Final DOL Disability Benefits Claims Procedures Effective April 1, 2018
The Department of Labor (the “Department”) announced a final rule on December 16, 2016, revising the claims procedure regulations under ERISA for employee benefit plans providing disability benefits. The final rule revised and strengthened the prior rules by adopting certain procedural protections and safeguards for disability benefit claims that were currently applicable to claims for group health benefits pursuant to the Affordable Care Act (“ACA”). This rule affects plan administrators and participants and beneficiaries of plans providing disability benefits (insured and self-insured), and others who assist in the provision of these benefits, such as third-party benefits administrators and other service providers.
After much delay, this rule finally became effective as of April 1, 2018.
ERISA requires every employee benefit plan to “provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant” and “afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.”
On November 18, 2015, the Department published a proposed rule regarding the claims procedure for plans providing disability benefits under ERISA. The final rule largely adopts the proposed rule with some notable changes.
Notable changes include:
Adding vocational experts to the list of persons involved in the decision-making process who must be insulated from the plan’s conflicts of interest;
Requiring adverse benefit determinations to contain a discussion of the basis for disagreeing with the views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and
Requiring notices of adverse benefit determinations on review to include a description of any applicable contractual limitations period and its expiration date.
The major provisions in the final rule amend the Department’s current claims procedure regulation for disability plans by incorporating the following improvements to the processing of claims and appeals for disability benefits:
Improvement to Basic Disclosure Requirements. Benefit denial notices must contain a more complete discussion of why the plan denied a claim and the standards used in making the decision. For example, the notices must include a discussion of the basis for disagreeing with a disability determination made by the Social Security Administration if presented by the claimant in support of his or her claim.
Right to Claim File and Internal Protocols. Benefit denial notices must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. Currently this statement is required only in notices denying benefits on appeal. Benefit denial notices also have to include the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were used in denying a claim or a statement that none were used. Currently, instead of including these internal rules and protocols, benefit denial notices have the option of including a statement that such rules and protocols were used in denying the claim and that a copy will be provided to the claimant upon request.
Right to Review and Respond to New Information Before Final Decision. The final rule prohibits plans from denying benefits on appeal based on new or additional evidence or rationales that were not included when the benefit was denied at the claims stage, unless the claimant is given notice and a fair opportunity to respond.
Avoiding Conflicts of Interest. Plans must ensure that disability benefit claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. For example, a claims adjudicator or medical or vocational expert could not be hired, promoted, terminated or compensated based on the likelihood of the person denying benefit claims.
Deemed Exhaustion of Claims and Appeal Processes. If plans do not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other specified conditions are met. If the claimant is deemed to have exhausted the administrative remedies available under the plan, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary and the claimant may immediately pursue his or her claim in court. The final rule also provides that the plan must treat a claim as re-filed on appeal upon the plan’s receipt of a court’s decision rejecting the claimant’s request for review.
Certain Coverage Rescissions are Adverse Benefit Determinations Subject to the Claims Procedure Protections. Rescissions of coverage, including retroactive terminations due to alleged misrepresentation of fact (e.g. errors in the application for coverage) must be treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures. Rescissions for non-payment of premiums are not covered by this provision.
Notices Written in a Culturally and Linguistically Appropriate Manner. The final rule requires that benefit denial notices have to be provided in a culturally and linguistically appropriate manner in certain situations. The final rule essentially adopts the ACA standard for group health benefit notices. Specifically, 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 and provide written notices in the non-English language upon request.
The final rule is effective thirty (30) days after its publication in the Federal Register, and the improvements in the claims procedure process are generally applicable to disability benefit claims submitted on or after April 1, 2018.
Employers sponsoring disability programs will be subject to these rules with respect to disability claims submitted on or after April 1, 2018. Employers should review and timely update their disability plan documents, Summary Plan Descriptions, and other related materials to conform to the new regulation. They should also review the new regulations with their service providers to ensure carriers are prepared to implement the changes in the final regulation.