DOL Proposes to Bring ERISA Disability Denials in Line with the Affordable Care Act
On November 18, 2015, the Department of Labor (the “Department”) published a notice of Proposed Rulemaking at 80 Fed. Reg. 222 (the “Proposed Rule”) to amend ERISA’s claims procedures (29 C.F.R. 2560.503-1) as they apply to claims for disability benefits. One of the purposes of the Proposed Rule is to make ERISA’s claims procedures for disability claims consistent with the Affordable Care Act’s claims procedures for group health plans. The Proposed Rule contains several components.
First, the Proposed Rule expands a disability plan’s duty to ensure that claim decisions are free from conflicts of interest. To that end, the Proposed Rule amends subsection (b) of the claims procedures to require that a disability plan’s claims procedures 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.” The amendment further provides that “decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical expert) must not be made based upon the likelihood that the individual will support the denial of benefits.”
Proskauer’s Perspective: Even prior to the proposed amendment, many plans had already taken affirmative steps to ensure the independence and impartiality of the persons involved in the decision-making process. The Proposed Rule therefore likely will not present an additional burden to plans.
Second, the Proposed Rule amends subsection (g)(1) of the claims procedures to expand the types of information that a plan must include in an adverse benefit determination of disability benefits. Specifically, it requires a plan to include: (i) a discussion of the decision, including the basis for disagreeing with the views of a treating physician or determinations by the Social Security Administration; (ii) the specific criteria relied upon in making the adverse benefit determination or a statement that no such specific criteria exist; and (iii) a statement that the claimant is entitled to receive “reasonable access” to all documents and information relevant to his or her claim, upon request and free of charge.
Proskauer’s Perspective: The Department noted that several courts previously held that the failure to provide a discussion of the decision or the specific criteria relied upon in making the adverse benefit determination could make a claim denial arbitrary and capricious. The Proposed Rule therefore appears to be an effort to extend this standard across other jurisdictions.
Third, the Proposed Rule replaces subsection (h)(4) of the claims procedures to require a plan to provide a claimant any additional evidence, information, or additional rationales for denying the claim developed during the course of an appeal, and to allow the claimant a reasonable opportunity to respond before the plan issues a final decision. Because these rules conflict with the detailed timing rules contained in subsection (i) of the claims procedures, the Department has requested comments on “whether, and to what extent, modifications to the existing timing rules are needed.”
Proskauer’s Perspective: Many plans already provide claimants an opportunity to respond to new evidence during the appeals process; the Department’s request for comment underlines its interest in ensuring that plans and participants will have adequate time to engage in a dialogue concerning the evidence presented during the administrative review process.
Fourth, the Proposed Rule allows a party to deem a plan’s administrative remedies exhausted if the plan fails to adhere to the claims procedures. The Proposed Rule also provides an exception for certain types of violations that are: (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond a 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 noncompliance. If a court determines that any of these exceptions apply, the Proposed Rule requires the plan to re-route the underlying claim through its internal appeals process and to provide the claimant notice of the resubmission.
Proskauer’s Perspective: The Proposed Rule on when administrative remedies are deemed exhausted mirrors the existing standard adopted by the courts, and the safe harbor is similar to the “substantial compliance” doctrine that many courts had previously adopted to excuse minor digressions from the claims procedures.
Fifth, the Proposed Rule expands the definition of “adverse benefit determination” for disability claims to include “any rescission of disability coverage with respect to a participant or beneficiary (whether or not, in connection with the rescission, there is an adverse effect on any particular benefit at that time).” The Department noted that many rescissions of coverage (e.g., as part of an internal audit) do not trigger the procedural protections in the ERISA’s existing claims procedures, and that this gap may make participants and beneficiaries “face dangerous and unwanted lapses in disability coverage without their knowledge, and without knowing how to challenge the rescission.”
Proskauer’s Perspective: Plans should consider the effect of this proposal on their arrangements with claims administrators and third-party vendors. By way of example, many claims administrators contract with outside vendors to identify factors that warrant rescinding disability coverage. Coupled with other provisions in the Proposed Rule, the outside vendor’s determination may constitute an adverse benefit determination and the information it considered in rendering its determination may have to be produced to the claimant.
Sixth, the Proposed Rule requires that notices and disclosures be both culturally and linguistically appropriate for claimants who reside in a county where 10% or more of the population are literate in only one non-English language. Affected individuals must be provided access to a customer assistance process (e.g., telephone hotline) to answer questions and assist them with filing claims and appeals in the non-English language.
Proskauer’s Perspective: The Department identified 225 affected counties in the United States, the overwhelming majority of which contained Spanish-language speakers. Information on these counties is available on the Department’s website, and plans should assess whether their customers reside in the affected counties.
Seventh, the Proposed Rule seeks comments on a requirement that plans be required to prominently identify any contractual limitations period both in the plan and in any adverse benefit determination, and to provide updated notices should that date change. The Department noted that the federal circuit courts to have considered the issue are split, and that “plans may be in a better position than claimants to understand and to explain what those provisions mean.”
Proskauer’s Perspective: In response to the current split in authority, and in an abundance of caution, many plans have already amended participant communications to prominently include this information. Plans should nevertheless consider whether their voluntary efforts comply with the Proposed Rule.
Lastly, the Proposed Rule makes a technical correction to subsection (i)(3)(i) of the claims procedures clarifying that the extended time frames for deciding disability claims only apply to multi-employer plans.
Comments to the Proposed Rule are due by January 19, 2016.
Many plans already have implemented procedures that are consistent with the Proposed Rule’s requirements in light of existing case law and developing “best practices.” Nevertheless, plan administrators should not rush to amend their plan documents until the Proposed Rule is finalized and approved for implementation. In the meantime, administrators should begin to review their existing policies and procedures and assess their ability to comply with the newly added provisions.