September 29, 2010

Recently, the Department of Treasury, Department of Health and Human Services, and Department of Labor jointly issued interim final regulations regarding claims and appeals processes under the Health Care Reform Act (formally, the “Patient Protection and  Affordable Care  Act”).   These  regulations address  both  internal  claims  and appeals (i.e., claims and appeals to the plan administrator) and external review by an independent review organization (IRO) once the plan’s internal claims and appeal processes have been exhausted.
Effective Date.  The new regulations are generally effective for plan years beginning on or after September 23, 2010 (i.e., January 1, 2011 for calendar year plans). However, there is an enforcement grace period until July 1, 2011, for the new standards related to (i) 24-hour notification of urgent care claims, (ii) content of notices, and (iii) noncompliance. During this grace period, no enforcement action will be taken if the group health plan is working in good faith to implement these additional standards but does not yet have them in place.

Internal Claims and Appeals

The regulations require group health plans, unless grandfathered, to comply with the existing  Department  of  Labor  (DOL)  claims  procedure  regulations  for  internal appeals.  These regulations even apply to plans exempt from ERISA (i.e., church plans and governmental plans).  However, the regulations do not apply to group health plans that provide benefits excepted from the HIPAA portability requirements, such as vision, dental, and most health flexible spending accounts, where benefits may be elected separately from the medical plan.
In addition, the regulations add the following six requirements to the existing DOL regulations for internal claims and appeals:

• Expanded Definition of Adverse Benefit Determination.  Rescissions of coverage are considered adverse benefit determinations and claimants must be allowed a right to appeal.  A rescission of coverage is any retroactive cancellation or discontinuance of coverage, other than a cancellation for failure to timely pay premiums or contributions.
• 24 Hour Notification – Urgent Care Claims.  In cases of urgent care claims, a claimant must be notified of a benefit determination (whether or not adverse) within 24 hours, unless the claimant fails to provide sufficient information to determine whether benefits are covered.  This is a change from the current standard of 72 hours.  This new requirement only applies to initial benefit determinations for urgent care claims and does not affect the time for making an internal appeals decision for urgent care claims, which is still 72 hours.
• Full and Fair Review.  A claimant must receive, free of charge, (i) any new or additional evidence, and (ii) any new or additional rationale considered or relied  on  in  connection  with  the  appeal  of  a  denied  claim.  The  new  or additional evidence or rationale must be provided to the claimant sufficiently in advance of the issuance of the benefit determination to give the claimant a reasonable opportunity to respond.
• Conflicts of Interest.  All claims and appeals processes must be designed to ensure independence and impartiality of the decision makers.  Decisions regarding hiring, compensation, termination, promotion, or other similar matters cannot be based on the likelihood that the decision maker (such as a claims adjudicator or medical expert) will support a denial of benefits.  For example, a plan sponsor cannot provide bonuses for a committee member based on the number of claim denials.
• Content of Notices.  Notices of adverse benefit determinations must include additional information such as diagnosis codes, treatment codes, denial codes and their meanings, description of the external appeals process, and the availability of, and contact information for, any health consumer assistance ombudsman. Also, notices of adverse benefit determinations must be provided in a non-English language, upon request, if the lesser of (i) 10 percent of all plan participants, (ii) or 500 plan participants are literate only in the same non-English language.
• Noncompliance.  If the plan administrator does not strictly adhere to the internal  appeal  procedures with  respect  to  a  claim,  the  claimant will  be deemed to have exhausted the internal appeals process, even if the failure by the plan administrator was minor.   In  such cases, a  plan administrator’s adverse benefit determination will be afforded no deference upon external review.

External Review

Unless grandfathered, all group health plans must comply with either State or Federal external review requirements.  Generally, self-funded group plans covered by ERISA will be subject only to the Federal external review requirements. Fully-insured group health  plans  subject  to  State  insurance  regulation  and  self-funded group  plans exempt from ERISA will be required to follow the State external review requirements. However, if the State requirements fail to comply with certain minimum consumer protections of the National Association of Insurance Commissioners (NAIC) Uniform Model Act, the Federal requirements will apply instead.
State External Review.  The State external review procedures are required to include minimum consumer protections found in the NAIC Uniform Model Act, such as not allowing insurers to impose a minimum dollar threshold for claims to be eligible for external review, requiring the insurer or State to pay any fee for the external review, and allowing at least 4 months after the receipt of an adverse benefit determination for a request for external review to be filed.  To allow States time to amend their laws to meet the minimum consumer protections, State external review procedures will be deemed to meet the required standards for all plan years beginning before July 1, 2011.  Consequently, for plan years beginning before July 1, 2011, plans subject to an existing State external review process must comply with that process and not the Federal external review process.  This rule applies to calendar year plans for 2011.

Federal External Review.  Guidance issued August 23, 2010 provides an interim enforcement safe harbor that may be used by self-funded group health plans subject to Federal external review.  During this interim period, expected to last until no later than July 1, 2011, plans subject to Federal external review may either (i) voluntarily comply with available State external review processes, or (ii) comply with the interim Federal external review requirements.
The interim Federal external review requirements provide for two types of external review processes – standard external review and expedited external review.
Standard External Review.  To comply with standard external review, the following procedures must be implemented:

• Preliminary Review. If a claimant files a request for external review within 4 months of receiving an adverse benefit determination or final internal adverse benefit determination, the plan must complete a preliminary review of the request within 5 days to determine whether the claim is appropriate to be assigned  to  external  review  and  whether  the  claimant  has  provided  the required information and forms to process an external review.
• Independent Review Organizations.  The plan must assign, either directly or through a third-party administrator, the external review to an accredited independent review organization (IRO).  To ensure impartiality, the plan must contract with at least three IROs and rotate claim assignments among them or incorporate some other unbiased method for assigning the reviews.  The IRO may not receive any financial incentive based on the likelihood that the IRO will support the denial of benefits.  In addition, there are specific terms that must be included in a contract with an IRO.

Expedited External Review.  An expedited external review must be provided to a claimant, upon request, if:

• the  claimant  receives  an  adverse  benefit  determination  or  final  internal adverse benefit determination and the claimant’s medical condition would seriously jeopardize the life or health of the claimant or would jeopardize the claimant’s ability to regain maximum function; or
• the  claimant  receives  a  final  internal  adverse  benefit  determination  that concerns the admission, ability of care, continued stay, or health care item or service for emergency services, and the claimant has not been discharged from a facility.

To comply with expedited external review, the plan must immediately complete a preliminary review and send preliminary review notice upon receiving a request for such review.  The plan’s contracts with its IRO must also include certain additional terms that shorten the IRO’s review and notification timeframe.

Model Notices

The agencies have posted three model notices that may be used to satisfy the disclosure and content requirements: (i) notice of adverse benefit determination, (ii) notice of final adverse benefit determination, and (iii) a notice of final external review decision. The model notices may be found at www.dol.gov/agencies/ebsa.

Next Steps

To comply with the new guidance, plan sponsors of self-insured plans, other than grandfathered plans, will need to:

• begin updating their procedures and computer systems to ensure they have adequate processes in place to comply with the new internal appeals requirements, such as meeting the 24 hour notification requirement for urgent care claims, implementing the new notice content requirements, and, if applicable, language requirements for notifications; and
• compile a list of accredited IROs to which external review of claims can be assigned.

Excise Tax and IRS Form 8928

Group health plan sponsors now need to self-report and pay excise taxes for failing to comply with a number of federal group health plan mandates, including the Health Care Reform Act.
The self-reporting requirement and excise taxes apply to a violation of:

• Health reform mandates under the Health Care Reform Act;
• Special enrollment rights;
• COBRA;
• Limitations on pre-existing condition exclusions;
• Nondiscrimination based on health status;
• Nondiscrimination based on genetic information;
• Parity in benefits for mental health and substance abuse disorders;
• Minimum hospital stays for mothers and newborns; and
• Coverage of dependent students on medically necessary leaves of absence.

On or before the deadline for filing the plan sponsor’s federal income tax return, without an extension, the plan sponsor would need to report the violation by filing IRS Form 8928 and pay the applicable excise tax of $100 per day for each day of noncompliance for each affected individual.
Plan sponsors will not be subject to the excise tax if the violation was due to reasonable cause and: