Disability Plans Must Follow Claims Procedures Final Rule

Plan sponsors should review their practices to ensure compliance

By Stephen Miller, CEBS Feb 28, 2017
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The Department of Labor's (DOL's) final rule revising the claims procedure requirements for disability benefit plans under the Employee Retirement Income Security Act (ERISA) becomes effective for claims filed next year, but plan sponsors should take steps now to ensure compliance.

The new rule, published on Dec. 19, 2016, includes protections to provide for a full and fair review of employees' disability claims.

"Disability claims have been the subject of extensive litigation," noted Rory Akers, an attorney at Lockton Compliance Services in Kansas City, Mo. "With these new requirements, the DOL is attempting to create a more comprehensive review of disability claims, clearly hoping to reduce the need for participants to resort to litigation and reduce difficulties participants experience with delayed claims processing," which can postpone employees' receipt of disability payments while they're recuperating.

[SHRM members-only toolkit: Managing Disability Benefits]

New Requirements

The final regulation amends current disability claims procedures by adding more procedural protections and safeguards. The added requirements are similar to those that apply to group health plan claims procedures under the Affordable Care Act.

"The vast majority of employers offering disability benefits buy long-term disability insurance, in which case the burden of complying with the new claim processing regulations falls predominantly on the insurer," said Akers. Additionally, employers typically offer short-term disability benefits through salary continuation, and "payroll practices are not subject to ERISA, so the new rules would not apply to those types of arrangements," she explained.

However, "as plan fiduciaries, employers will want to review insurance contracts to verify that the claims procedures have been updated in accordance with the new rules, and periodically evaluate insurers and service providers to verify that the procedures are being followed," Akers advised.

Among the new disability plan requirements under the final rule, listed in a DOL fact sheet, are the following:

  • Benefit denial notices must fully explain why the plan denied the claim and the standards behind the decision, including a discussion of the basis for disagreeing with any disability determination presented by the claimant, the treating health care professionals or the Social Security Administration.

  • Any claim denial must include the internal rules, guidelines, protocols, standards or other similar criteria the plan relied on in denying the claim, or a statement that none exist.

  • A claimant must be notified of his or her right to access and, upon request, obtain copies of any documents or records related to a claim.

  • Prior to a final decision on appeal, a claimant must be given a reasonable opportunity to review and respond to any new or additional evidence the plan relied on in connection with the claim.

  • If a plan fails to comply with the claims processing rules, the claimant can seek court review of the matter. Failure to comply, however, doesn't include minor violations or matters beyond the plan's control when these violations are not reflective of a pattern of noncompliance on the part of the plan.

  • Cancellation of disability coverage that has a retroactive effect is treated as an adverse benefit determination, requiring that the participant be given the opportunity to appeal the decision.

  • Notices and disclosures must be written in a culturally and linguistically appropriate manner similar to rules that currently apply to other benefits communications. If 10 percent or more of the population where the claimant resides are literate only in the same non-English language, applicable notices and disclosures must include a statement prominently displayed in the applicable non-English language detailing how the claimant can access language services.

Pension Payments

A defined benefit pension plan may be affected by these regulations "if it provides for early benefits in the event of disability," explained benefits attorneys Laura Fischer, a partner with Spencer Fane in Denver, and Griffin Bridgers, an associate at the firm. However, "the regulations will impact only those pension plans under which a plan fiduciary—rather than the employer's long-term disability insurer—makes an independent determination of a participant's disability."

Effective Date

The final rules apply to all claims submitted on or after Jan. 1, 2018, regardless of the plan or contract year.

However, a tranistional provision that applies to denial notices is applicable now. From Jan. 18, 2017, through the end of 2017, "a notification of adverse benefit determination must either specify any internal rule, guideline, protocol or similar criterion relied on to deny the claim, or state that such information will be provided on request," Fischer and Bridgers noted. "As of Jan 1, 2018, however, the latter option will no longer be available. Instead, the criterion will have to be provided."

Next Steps for Plan Sponsors

Fischer and Bridgers advised disability plan sponsors to take these actions now:

  • Determine whether their plans will be subject to these final regulations.

  • If so, review their claims and appeals processes, plan language, and denial notices.

  • Ensure that any denial notices issued during the remainder of 2017 make any criteria relied on in denying a claim, as well as an explanation of any scientific or clinical judgment, available to a participant on request.

  • Make any other necessary modifications and plan amendments before these regulations become fully applicable on Jan. 1, 2018.

Related SHRM Online Article:

Leave Management Continues to Vex, but Outsourcing and Integrated Systems Help, SHRM Online Benefits, February 2017


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