New Disability Claims Regulation Effective April 2, 2018 (Benefit Minute)
In December 2016, the Department of Labor (DOL) finalized a revised regulation for ERISA disability benefit claims. The revised regulation originally applied to disability claims filed on or after January 1, 2018; however, it was delayed 90 days to give stakeholders the opportunity to comment on the costs and benefits of the final rule. In the end, the regulation was unchanged and will apply to disability claims filed on or after April 2, 2018.
Purpose of the New Regulation
According to the DOL, the reasons for the revised disability claims regulation include:
- Add important procedural protections and safeguards for disability benefit claims;
- Protect claimants from conflicts of interest;
- Ensure that claimants have a fair opportunity to respond to the evidence and reasoning behind claims decisions; and
- More closely align the disability claims procedures with group health plan claims procedures.
Insurers and benefit practitioners anticipate that this new claims regulation will increase the cost of claims adjudication and the likelihood of lawsuits without significantly impacting the rate of claim denials.
Set forth below are key provisions of the claims regulation, which applies to any ERISA-covered plan that pays a benefit based on a determination of disability. This includes not only welfare benefit plans such as short-term and long-term disability, but also retirement plans. The claims regulation does not apply to a salary continuation program that is an exempt payroll practice or to a state-mandated disability program.
Improvements to Basic Disclosure Requirements
An adverse benefit determination (claim denial notice) must include a more complete description of why a claim was denied and the standards used in making the decision. For example, the denial notice must include a discussion as to why the plan disagrees with the view of any medical or vocational expert who was consulted by either the claimant or the plan during the claim review process, whether or not the advice was relied upon while making the claim decision. It must also include a discussion of the basis for disagreeing with a disability determination made by a third party, such as the Social Security Administration.
Finally, if a plan has an internal deadline for the claimant to file a lawsuit, a denial on appeal must include the specific date that the right to file suit expires. For example, if the plan has a three year limitation for filing a lawsuit and the denial is final on June 1, 2018, the denial notice must state that the claimant has until June 1, 2021 to file a lawsuit.
To the extent that claim denial notices do not currently include this level of detail and explanation, they will have to be adjusted to ensure that claimants receive all information used in making the claim decision.
Right to Claim File and Internal Protocols
The denial notice must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. Previously, this statement was only required in notices denying benefits on appeal. The denial notice must also include the internal rules, guidelines, protocols, standards or other similar criteria that the plan used in denying a claim or a statement that none were used. Previously, the plan was only required to include a statement that such rules and protocols were available upon request.
Right to Review and Respond to New Information before Final Decision
If new or additional information is used by the plan to review a claim on appeal, the claimant must be provided notice about this new information and given a chance to respond before the claim is denied. Disability carriers are concerned this provision will result in a protracted back-and-forth process without any regulatory adjustment to the required timeframe to make the final benefit determination.
Avoiding Conflicts of Interest
Disability benefit claims and appeals must be reviewed and decided in a manner that ensures the independence and impartiality of the persons involved in making the decisions. Medical experts, vocational experts and claims adjudicators (as well as individuals who support these decision makers) cannot be hired, promoted, terminated or compensated based on the likelihood that the person will deny a claim for benefits.
Deemed Exhaustion of Claims and Appeal Processes
If the plan does not strictly follow the claims process as required by the regulation, the claimant is deemed to have exhausted the administrative remedies under the plan and may immediately proceed to file a lawsuit. If the court rejects the claimant’s request for review, then the plan must treat the claim as refiled under appeal and adjudicate the appeal. The only exception to the deemed exhaustion rule is if the violation of the claim processing rule was the result of a minor error (other specific conditions also apply).
Coverage Rescission as Adverse Benefit Determination
Rescission of coverage, including any retroactive termination or discontinuance of a disability benefit (even if due to an alleged misrepresentation of fact) must be treated as a claim denial thereby triggering the appeal process. Rescissions for non-payment of premiums are not covered by this provision.
Notices in Culturally and Linguistically Appropriate Manner
Denial notices must be provided in a culturally and linguistically appropriate manner. If the address of a disability claimant is in a county where at least 10% of the population is literate only in the same non-English language, the denial notice must include a prominent statement (in the non-English language) about the availability of language services. The plan is also required to provide both verbal customer assistance and written notices (upon request) in the non-English language.
Insurance Carrier Actions
Insurance carriers and third party administrators who adjudicate claims based on a determination of disability will need to ensure that their administrative procedures meet these requirements for all ERISA-covered plans. Specific action to be taken by them should include:
- Adding additional details and explanations to denial notices (both initial denial and denial on appeal);
- Expanding language assistance services;
- Ensuring new information used to decide an appeal is made available so the claimant can respond; and
- Ensuring that the notice for a denial on appeal includes a specific deadline for filing a lawsuit.