This is the ninth in a
series of WorkCite articles concerning the recently enacted Patient
Protection and Affordable Care Act and its companion bill, the Health Care and
Education Reconciliation Act of 2010 (referred to collectively as the Act).
On July 22, 2010, the Department of the Treasury, Department of Labor, and
Department of Health and Human Services (Departments) published Interim Final
Regulations (Regulations) setting out new requirements for internal claims and
appeals, and external review processes under the Act.
These Regulations apply to non-grandfathered group health plans and health
insurance issuers (i.e., health insurance companies). They do not apply to
grandfathered plans. In general, the Regulations apply for plan years beginning
on or after Sept. 23, 2010, and will expire on July 22, 2013, or on an earlier
date provided in the final regulations.
Comment: The Department of Labor (DOL) is also considering further updates to its
claims procedures, and expects to issue further regulations that will propose
additional, more comprehensive updates to the standards for plan internal claims
and appeals processes for all plans, including grandfathered plans.
Internal Claims Procedure Changes
The Regulations expand upon the DOL’s current internal claims procedure
regulations and impose the following new requirements:
- Expanded Adverse Benefit Determination Definition: The
Regulations broaden the definition of an “adverse benefit determination”
beyond the DOL definition to include recessions of coverage.
- Under the expanded definition, an adverse benefit determination also
includes a denial, reduction, or termination of, or a failure to provide
or make a payment (in whole or in part) for a benefit that is based on
eligibility for coverage, covered benefit status, preexisting condition
exclusions, source-of-injury exclusions, network exclusions, or a
benefit’s status as experimental, investigational or not medically
necessary or appropriate.
- For insurance companies, it also includes denial of coverage (i.e.,
issuing a policy).
- Expedited Notification Requirements: Plans and insurers must
notify a claimant of a benefit determination (whether or not adverse)
involving urgent care as soon as possible, but not later than 24
hours after the receipt of the claim, unless the claimant has not provided
sufficient information to process the claim.
Comment: This reduction from 72 hours to 24 hours (or fewer) will create
formidable pressure on sponsors and administrators to develop and fund 24/7
- Additional Review Criteria: The Regulations impose claims review
requirements in addition to those required by existing DOL procedures. Plans
and insurers must provide claimants, free of charge, with any new or
additional evidence related to a claim prior to issuing an adverse benefit
determination. Claimants must also receive any new or additional rationale
for an adverse benefit determination before a plan or insurer issues
Comment: The preamble to the Regulations provides that the purpose of
this early disclosure of the rationale is “to give the claimant a reasonable
opportunity to respond” prior to the actual issuance of the adverse
determination. The Regulations provide no guidance on how much time must
pass between providing the rationale and the adverse determination. Clearly,
in the case of an urgent care claim, the interval will be brief.
- Conflicts of Interest: The Regulations provide new criteria for
avoiding conflicts of interest. Plans and insurers must ensure that all
claims and appeals are adjudicated in a manner designed to ensure the
independence and impartiality of the persons involved in making a decision.
- Decisions regarding hiring, compensation, termination, promotion or
other similar matters with respect to any individual cannot be made
based upon the likelihood such individual will support a denial of
- Notifications: Plans and insurers must provide notice to
enrollees in a “culturally and linguistically appropriate” manner. This may
require production of notices in non-English languages and the inclusion of
non-English references to non-English notices in English-based materials.
- Additionally, notices of adverse benefit determinations must include
sufficient information to identify the claim involved, a description of
the plan’s or insurer’s standard, if any, used in denying the claim, a
discussion of the decision, and disclosure as to the availability of,
and contact information for, any applicable office of health insurance
consumer assistance or ombudsman established under the Act.
- The Departments intend to issue model notices that may be used to
satisfy these additional notification requirements.
- Noncompliance: A claimant will be deemed to have exhausted the
internal claims and appeals process with respect to a claim if a plan or
insurer fails to meet the requirements described above.
Comment: The Regulations set a standard of strict adherence. Failure to
follow the Regulations precisely will eliminate any requirement for the
claimant to complete the internal review and appeal procedure and will
permit the claimant to initiate an external review (see below) and pursue
judicial review. Even substantial compliance or a de minimis error will
taint the process.
- Continued Coverage: Plans and insurers must continue to provide
continued coverage pending the outcome of an internal appeal.
The Regulations also mandate additional requirements for health insurance
insurers offering individual health insurance coverage. These additional
requirements address claims and appeals regarding initial eligibility
determinations, limit insurers to one level of internal appeals, and require
insurers to maintain records of all claims and notices associated with internal
claims and appeals for at least six years.
State and Federal External Review
The Regulations also require that non-grandfathered group health plans and
insurers comply with either a compliant state external review process or the
federal external review process. Basing the Regulations on the Model Health
Carrier External Review Act promulgated by the National Association of Insurance
Commissioners (Model Act), the Departments require state external review
procedures to include the following minimum consumer protections:
- External reviews of adverse benefit determinations based on medical
necessity, appropriateness, healthcare setting, level of care or
effectiveness of a covered benefit.
- Effective written notice to claimants of their rights to an external
- Waiver of the need to exhaust internal claims review procedures under
- Payment by the plan or insurer of the cost of an independent review
organization (IRO), to be assigned at random, to conduct the external
review, subject to minimal filing charges assessed to a claimant.
- IROs must be approved by the state, and may not participate in
external reviews where conflicts of interest exist.
- External reviews of all claims, regardless of dollar amount.
- A four-month period in which claimants may request an external review
after receipt of an adverse benefit determination.
- An opportunity for claimants to submit additional information to an IRO
during an external review.
- Binding decisions on the plan or insurer, as well as the claimant,
except to the extent other remedies are available under federal or state
- A short review period of not more than 45 days after receipt of the
request for such review.
- In expedited external review circumstances, the notice must be
provided not later than 72 hours after receipt of the request.
- Inclusion of a description of the external review process in employee
communication materials (e.g., summary plan descriptions and membership
- IROs must maintain records and review adverse benefit determinations for
experimental or investigational treatments substantially according to the
procedures set out in the Model Act.
State external review processes will be deemed to meet these standards for
all plan years beginning before July 1, 2011. Thereafter, applicable plans and
insurers will continue to be subject to the state review process only where the
Department of Health and Human Services has determined that an applicable state
process meets the aforementioned standards. Otherwise, the plans and insurers
will need to comply with the federal external review process.
The federal process will also follow Model Act. It will apply to a plan or
insurer that is not subject to state external review, including self-insured
plans, and plans and insurers described in the preceding paragraph. However, the
federal external review process will not apply to any claim that is based on a
determination that the participant or dependent fails to meet the plan’s
For more information on the Act and the Regulations, please contact the
authors or any member of the McGuireWoods
Employee Benefits team.
Visit the Healthcare
Reform section for additional updates and resources.