On November 18, 2015, the Employee Benefits Security Administration (EBSA) division of the Department of Labor (DOL) proposed amendments to the claims procedures applicable for the adjudication of disability claims under ERISA welfare and pension plans such as including disability benefit plans, retirement plans that provide disability benefits, and health care benefits that are conditioned upon a determination of disability. Specifically, the proposed regulations would apply certain of the procedural requirements of the Affordable Care Act (the "ACA") to disability claims.

Action Needed Now: Sponsors of plans that offer disability benefits should take note of the proposed changes and decide if they want to comment on the proposed rule.

The text of the proposed regulations is available at http://www.gpo.gov/fdsys/pkg/FR-2015-11-18/pdf/2015-29295.pdf. The proposed regulations will become effective 60 days after the date of publication of the final regulations in the Federal Register. This Alert summarizes the proposed changes and the potential significance for plan sponsors.

Comment Deadline for Proposed Regulations

The DOL is accepting comments on or before January 19, 2016. Comments must reference the EBSA and RIN 1210-AB39, and may be submitted using one of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• Email: e-ORI@dol.gov. Include RIN 1210-AB39 in the subject line.
• Mail: Office of Regulations and Interpretations, EBSA, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention: Claims Procedure Regulation Amendment for Plans Providing Disability Benefits.

All submitted comments will be available to the public, without charge, online at http://www.regulations.gov and http://www.dol.gov/ebsa, and at the Public Disclosure Room, Employee Benefits Security Administration, Suite N-1513, 200 Constitution Avenue NW, Washington, DC 20210.

Background

Regulations under section 503 of the Employee Retirement Income Security Act of 1974 (ERISA) require 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 to "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."

For disability benefits, the section 503 regulations require claims to be reviewed within 45 days of receipt (two thirty-day extensions are permissible if the claim cannot be determined for reasons beyond the plan's control). If an adverse determination is appealed, then the determination on appeal is due within 45 days of the receipt of the appeal (this period may be extended for an additional 45 days if special circumstances require an extension of time).

The ACA amended ERISA to apply section 2719 of the Public Health Service Act to non-grandfathered group health plans and certain health insurance coverage. Section 2719 requires internal claims and appeals and external review processes that afford greater procedural protections for participants. The proposed regulations would extend some of these protections to claims for disability benefits under all employee benefit plans subject to ERISA.

Discussion of Proposed Regulations

The proposed regulations would amend the current disability claims procedures in the following ways:

1. Independence and Impartiality–Avoiding Conflicts of Interest: Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the decision.
• Decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual (such as a claims adjudicator or medical expert) that decides a disability claim cannot be made based upon the likelihood that the individual will support a denial of disability benefits.
• A plan cannot contract with a medical expert based on the expert's reputation for outcomes in contested cases, rather than based on the expert's professional qualifications.

2. Improvements to Basic Disclosure Requirements: Benefit denial notices must contain a full discussion of why the plan denied the claim and the standards behind the decision, including the following:
• A discussion of the decision, including the basis for disagreeing with any disability determination by the Social Security Administration, by a treating physician, or by a third party disability payor, to the extent that the plan did not follow those determinations;
• The internal rules, guidelines, protocols, standards or other similar criteria of the plan that were used in denying the claim (or a statement that these do not exist); and
• A statement that the claimant is entitled to receive relevant documents upon request.

3. Right to Review and Respond to New Information before Final Decision: The proposed regulations provide that, prior to a plan's decision on appeal, a claimant must be provided, free of charge, any new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan in connection with the disability claim, as well as any new or additional rationale for a denial. The claimant has the right to respond to the new information, and present evidence and written testimony as part of the claims and appeals process. Current regulations provide a right to such information only upon request after the claim has been denied on appeal.

The DOL requests comments on whether, and to what extent, modifications to the existing timing rules are needed to ensure that disability benefit claimants and plans will have ample time to engage in the back-and-forth dialog that is contemplated by the new review and response rights.

4. Deemed Exhaustion of Claims and Appeals Processes: The proposed regulations modify the deemed exhaustion provisions, which allow a claimant to bring an action in court, in three important respects.
• In cases where the plan fails to adhere to all of the claims processing rules under section 503, the claimant may seek immediate court action unless the minor errors exception applies. The minor error exception applies if the violation is: (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan's control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. Upon request, the plan must provide the claimant an explanation of why it meets the minor errors exception.
• If the minor errors exception does not apply, the proposed regulations clarify that the court should review the claim as if the plan had not made a decision and not defer to the plan's decision.
• If a court rejects a claimant's request for immediate review because the minor errors exception does apply, the claim is deemed as re-filed on appeal upon the plan?s receipt of the decision of the court. Within a reasonable time after the receipt of the decision, the plan is required to provide the claimant with notice of the resubmission. At this point, the claimant has the right to pursue the claim in accordance with the plan's provisions governing appeals, including the right to present evidence and testimony.

Cheiron Observation: Many plans contain time limits on appealing a denial. This safeguard prevents a decision by the court that the minor errors exception applies from terminating the participant's ability to pursue the claim.

The DOL requests comments on whether, in the final notice of adverse benefit determination on appeal, plans should be required to provide claimants with a clear and prominent statement of any contractual period that limits when action could be filed in court and the expiration date for the claim at issue. In addition, an updated notice of that expiration date would be required if the expiration date changes.

5. Coverage Rescissions–Adverse Benefit Determinations: The proposed regulations call for rescissions of coverage to be treated as adverse benefit determinations, thereby triggering the plan's appeals procedures. The term "rescission" means "a cancellation or discontinuance of coverage that has retroactive effect (whether or not the affected participant or beneficiary was receiving disability benefits at the time of the rescission), except to the extent it is attributable to the participant's nonpayment of required premiums or contributions."

6. Culturally & Linguistically Appropriate Notices: The proposed regulations require adverse disability benefit determinations be provided in a culturally and linguistically appropriate manner, similar to other ACA regulations. If a claimant's address is in a county where 10 percent or more of the population residing in that county, as determined based on American Community Survey (ACS) data published by the United States Census Bureau, are literate only in the same non-English language, then:
• Notices of adverse benefit determinations to the claimant have to include a prominent one-sentence statement in the relevant non-English language about the availability of oral language services, and
• The plan is required to provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon request.

Oral language services include answering questions in any applicable non-English language, and providing assistance with filing claims and appeals in any applicable non-English language.

Technical Correction

The proposed regulations include a minor technical change to the regulations under section 503 to clarify that the extended time frames for deciding disability claims provided by the quarterly meeting rule found at 29 CFR 2560.503-1(i)(1)(ii) are applicable only to multiemployer plans.

Impact on Plan Sponsors

Generally, the DOL expects the proposed regulations to impose modest costs on plans that provide disability benefits, reasoning that many plans already are familiar with the proposed rules due to their current application to group health plans. However, the DOL made no separate cost assessment regarding the application of the rules to disability pension benefits.

Further, the DOL projects that the greater procedural protections for disability claims may cause some participants to receive benefits they might otherwise have been incorrectly denied, and that the fuller and fairer claims and appeals system may reduce plan expenditures overall. The DOL opines that the changes will lead to greater certainty and consistency in the handling of disability claims, ultimately resulting in efficiency gains in the system, both in terms of the allocation of spending at a macro-economic level as well as operational efficiencies among individual plans.

Cheiron Observations:

• Pension plans, disability plans, and grandfathered group health plans are not necessarily familiar with the claims procedures established under the ACA for non-grandfathered group health plans. The new requirements may have greatest administrative impact on those plans that are administered internally by the plan sponsor.
• Note that a short-term disability benefit designed as a payroll practice (salary continuation paid out of general employer assets) is not subject to ERISA and ERISA's claims and appeals procedures and therefore would not be subject to these regulations.
• Plans with a definition of disability the same as under the Social Security Act may be able to minimize additional administrative costs by relying on a determination of disability made by the Social Security Administration where practical.

Cheiron consultants can assist you developing comments or analyzing the impact of the proposed approaches described in the notice.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.