The Department of Labor has issued final regulations under Section 503 of ERISA that purport to enhance the disability benefit claims and appeals process for plan participants. These regulations amend the DOL’s disability claims procedure regulations issued in 2002. The new regulations generally affect the procedures for filing disability benefit claims, providing notice of adverse benefit determinations, and then appealing from claim denials.
Which Plans are Impacted?
While the regulations apply to all ERISA plans, the claims procedures apply specifically to plans providing disability benefits where a plan fiduciary (such as a trustee or the administrator) has discretionary authority to determine whether a participant is “disabled” under the terms of the plan. Therefore, the majority of the ERISA plans impacted by these regulations will be health and welfare plans that provide disability benefits, such as loss-of-time, income replacement, disability waivers, or accident and sickness benefits.
An ERISA pension plan may be impacted by these regulations if it provides for early or unreduced benefits in the event of disability. However, the regulations will impact only those pension plans under which a plan fiduciary (rather than an external entity such as the Social Security Administration or the employer’s long-term disability insurer) makes an independent determination of a participant’s disability.
When Do These Regulations Apply?
The regulations became “effective” as of January 18, 2017. However, subject to certain minor exceptions involving denial notices (as referenced below), the changes in the disability benefit claims processes will first apply to claims filed on or after January 1, 2018.
What Are the New Requirements?
In general, these regulations will require that plans offer reasonable disability claims procedures, provide more information to participants when denying disability benefits (both initially and on appeal), and ensure an impartial review process. More detailed requirements are as follows:
During the period from January 18, 2017, through the end of 2017, a notification of adverse benefit determination must either (1) specify any internal rule, guideline, protocol, or similar criterion relied upon to deny the claim, or (2) state that such information will be provided upon request. As of January 1, 2018, however, the latter option will no longer be available. Instead, the criterion will have to be provided. The final regulations also clarify that this type of information may not be withheld on the ground of confidentiality.
The denial notice must also state that the participant is entitled to a copy of the claim file upon request. Currently, this offer must be made only if an appeal is denied.
If a denial is based on either a lack of medical necessity or an exclusion for experimental treatment, the notice must include an explanation of the scientific or clinical judgment applied in the case. Again, during the remainder of 2017, a plan may simply to offer to make such an explanation available upon request. Similarly, if a denial is at odds with a Social Security Administration determination of disability, the basis for that disagreement must be explained to the participant.
On appeal, plans may not rely on new information or reasoning that was not a part of the initial review, unless the participant is given notice of the new information. The participant must then be afforded an opportunity to respond to that information before the appeal is decided.
Impartiality and Transparency
Plans may not incentivize, through employment or financial means, claims administrators or other vendors who review claims to issue certain findings. For example, a claims adjudicator may not be hired on the basis that he/she is likely to deny claims for disability benefits.
Although external review need not be offered, an appropriate named fiduciary of the plan must rule on any appeal from an adverse benefit determination. And any fiduciary involved in the initial benefit determination must recuse himself or herself from the appeal, as must any subordinates of such a fiduciary.
Additionally, where an adverse benefit determination is based on medical judgment, the fiduciary must consult with a medical professional. If that medical professional’s input is relied upon in denying a claim, that input must be provided to the participant, free of charge and upon request. In any event, that input must accompany any adverse benefit determination on appeal (even if it was not relied upon).
Notice of Contractual Limitations Period
Following any denial of an appeal, the plan’s denial notice must advise the participant of his/her right file a lawsuit against the plan under ERISA. Moreover, if the plan imposes a time limit on filing suit in court, the denial notice must also describe the plan’s contractual limitations period and the date by which the participant must file any lawsuit.
If a plan fails to adhere to these claims processing rules – and that failure is not simply a minor error – the participant will be deemed to have exhausted his/her administrative remedies and may then file suit against the plan. The court will not be required to defer to the plan fiduciary’s determination. If the court denies the participant’s request for review, the participant must be allowed to re-file the claim or appeal with the plan.
Rescissions of Coverage
If a plan retroactively rescinds coverage (for instance, due to a participant’s misstatement on an application), the rescission will be treated as an adverse benefit determination, triggering the appeals process. This requirement does not apply, however, to rescissions for nonpayment of premiums.
Similar to the rule for group health plans under the Affordable Care Act, there are circumstances in which disability plans must provide culturally and linguistically appropriate denial notices and translation assistance. The DOL’s Fact Sheet summarizing these recent regulations provides as follows:
. . . if a disability claimant’s address is in a county where 10 percent or more of the population is literate only in the same non-English language, benefit denial notices must include a prominent statement in the relevant non-English language about the availability of language services. The plan would also be required to provide a verbal customer assistance process in the non-English language upon request.
Next Steps for Plan Sponsors
Sponsors of plans that provide benefits in the event of disability should proceed as follows:
- First, 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 offer to make any criterion relied upon in denying a claim, as well as an explanation of any scientific or clinical judgment, available to a participant upon request.
- Finally, make any other necessary modifications and plan amendments before these regulations become fully applicable on January 1, 2018.