The Department of Labor (DOL) announced April 1, 2018, as the applicability date for the new procedural protections under revised ERISA regulations for denial of disability benefits. Generally, the final disability claims procedures require plans to give disability claimants a clear explanation of why their claim was denied and their rights to appeal the denial. The new requirements are similar to those that already apply to claims and appeals under group health plans.

Action Needed Now: Sponsors of plans that provide disability benefits, such as short-term or long-term disability benefits and disability pension payments, must amend their disability claims procedures for claims filed after April 1, 2018.

Background

On December 19, 2016, the DOL published a final regulation to amend the existing disability claims procedures for ERISA-covered employee benefit plans to become effective in January 2017. The regulation basically extended many of the claims procedures that apply to group health plans under the Affordable Claims Act to disability determinations. The DOL delayed the regulation's effective date until January 1, 2018, in order to provide adequate time for disability benefit plans, affected service providers, and consumers to adjust to the changes. After an additional 90-day delay for comments¹, the DOL implemented the final regulation without change to be effective April 1, 2018, for claims filed after that date.

Key Changes

The final regulation makes the following key changes to the disability claims and appeals procedures:

• Independence and Impartiality--Avoiding Conflicts of Interest: The plan must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Accordingly, decisions such as the hiring, compensation, termination, or promotion of any claims adjudicator or medical or vocational expert cannot be based upon the likelihood that the adjudicator or expert will support the denial of benefits.

• Improvements to Disclosure Requirements: In the case of an adverse disability benefit determination, the claimant must receive:
• A discussion of the decision, including an explanation of the basis for disagreeing with or not following: (i) the views of health care professionals treating the claimant and vocational professionals who evaluated the claimant; (ii) the views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with the adverse determination, without regard to whether the advice was relied upon in making the benefit determination; and (iii) any disability determination regarding the claimant made by the Social Security Administration.
• For adverse benefit determinations based on medical necessity or an experimental treatment or a similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant's medical circumstances, or a statement that such explanation will be provided free of charge upon request.
• Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination, or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist; and a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for benefits. Relevancy is determined under DOL regulation 29 C.F.R. 2560.503-1(m)(8).

• Right to Review and Respond to New Information before Final Decision: Before the plan can uphold an adverse disability determination on appeal, the plan administrator must provide the claimant, free of charge, any new or additional evidence or rationale considered, relied upon, or generated by the plan, insurer, or other person who is making the adverse determination. This information must be provided to the claimant sufficiently in advance of the date on which the decision on appeal is due in order to give the claimant a reasonable opportunity to respond prior to that date.

• Deemed Exhaustion of Claims and Appeals Processes: If a plan fails to strictly adhere to the required claims and appeals procedures, the claimant is deemed to have exhausted the administrative remedies available under the plan and is entitled to bring court action pursuant to section 502(a) of ERISA. However, an exception applies for de minimis violations that do not cause, and are not likely to cause, prejudice or harm to the claimant, provided the plan demonstrates that the violation was for good cause or due to matters beyond the control of the plan, and the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant. This exception is not available if the violation is part of a pattern or practice of violations by the plan.

• Coverage Rescissions--Adverse Benefit Determinations: Under the final regulation, an adverse benefit determination includes a rescission of disability benefits that has a retroactive effect, except if the rescission was due to a failure to timely pay premiums or contributions. Note a retroactive reduction or elimination of disability pension benefits pursuant to the funding rules for multiemployer plans in endangered status or critical status (section 305 of ERISA) is not treated as a rescission of coverage. However, a retroactive reduction or elimination of disability pension benefits based on a finding by the adjudicator that the claimant is not disabled is an adverse determination.

• Culturally and Linguistically Appropriate Notices: The regulation extends to adverse disability determinations the existing requirement applicable to group health plan claims to provide relevant notices in applicable non-English languages.² Generally, this means that the plan must provide oral language services (such as a telephone customer assistance hotline) that include answering questions and providing assistance with filing claims and appeals in any applicable non-English language. The English versions of adverse determinations must include a prominently displayed statement in the applicable non-English language indicating how to access the language services provided by the plan. Upon request, the plan must provide such determinations in the applicable non-English language.

CHEIRON OBSERVATION:

Although the final regulation imposes the "culturally and linguistically appropriate" requirement only for notices of adverse benefit determination, as a practical matter, once a claimant informs the plan administrator that he or she is not literate in English, the plan may be obligated to provide all notices and communications associated with the disability claim in the non-English language.

Cheiron consultants can assist you in amending your plan's disability claims procedures.

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.

¹ Only a few comments responded substantively to the Department's request for quantitative data to support assertions that the final rule would drive up disability benefit plan costs by more than the Department had predicted, cause an increase in litigation, and consequently reduce workers' access to disability insurance protections.

² With respect to an address in any United States county to which a notice is sent, a non-English language is an applicable non-English language if ten percent or more of the population residing in the county is literate only in the same non-English language. A complete list of culturally and linguistically appropriate standards (CLAS) is obtainable from cms.gov.