The Department of Labor (“DOL”) issued regulations that revise the ERISA claims procedure regulations for employee benefit plans that provide disability benefits (the “New Disability Claims Regulations” or “New Regulations”). They are based on the Affordable Care Act’s (the “ACA”) enhanced claims and appeals regulations for group health plans (the “ACA Enhanced Regulations”). The scope of the New Regulations are broader than you may realize and apply to any plan, regardless of how it is characterized, that provides benefits or rights that are contingent on whether the plan determines an individual to be disabled. This can include ERISA governed short-term disability plans, long-term disability plans, qualified retirement plans (e.g., a 401(k) plan), nonqualified retirement plans, and health and welfare plans. Importantly, the New Disability Claims Regulations would not apply if a plan does not make the determination of disability, but instead relies on a third party’s determination of disability, such as a determination of disability made by the Social Security Administration.
Although the DOL announced on July 20, 2017, that the New Regulations might be amended or delayed, they are scheduled to take effect for all claims for disability benefits filed on or after January 1, 2018. Please note it may take some time for an employer to comply with the New Regulations. After an employer determines which plans (if any) might be subject to the New Regulations, it must decide whether to comply with the new requirements, or to amend its definition of disability so that the determination of disability is made by a third party. Either way, plan amendments may be required as well as coordination with various service providers and insurers. Therefore, employers may wish to focus on these New Regulations as soon as possible to ensure compliance by January 1, 2018.
The major provisions of the New Regulations are as follows:
- The Independence and Impartiality of Disability Claims Decision-makers Plans providing disability benefits 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. This means that the plan cannot hire, compensate, terminate, or promote an individual (e.g., a claims adjudicator, medical expert, or vocational expert) based on the likelihood that he or she will support the denial of disability benefits.
- Additional Information on Adverse Benefit Determination Notices Adverse benefit determination notices for disability benefit claims must explain why the plan disagrees with: (1) the views of health care professionals who treated, and vocational experts who evaluated, the claimant; (2) the views of medical or vocational experts whose advice was obtained by the plan; and (3) a disability determination by the Social Security Administration. Additionally, if a denial is based on medical necessity or experimental treatment or similar exclusions, the adverse benefit determination notice must explain the scientific or clinical judgment for the decision, or at least state that such explanation will be provided free of charge upon request. The notice must also provide the internal rules, guidelines, protocols, standards, or other similar criteria that the plan relied on, and state that the claimant is entitled to receive, free of charge upon request, documents relevant to the claim for benefits.
- Right to Review and Respond to New Information Before the Plan’s Decision on Appeal When a plan considers new or additional evidence or relies on new or additional rationale, it must provide this information and/or rationale to the claimant as soon as possible, and sufficiently in advance, before the deadline on which the plan must provide the adverse benefit determination on appeal.
- Deemed Exhaustion of Claims and Appeals Processes Mirroring the ACA Enhanced Regulations, if a plan fails to comply with the disability claims procedure regulations, the claimant would be deemed to have exhausted the plan’s claims and appeals processes, and could file a civil suit under ERISA. This rule would not apply, however, if the violation is: (1) de minimis; (2) non-prejudicial; (3) attributable to good cause or matters beyond the plan’s control; (4) in the context of an ongoing good-faith exchange of information; and (5) not reflective of a pattern or practice of non-compliance.
- Coverage Rescissions – Adverse Benefit Determinations The New Regulations amend the definition of an adverse benefit determination to include a rescission (i.e., a retroactive cancellation or discontinuance) of disability benefit coverage, except to the extent the rescission is due to a failure to pay premiums on time.
- Culturally and Linguistically Appropriate Notices Also mirroring the ACA Enhanced Regulations, plans must provide the adverse benefit determination notice in a culturally and linguistically appropriate manner. Specifically, if a claimant lives in a county where 10% or more of the population are literate only in the same non-English language, the notice must prominently state (in the non-English language) how an individual can access the plan’s language services. The plan must also 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.
- Contractual Limitations Period If the plan has a contractual time limitation for when a claimant can sue under Section 502 of ERISA, the plan’s adverse benefit determination notices must describe that contractual limitations period and its expiration date. Furthermore, such contractual limitations period cannot end before the plan’s internal appeals process is exhausted.