contract withaccredited independent review organizations (IROs) to performreviews. This process is referred to as the "PrivateAccredited IRO Process." States may, however, choose to expandaccess to their state external review process on a voluntary basisto plans not subject to applicable state laws (such as self-insuredERISA plans). In these instances, plans may choose instead tocomplying with the provisions of that state external reviewprocess. Separate rules apply to "self-insured, nonfederalgovernmental plans" (i.e., plans of state and localgovernments). Since these plans are not subject to ERISA, statelaws can and do apply. These plans are generally treated in amanner similar to fully-insured plans.
Insured Plans
During a transition period that originally ended for plan yearsbeginning before July 1, 2011, all state external review processeswere deemed to comply with the Act. For states with no externalreview law (i.e., Alabama, Mississippi, Nebraska, Guam, AmericanSamoa, U.S. Virgin Islands, and the Northern Mariana Islands), theDepartment of Health and Human Services (HHS) prescribed a separateprocess that is based on the Uniform External Review Model Actpromulgated by the National Association of Insurance Commissioners(NAIC).
The June 2011 IFR
The June 2011 IRF makes the following changes to the claimsprocedure rules:
Modifications to specific requirements
Urgent Care Claims (Item 2 above)
The period for urgent care claim decisions is modified to removethe 24 hours requirement from the July 2010 IFR. Under the June2011 IFR, such claims must be made as soon as possible consistentwith the medical exigencies involved but in no event later than 72hours, provided that the plan or issuer defers to the attendingprovider with respect to the decision as to whether a claimconstitutes "urgent care." In the preamble to the June2011 IFR, the Departments emphasized that:
the 72-hour timeframe remains only an outside limit and that, incases where a decision must be made more quickly based on themedical exigencies involved, the requirement remains that thedecision should be made sooner than 72 hours after receipt of theclaim.
Form and Manner of Notice (Item 5 above)
Under the Act's claims procedure requirements, group healthplans and health insurance issuers must provide relevant notices ina culturally and linguistically appropriate manner. The July 2010IFR required notices to be furnished in a non-English languagebased on rules adapted from the DOL regulations regarding style andformat summary plan descriptions. For group health plans, theserequirements varied depending on the number of participants in theplan. For a plan that covers fewer than 100 participants at thebeginning of a plan year, the threshold is 25% of all planparticipants being literate only in the same non-English language.For a plan that covers 100 or more participants at the beginning ofa plan year, the threshold is 500 participants or 10% of all planparticipants (whichever figure is lower) being literate only in thesame non-English language. The June 2011 IFR amends thisrequirement to provide for a single threshold of 10% or more of thepopulation residing in the claimant's county, as determinedbased on American Community Survey data published by the UnitedStates Census Bureau. Under the amended rule, each notice sent by aplan or issuer to an address in a county that meets the 10%threshold must include a one-sentence statement in the relevantnon-English language about the availability of language services.The Plan or Issuer must also make these language servicesavailable, and provide a notice in the non-English language uponrequest. The Departments note that, for ease of administration,some plans and issuers may choose to use a one-sentence statementfor all notices within an entire state (or for a particular servicearea) that reflects the threshold language or languages in anycounty within the state or service area. The DOL has issued modelnotices containing sample statements in several non-Englishlanguages.
Additional Content for Notices (Item 6 above)
The requirement to automatically provide the diagnosis andtreatment codes as part of a notice of adverse benefitdetermination (or final internal adverse benefit determination) iseliminated. Instead, plans and issuers must provide diagnosis andtreatment codes (and their meanings) upon request and include anotice of this opportunity in all notices of adverse benefitdetermination (and notices of final internal adverse benefitdetermination). Moreover, a plan or issuer must not consider arequest for such diagnosis and treatment information, in itself, tobe a request for (and therefore trigger the start of) an internalappeal 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 planor issuer failed to strictly adhere to all of the regulations'requirements for internal claims and appeals processes. That a planor issuer substantially complied was no defense. Further, in theabsence of strict adherence, the plan's or issuer'sdecision was not entitled to any special deference; rather, anyreviewer would resolve the dispute de novo. The June 2011 IFRmodifies this rule to provide an exception to the strict compliancestandard for errors that are minor and meet certain other specifiedconditions. Under the amended approach, any violation of theprocedural rules will permit a claimant to seek immediate externalreview or court action, as applicable, unless theviolation is (1) de minimis, (2) non-prejudicial, (3) attributableto good cause or matters beyond the plan's or issuer'scontrol, (4) in the context of an ongoing good-faith exchange ofinformation, and (5) not reflective of a pattern or practice ofnon-compliance. In addition, the claimant must be provided, uponwritten request, with an explanation of the plan's orissuer's basis for asserting that it meets theserequirements.
External Review Transition Periods
According to the July 2010 IFR, following the close of thetransition period described above, if state laws do not meet theminimum consumer protections of the NAIC Uniform Model Act,insurance coverage is generally subject to the requirements of anexternal review process under federal standards such as theHHS-administered process. Under the July 2010 IFR, the transitionperiod applied in plan years beginning before July 1, 2011. TheJune 2011 IFR extends the transition period to December 31,2011.
Scope of the Federal External Review Process
Where insured coverage and self-insured nonfederal governmentalplans are concerned, state law determines the scope of claimseligible for external review. Under the July 2010 IFR anyadverse benefit determination (or final internal adverse benefitdetermination) could be reviewed unless it was related toeligibility. The 2011 IFR limits the scope of external review underthe federal external review process to claims that involve (1)medical judgment (excluding those that involve only contractual orlegal interpretation without any use of medical judgment), asdetermined by the external reviewer, or (2) a rescission ofcoverage. The Departments note that this more narrow scope issimilar to the scope of claims eligible for external review underthe NAIC Uniform Model Act.
Binding Status of External Review Decisions
The July 2010 IFR generally provides that an external reviewdecision by an IRO is binding on the plan or issuer, as well as theclaimant, except to the extent that other remedies are availableunder state or federal law. The June 2011 IFR clarifies that a planor issuer may not delay payment because the plan disagrees andintends to seek judicial review of a decision on external review.Instead, while the plan may be entitled to seek judicial review, itmust act in accordance with the IRO's decision (including bymaking payment on the claim) unless or until there is a judicialdecision otherwise. The Departments further clarified that therequirement that the IRO's decision be binding does notpreclude the plan or issuer from making payment on the claim orotherwise providing benefits at any time, including following afinal external review decision that denies the claim or otherwisefails to require such payment or benefits.
Technical Release 2011-02
Department of Labor Technical Release 2011-02, which was issuedcontemporaneously with the June 2011 IFR, provides guidance,modifies effective dates, and provides a new transition rulerelating to the state- and federally-administered external claimsreview procedures. In addition, it makes available updated versionsof the three model notices previously issued by the Departments inconnection with the July 2010 IFR. Its purpose is to give statessome additional time and latitude to bring their external reviewlaws into line with the Act.
Technical Release 2011-02 identifies two broad classes of plansand policies: those that are subject to state external review laws,and those that must adhere to a federal standard. The statestandards apply to fully-insured arrangements and to self-fundedplans that are subject to state law (i.e., plans, such asnon-federal governmental plans and church plans that are exemptfrom regulation under ERISA). In contrast, federal rules apply toERISA-covered plans; plans in jurisdictions with no external reviewstandards, and from after January 1, 2012; and plans injurisdictions with non-compliant external review standards. Wherestate external review laws are concerned, before 2014 there arethree possibilities, with the following respectiveconsequences:
1. The state has an external review law that meets therequirements set out in the NAIC Uniform Model Act. | State law applies. (This is referred to as the "NAICparallel process.") |
2. The state has an external review law that does not meet therequirements set out in the NAIC Uniform Model Act. | The state may implement temporary standards consisting of 13requirements set out in Technical Release 2011-02. (This isreferred to as the "NAIC-similar process.")4Under this prong, state law applies until the earlier of: (1) January 1, 2014, in instances where the state adopts anNAIC-similar process, or (2) January 1, 2012, in instances where the state does not adoptan NAIC-similar process. |
3. The state has no external review law. | A federally-prescribed standard issued by HHS applies. |
Beginning in 2014, a state external review process will need tosatisfy the requirements set out in the NAIC Uniform Model Act(i.e., have an NAIC parallel process) or else the plan or issuerwill become subject to a federally-administered external reviewprocess. HHS determines whether each state external review processmeets the standards for NAIC-parallel processes or the standardsfor NAIC-similar processes. It is expected that this determinationprocess will be completed by July 31, 2011. States that disagreehave certain appellate rights. The federal external review process,which was first prescribed in Technical Release 2010-01, ismodified by Technical Release 2011-02. Generally, self-insurednonfederal governmental health plans, as well as health insuranceissuers in the group and individual market in states whose externalreview processes are deficient, must participate in afederally-administered external review process. Plans subject toERISA or the Code are permitted to choose to comply with either theHHS-administered process or a Private Accredited IRO Process.
Separately, Technical Release 2010-01 established an interimenforcement safe harbor regarding self-insured plans subject toERISA and/or the Code under which no enforcement action would betaken against a group health plan that either complied with thestandards set forth in the technical release, or voluntarilycomplied with a state external review process. One of the technicalrelease's standards was a requirement that plans were tocontract with at least three accredited IROs and rotate assignmentsamong them (or incorporate other independent, unbiased methods forselection of IROs, such as random selection). But as a result ofcomments by plans and issuers, the Departments issued a set offrequently asked questions that provided that, for those plans thatdid not meet the safe harbor, compliance was still possible andwould be determined on a case-by-case basis. Technical Release2011-02 again modifies this rule. To be eligible for theenforcement safe harbor described above, self-insured plans will berequired to contract with at least two IROs by January 1, 2012 andwith at least three IROs by July 1, 2012 and to rotate assignmentsamong them.
Conclusion
The crafting and implementation of the Act's claimsprocedure rules is proving to be a daunting task, with respect towhich the June 2011 IFR and Technical Release 2011-02 are generallywelcome developments. While there is bound to be disagreement insome quarters, the rules are now at least marginally moreadministrable. Compliance with the Act's claims procedure rulesis not, however, merely a matter of modifying a few policies andprocedures and adopting accompanying IT "patches."Rather, changes will need to be made in institutional culture,particularly among plan vendors and health insurance issuers. Theserules are granular, highly prescriptive and demanding, and thecosts of failing to comply can be substantial for plans andissuers. As a consequence, the new operational standard isperfection, or something very close to it.
Footnotes
1 http://www.dol.gov/ebsa/pdf/tr11-02.pdf.
2 http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=25131.
3 65 Fed. Reg. 70,246 (Nov. 21, 2000).
4 The original 16 minimum consumer protection standardsand the 13 temporary standards that form the basis of an"NAIC-similar processes" are set out in Technical Release2011-02.
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