Safeguards Implemented for Disability Claims and Appeal Procedures
By Johanna Montero-Okon, Benefits Attorney, ALPA Retirement & Insurance Department
Editor’s note: Due to updates to the claims and appeals process for disability benefits covered by the Employee Retirement Income Security Act, the following article represents a summary crafted by ALPA’s Retirement & Insurance Department to assist ALPA members who file disability claims.
On Dec. 16, 2016, the U.S. Department of Labor published its final rule on disability claims and appeal procedures, amending its existing claims procedure regulation 29 C.F.R. Section 2560.503.1. Generally, Employee Retirement Income Security Act (ERISA) of 1974 Section 503 mandates that employee benefit plans provide participants and beneficiaries written notice of the plan’s benefit denials. In addition, plans must provide claimants a full and fair review process for denied claims. The final rule strengthens protections for individuals making claims for disability benefits in ERISA-covered disability plans by mandating that seven targeted protections be included in a plan’s claims procedures. Accordingly, the final rule required that plan fiduciaries, third-party administrators, and insurance providers implement the additional protections when administering disability benefit claims by April 2, 2018.
The final rule intends to create a full, fair, and timely review process for disability claimants. At its core, the final rule is about communication and transparency between the claimant and those with the authority to approve or deny the claim. It intends to set a standard of review that ensures the delivery of proper and timely notice, specific explanation for the denial of benefits, and the proper disclosure of information. It also ensures that the claimant will have the opportunity to respond to and/or rebut the basis for a denial, protects claimants from conflicts of interest, and ensures that individuals aren’t held hostage by internal administrative processes when the plan doesn’t comply with procedural requirements.
Consistent with ERISA § 503, when a claimant’s right to receive a benefit under a plan is conditioned upon a showing or finding of disability, the claim must be treated as a disability claim subject to the following safeguards:
1. The plan adjudicator must avoid conflicts of interests. Claims and appeals must be reviewed and decided in a manner free from improper influences. The final rule mandates that 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.”
Example: A plan engages a medical expert to review disability claims. The medical expert works for a very respectable institution and has a reputation for obtaining favorable outcomes on behalf of plan adjudicators in contested cases. While the reasons for the plan hiring the expert are unknown, the rule prohibits the plan from contracting with a medical expert based on the expert’s reputation for outcomes instead of his or her qualifications. As a fundamental tenet, the rule requires that decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual must not be made based on the likelihood that the individual will support a denial of disability benefits.
2. Benefit denial notices must be transparent. Benefit denial notices must contain a complete discussion of why the plan denied the claim and the standard applied in reaching the adverse decision, including
A. The basis for disagreeing with information presented by the claimant setting forth the views of the health-care professionals treating the claimant and vocational professional who evaluated the claimant;
B. The views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s claim, without regard to whether the advice was relied upon in denying the claim;
C. If the plan bases its decision on a determination of disability by the Social Security Administration (SSA), the basis for disagreeing with or not following the disability determination made by SSA;
D. If the denial is based on a medical necessity or experimental treatment or another plan exclusion or limit, the plan must provide 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; and
E. A description of the specific internal rules, guidelines, protocols, standards, or other similar criteria the plan relied upon or, alternatively, the plan must include a statement that such rules, guidelines, protocols, standards. or other similar criteria of the plan do not exist.
Note: A notice of a denial at the initial claims stage must contain a statement that the claimant is entitled to receive, upon request, relevant documents.
3. A claimant has a right to review and provide evidence supporting his or her claim during the review process. A claimant must be given timely notice of his or her right to access the entire claim file and other relevant documents and be guaranteed the right to present evidence and testimony in support of his or her claim during the claim process.
A plan can’t deny a claimant the right to access information based on an assertion that the information is proprietary or confidential business information.
4. A claimant must be given timely notice and a fair opportunity to respond before denials at the appeals stage are based on new or additional evidence or rationales. The final rule mandates that the evidence or rationales relied upon or generated by the reviewing party be provided to the claimant “as soon as possible or sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided to give the claimant a reasonable opportunity to address the evidence or rationale prior to that date.”
Example: Benefit Plan A denied a claim at the initial stage based on a medical report generated by the plan administrator. Maria, the claimant, appealed the denial and, during the 45-day period that the plan must make its decision on the appeal, the administrator had a new medical report generated. Maria has a right to, and the plan must automatically furnish her with, any new or additional evidence in the second report. This obligation applies to any new or additional evidence, including evidence that may support granting the claim.
5. If the plan fails to comply with these new rules in a meaningful way, a claimant can seek court review without exhausting the internal plan administrative process. Plans can’t prohibit a claimant from filing a lawsuit against the plan based on a failure to exhaust administrative remedies when the plans fails to comply with the final rule. However, if the failure to comply with the final rule is (a) de minimis (i.e., minor or insignificant); (b) nonprejudicial; (c) attributable to good cause or matters beyond the plan’s control; (d) in the context of an ongoing good-faith exchange of information; and (e) not reflective of a pattern or practice of noncompliance, a claimant must exhaust the internal process.
6. Termination of coverage constitutes an adverse benefit determination triggering the application of the plan’s disability appeals procedures. The final rule amends the definition of an adverse benefit determination to include cessation of benefits. The cessation of disability benefit coverage that has a retroactive effect, unless due to the claimant’s failure to pay premiums, constitutes an adverse benefit determination covered by the final rule.
Example: Benefit Plan B approved John’s disability claim. The plan provides for the payment of disability benefits for a predetermined, fixed period (e.g., a specified number of weeks or months or until a specified date). John’s benefit is terminated consistent with the specified period set out in the plan. John files a claim on the basis that the termination was an adverse benefit decision.
7. Notices of a claim denial must be furnished in a culturally and linguistically appropriate manner. If a claimant's registered address is in a county in which 10 percent or more of the population residing in that county is literate only in the same non-English language as determined by the American Community Survey data published by the United States Census Bureau, the notice sent to the claimant that the claim is denied must include a statement predominantly displayed in the applicable non-English language. 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.
What a Claimant Should Expect from a Plan Provider
- Updates to claims procedures.
- Updates to plan documents and summary plan descriptions, including the new procedures, and distributions of the revised document or a summary of material modification reflecting the changes.
