Effective April 1, 2018, plans that include disability benefits and are subject to ERISA must comply with new procedural protections issued by the Department of Labor (DOL). Entities that administer disability benefit claims, including insurance carriers and third-party administrators, will need to revise their claims procedures to comply with the final rule. Because the changes relate to claims and appeals processing, there is little that an employer plan sponsor needs to do.
What disability benefits does this rule apply to? A benefit is considered a “disability benefit” if the claimant has to be disabled in order to obtain the benefit. It does not matter how the benefit is characterized or whether the plan as a whole is a retirement plan (i.e. 401(k)) or a welfare plan (including STD, LTD, life waiver of premium) . If the claims adjudicator must make a determination of disability in order to decide a claim, the claim must be treated as a disability claim for purposes of the DOL’s claims procedures.
The new regulations mimic the claims and appeals requirements added to group health plans by the Affordable Care Act (ACA). The final rules include the following requirements for the processing of claims and appeals for disability benefits:
- Improvement to Basic Disclosure Requirements: Benefit denial notices must contain a more complete discussion of why the plan denied a claim and the standards used in making the decision.
- Right to Claim File and Internal Protocols: Benefit denial notices must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. Benefit denial notices also have to include the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were used in denying a claim, or a statement that none were used.
- Right to Review and Respond to New Information Before Final Decision: The final rule prohibits plans from denying benefits on appeal based on new or additional evidence or rationales that were not included when the benefit was denied at the claims stage, unless the claimant is given notice and a fair opportunity to respond.
- Avoiding Conflicts of Interest: Plans must ensure that disability benefit claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the people involved in making the decision. For example, a claims adjudicator or medical or vocational expert could not be hired, promoted, terminated or compensated based on the likelihood of the person denying benefit claims.
- Deemed Exhaustion of Claims and Appeal Processes: If plans do not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other specified conditions are met. If the claimant is deemed to have exhausted the administrative remedies available under the plan, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary and the claimant may immediately pursue his or her claim in court.
- Certain Coverage Rescissions Are Adverse Benefit Determinations Subject to the Claims Procedure Protections: Rescissions of coverage, including retroactive terminations due to alleged misrepresentation of fact (for example, errors in the application for coverage), must be treated as adverse benefit determinations that trigger the plan’s appeals procedures. Rescissions for nonpayment of premiums are not covered by this provision.
- Notices Written in a Culturally and Linguistically Appropriate Manner: Similar to the ACA standard for group health plan notices, the final rule requires that benefit denial notices be provided in a culturally and linguistically appropriate manner in certain situations.
In addition to verifying that their disability plan administrators are in compliance, employers will want to check plan documents to make sure they reflect the new procedures. ERISA requires distribution of new materials within 120 days following the end of the plan year. For calendar year plans, that would be the end of April 2019. That said, it is a good idea to distribute materials as soon as practical rather than wait until the end of the time allowed.
For additional information, see the DOL’s Employee Benefit Security Administration (EBSA)