Vol. 46, No. 3
New DOL regulations make processing claims and creating summary plan descriptions more burdensome.
There is simply no way to sugarcoat it: Administering your benefit plans will become more burdensome and costly under new regulations issued last fall by the U.S. Department of Labor (DOL).
The new regulations require employers to modify their claims procedures for all plans subject to the Employee Retirement Income Security Act (ERISA). (For a summary of these changes, see "New General Requirements for All Plans.") But HR professionals who handle claims for group health and disability plans will face the most dramatic—and burdensome—changes.
To comply with the new regulations, employers likely will need to modify their processing procedures, hire additional staff for processing claims and amend and update their summary plan descriptions (SPDs).
Unfortunately, the news gets worse because the new regulations also extensively amend the disclosure requirements for SPDs for all plans.
And the outlook for the future may be even gloomier because more changes could be on the way. The DOL is considering applying the full extent of these reforms to all plans. Should this happen, all plans would be subject to the strenuous burdens that currently apply only to health and disability plans.
In addition, the DOL is considering whether additional disclosures should be required for cash balance plan SPDs.
A Silver Lining
If there is any good news, it is that employers have some time to adapt to most of these new requirements. For example, the final regulations regarding claims procedures apply to all claims filed on or after Jan. 1, 2002.
The final regulations on new SPD disclosures generally take effect on the first day of the second plan year beginning on or after Jan. 22, 2001 (i.e., Jan. 1, 2003, for calendar year plans). Collectively bargained and multi-employer plans also are subject to these deadlines.
However, not all the regulations grant HR professionals time to adapt. The DOL says some rules in the SPD regulations are effective right now. (See "Finalized Interim Rules.")
Changes to Health And Disability Plans
Given that the new regulations impose the most dramatic changes on health and disability plans, it makes sense to examine those changes first. Basically, the DOL completely revised the claims procedures for group health plans and disability plans. The final regulations impose the following changes:
- Substantially shorter time limits for responding to health and disability claims and appeals and longer time periods for claimants to submit appeals.
- New notice requirements when claimants submit incomplete claims for urgent care or fail to follow plan procedures when submitting claims for pre-service or urgent care.
- Stricter standards of review for appeals.
These changes are dealt with in greater detail below.
Shorter Time Limits
Under the new regulations, group health plans initially must decide claims either as soon as possible or within a "reasonable period of time." While the DOL doesn’t explicitly state what a reasonable period of time is, it does provide limits on how long employers may take to decide claims. (For a complete list of required time frames, see the chart on the next page.)
In addition, the final regulations increase—from 60 days to 180 days—the minimum period claimants must be granted to file appeals of adverse benefit determinations.
New Notice Requirements
The final regulations add new written, electronic or oral notice requirements for group health and disability plans. These requirements will make the processing of claims substantially more burdensome and will impose the following new requirements:
Initial Benefit Determinations.
Group health plans must notify claimants of their determinations on urgent care claims and pre-service claims, whether or not the decision is adverse.
Plans may notify claimants orally of initial adverse determinations on an urgent care claim—but only if written or electronic notices follow within three days.
Failure to Follow Plan Procedures for Pre-Service Claims.
Claimants who fail to follow the group health plan’s procedures for filing a pre-service claim must be notified of this failure and informed of the proper procedures to be followed. Notice is due as soon as possible but no later than five days following the failure (24 hours in the case of an urgent care claim).
This notice requirement is triggered when both of the following take place:
- The claimant (or his or her representative) communicates with a person or organizational unit customarily responsible for handling benefit matters.
- The communication names a specific claimant, a specific medical condition or symptom, and a specific treatment, service or product for which approval is requested.
Notice may be oral, unless the claimant (or his or her representative) requests written notice.
Incomplete Urgent Care Claims.
Notice also is required when group health plans receive urgent care claims that satisfy the filing requirements but lack sufficient information for the plan to make a determination. In such cases, the plan must tell the claimant as soon as possible—but no later than 24 hours after receiving the claim—what specific information is necessary to complete the claim.
Claimants must be allowed at least 48 hours to provide missing information. The plan must notify the claimant of its determination as soon as possible. This notice must be provided no later than: a) 48 hours after the plan receives the specified information, or b) when the period for providing the additional information ends—whichever comes first.
Adverse Benefit Determinations.
Under the new regulations, adverse benefit determinations by group health and disability plans will be subject to significant new notice procedures, both initially and on appeal.
For example, if an adverse benefit determination is based on lack of medical necessity or an experimental treatment exclusion, the plan must provide either an explanation of the scientific or clinical basis for this determination or a statement that the explanation will be provided free of charge upon request. This disclosure requirement also applies to internal rules, guidelines or protocols used for making adverse benefit determinations.
An adverse benefit determination on appeal must include this statement: "You and your plan may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your state insurance regulatory agency."
Concurrent Care Decisions.
The final regulations introduce new rules for "concurrent care decisions" that involve approval by group health plans of an ongoing course of treatment or a number of treatments.
A decision to reduce or terminate a pre-approved course of treatment (other than by plan amendment or termination) before the end of the approved treatment constitutes an adverse benefit termination. Claimants must be given advance notice with sufficient opportunity to appeal before the benefit is reduced or terminated.
Also, claimants’ requests to extend pre-approved urgent care treatments must be decided as soon as possible and no later than 24 hours after receipt of the claim—provided the claimant files the extension request 24 hours prior to the expiration of the pre-approved treatment.
New Standards of Review on Appeal
When handling appeals, group health plans and disability plans must:
Plan Administrators Beware!
- Require review by someone other than the individual who made the initial adverse benefit determination or a subordinate of that individual.
- Provide no deference to the initial determination. The reviewer must consider all information relevant to the claim, not just the information relied upon for the initial determination.
Plans that fail to comply with the new regulations might suffer the following:
- Claimants may be free to pursue any remedies available under ERISA—including civil action—for benefits or equitable relief.
- A breach of fiduciary duty could occur, giving rise to even greater potential liability.
To avoid these costly problems, plan administrators of group health plans and disability plans may need to:
- Streamline current claims procedures to ensure that claims are processed promptly and administered in compliance with the new expedited time frames.
- Prepare model letters to comply with the new notice and disclosure requirements.
- Increase staff to expeditiously process claims, especially urgent care claims, which will require weekend staff.
- Contract with insurers and third-party administrators to ensure compliance with the new requirements.
- Require reviewers to consult a health care professional when a determination requires a medical judgment. The professional must be different from, and not subordinate to, any individual who was consulted in the initial decision.
- Permit no more than two levels of mandatory appeal as long as the plan decides the claim within the applicable overall time limit for deciding appeals (e.g., 30 days for pre-service claims).
- Prohibit mandatory arbitration as part of the appeal process unless: a) the arbitration is conducted according to the new requirements applicable to appeals of denied claims, and b) the claimant is not precluded from challenging the decision under ERISA or other applicable law.
- Permit voluntary additional appeals that do not infringe on a claimant’s right to sue.
The final regulations retain the current safe harbor for all types of single-employer collectively bargained plans where collective bargaining agreements establish claims procedures.
New Requirements for SPDs
The final regulations will significantly affect SPDs for all plans. According to the DOL, some of these changes add new disclosure requirements, some clarify existing law and some finalize interim rules enacted as part of the Health Insurance Portability and Accountability Act (HIPAA).
Both the clarifications and new disclosures become effective under the general applicability date noted at the beginning of this article (i.e., Jan. 1, 2003, for calendar year plans). The finalized interim rules are currently in effect.
New Disclosure Requirements
The final regulations add or change the following disclosure requirements for all ERISA plans:
Type of Welfare Plan.
SPDs of welfare plans that provide health care benefits should use the term "group health plan," which properly identifies what the current regulations refer to as a "hospitalization plan."
Qualified Medical Child Support Order (QMCSO) Procedures.
Group health plan SPDs must include either a description of the plan’s QMCSO procedures or a statement indicating that a copy of such procedures can be obtained, without charge, from the plan administrator.
Qualified Domestic Relations Order (QDRO) Procedures.
Pension plan SPDs must include either a description of the plan’s QDRO procedures or a statement indicating that a copy of such procedures can be obtained, without charge, from the plan administrator.
SPDs of group health plans subject to COBRA must describe the rights and responsibilities of participants and other qualified beneficiaries with respect to COBRA continuation coverage.
Welfare Plan Schedules.
Special rules apply to welfare plans that provide extensive schedules of benefits.
The final regulations repeal the limited exception currently applicable to welfare plans that provide benefits through a federally qualified HMO. Accordingly, SPDs for HMO plans must provide the same information required of other welfare plans, including the information clarified or added by the final regulations.
Plans with benefits insured by the Pension Benefit Guaranty Corporation (PBGC) must provide a summary of PBGC guarantees. The final regulations include separate "safe harbor" language for single-employer and multiemployer pension plans covered by the PBGC.
SPDs for all plans must include procedures for obtaining benefits. These must include procedures for filing claim forms, providing notification of benefit determinations and reviewing denied claims—and the applicable time limits for each procedure.
SPDs for group health plans must include procedures for obtaining preauthorizations, approvals and utilization review decisions.
Claim procedures for all plans may be furnished as a separate document accompanying the SPD—if the SPD states that the procedures are furnished separately, without charge.
Statement of ERISA Rights.
The final regulations provide a new, updated model ERISA rights statement.
Clarifications to Existing Law On SPDs
Information on Medical Benefits and Providers.
The final regulations clarify that group health plan SPDs are required to provide the following information:
- Cost-sharing provisions, including premiums, deductibles, co-insurance and co-payment amounts for which the participant or beneficiary will be responsible.
- Annual caps, lifetime caps or other limits on benefits.
- The extent to which preventive services are covered under the plan.
- The extent of coverage for existing and new drugs.
- The extent of coverage for medical tests, devices and procedures.
- Provisions governing the use of network providers, the composition of the provider network and the extent of coverage for out-of-network services.
- Any conditions or limits on selecting primary care providers or medical specialists.
- Any conditions or limits for obtaining emergency medical care.
- Any provisions requiring preauthorizations or utilization review as a condition for receiving a benefit or service under the plan.
Plans with provider networks may furnish a provider list as a separate document if the SPD contains a general description of the provider network and states that provider lists are furnished automatically, without charge, as a separate document.
Plan Fees or Charges.
Plans must include a summary of any provisions that may result in a fee or charge for participants or beneficiaries and that are a condition of receipt of plan benefits. This requirement includes provisions governing a plan’s subrogation or reimbursement rights.
Specific Reference to ERISA section 404(c).
The final regulations clarify that participant-directed 401(k) or other retirement plan SPDs must include a reference to ERISA section 404(c), if applicable.
Information on Plan Amendments and Terminations.
Pension and welfare benefit plan SPDs must describe plan provisions governing amendments and terminations, including the authority of plan sponsors and others to terminate the plan or amend or eliminate plan benefits. A well-drafted SPD already should address this clearly.
Kathy Schwappach is a partner in the Chicago office of Seyfarth Shaw, where she has been a member of the firm’s employee benefits practice group for the past 12 years.