[Federal Register Volume 66, Number 131 (Monday, July 9, 2001)]
[Rules and Regulations]
[Pages 35886-35888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17145]



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Part VI





Department of Labor





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Pension and Welfare Administration



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29 CFR Part 2560



Employee Retirement Income Security Act of 1974; Rules and Regulations 
for Administration and Enforcement; Claims Procedure; Final Rule

  Federal Register / Vol. 66, No. 131 / Monday, July 9, 2001 / Rules 
and Regulations  

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2560

RIN 1210-AA61


Employee Retirement Income Security Act of 1974; Rules and 
Regulations for Administration and Enforcement; Claims Procedure

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Final Regulation; delay of applicability date.

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SUMMARY: This action delays for at least six months and not more than 
one year the applicability date for the regulation governing minimum 
requirements for benefit claims procedures of group health plans 
covered by Title I of the Employee Retirement Income Security Act. As 
published on November 21, 2000, the benefit claims procedure would be 
applicable to claims filed on or after January 1, 2002. The current 
action amends the regulation so that it will apply to group health 
claims filed on or after the first day of the first plan year beginning 
on or after July 1, 2002, but in no event later than January 1, 2003. 
This action provides a limited additional period within which group 
health plan sponsors, administrators, and service providers can bring 
their claims processing systems into compliance with the new 
requirements. A postponement of the applicability date with respect to 
group health claims will allow a more orderly transition to the new 
standards and will avoid the confusion and additional expense that 
would be caused if certain pending Congressional bills are enacted 
before or soon after the original applicability date. This action does 
not apply to pension plans or plans providing disability or welfare 
benefits (other than group health). For these plans, the regulation 
will continue to be applicable to claims filed on or after January 1, 
2002.

EFFECTIVE DATE: July 9, 2001.

FOR FURTHER INFORMATION CONTACT: Susan G. Lahne, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration, 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210, telephone (202) 219-7461. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

    On November 21, 2000, the Department of Labor (the Department) 
published in the Federal Register (65 FR 70246) a final regulation, 
designated as Sec. 2560.503-1 of Title 29 (the regulation), which 
revised the minimum requirements for benefit claims procedures of all 
employee benefit plans covered under Title I of the Employee Retirement 
Income Security Act of 1974 (ERISA). In particular, the regulation made 
substantial changes in the way in which employee benefit plans must 
process claims for group health benefits. These changes include shorter 
time frames for decisionmaking, new procedural standards for appeals of 
denied claims, and increased disclosure to claimants. The regulation 
also made changes to the procedural requirements for processing 
disability claims. With respect to other types of benefits, the 
regulation largely continued the standards applicable under the 
previous regulation, which has been in force since 1977.
    Since the publication of the regulation, a number of issues have 
been raised by plan sponsors, service providers, state regulators, and 
others concerning the interpretation and application of the various 
provisions and requirements of the regulation that apply to group 
health plans. In this regard, the Department has been requested to 
provide additional guidance concerning the regulation in order to 
ensure efficient and effective implementation of the new rules. In 
addition, it has been argued that a delay of the regulation's 
applicability date is necessary for group health plans and service 
providers to better understand the requirements of the regulation, as 
well as to take into account clarifying guidance from the Department, 
and to efficiently implement the significant systems and other changes 
required by the new rules. It also has been argued that an extension of 
the regulation's applicability date is necessary to enable entities 
subject to state regulation (e.g., insurers, managed care 
organizations) to obtain state-level reviews and approvals of claims 
processes and other changes required by the regulation. In addition, 
concerns have been expressed about group health plans having to incur 
substantial costs to make the procedural, systems, and other changes 
necessary to accommodate the new rules while Congress is actively 
considering Patients' Bill of Rights legislation that, if enacted, 
would require new and additional changes to the same procedures and 
systems.
    The Department is committed to ensuring that participants and 
beneficiaries are afforded fair and timely reviews of their benefit 
claims. At the same time, the Department recognizes that an orderly, 
efficient, and cost-effective implementation of the claims procedure 
rules by group health plans will ultimately benefit all affected 
parties, including plan participants and beneficiaries. In this regard, 
the Department is persuaded that plans, service providers, and state 
regulators would benefit from additional guidance from the Department 
concerning the application of the claims procedure rules to group 
health plans. The Department also is persuaded that the magnitude of 
the procedural, systems, and other changes required by the regulation, 
in conjunction with the need to obtain state-level approvals with 
respect to such changes, may necessitate more time than was originally 
thought necessary when the rules were adopted in November, 2000. The 
Department also believes that there is a significant likelihood that 
Patients' Bill of Rights legislation directly affecting the procedural 
requirements for group health plans addressed in the final rules will 
be enacted before, or shortly after, the January 1, 2002, applicability 
date of the regulation. For these reasons, the Department has 
determined that a limited and temporary deferral of the applicability 
date of the claims procedure regulation for group health plans is 
warranted. It should be noted, however, that this action does not apply 
to pension plans or plans providing disability or welfare benefits 
(other than group health). For these plans, the regulation will 
continue to be applicable to claims filed on or after January 1, 
2002.\1\
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    \1\ As noted above, the rules applicable to pension plans (and 
welfare plans other than group health and disability) have remained 
essentially unchanged from the 1977 regulation. Further, issues 
raised with respect to group health plans, including the impact of 
Patients' Bill of Rights legislation, have not been raised with 
respect to plans providing disability or other welfare benefits.
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    Under the amendment, the regulation will apply to group health 
claims filed on or after the first day of the first plan year beginning 
on or after July 1, 2002, but in no event later than January 1, 2003. 
The effect of this amendment will be to provide plans an additional 
compliance period for group health claims of at least six months (from 
January 1, 2002, to July 1, 2002). For group health plans with plan 
years beginning on July 1, 2002, the regulation will begin to apply to 
new claims filed under those plans as of that date; group health plans 
with plan years beginning from July 2, 2002, through December 31, 2002, 
will need to begin processing new claims under the regulation as of the 
beginning of that plan year. Calendar year group health plans and all 
other

[[Page 35887]]

group health plans will be required to comply with respect to all new 
claims filed on or after January 1, 2003.
    During the period before the relevant applicability dates, the 
Department expects plans, at a minimum, to continue to comply with the 
procedural rules that were in effect before promulgation of the 
regulation. For those periods, compliance with either the claims 
procedure regulation published on November 21, 2000, or as in effect 
prior to January 20, 2001, will be considered by the Department to be 
in compliance with the requirements of section 503 of ERISA.
    This amendment is published as a final rule, effective as of the 
date of publication in the Federal Register. The Department's 
implementation of this rule without opportunity for public comment is 
based on the good cause exception in 5 U.S.C. 553(b)(3)(B). The 
Department has determined, for the following reasons, that seeking 
public comment would be impracticable and contrary to the public 
interest.\2\
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    \2\ An agency may find that a comment period is impractical when 
it would impede the due and timely execution of the agency's 
function. A comment period is contrary to the public interest when 
the interest of the public would be defeated by any requirement of 
advance notice. U.S. Dept. of Justice, Attorney General's Manual on 
the Administrative Procedure Act 30-31 (1947).
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    Absent the temporary postponement provided herein, the affected 
parties would have to be ready to comply with the regulation by January 
1, 2002, a date that is less than six months distant from the date of 
publication. Therefore, for this action to serve its intended purpose, 
it must become effective as soon as possible. If the Department 
published this action in proposed form with a period for notice and 
comment, the affected parties would remain in doubt concerning whether 
compliance could be postponed. Given the imminence of the regulation's 
applicability date, the period for notice and comment would exhaust 
most of the remaining compliance period without providing certainty to 
the regulated public. Because the delay would exacerbate the pressures 
on employers, plan administrators, service providers, state regulators, 
and others affected by the rules and increase their confusion as to 
when compliance with the new procedural standards is mandatory, and 
because this action merely delays application of the standards for a 
limited period of time, the Department believes publication of the 
final action without notice and comment is justified under 5 U.S.C. 
553(b).
    The Department has also determined that good cause exists to make 
this rule effective upon publication without providing the 30-day 
period between publication and the effective date contemplated by 5 
U.S.C. 553(d). The purpose of a delayed effective date is to afford 
persons affected by a rule a reasonable time to prepare for compliance. 
Because this action has precisely that effect--giving affected parties 
additional time within which to comply with the new standards--the 
delay contemplated by section 553(d) would not serve this purpose, the 
Department finds that good cause exists to make this amendment 
effective upon publication.

B. Economic Analysis

1. Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule: (1) Having an annual effect on the economy of $100 million 
or more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it has been 
determined that this action is ``significant'' as defined above, and 
accordingly was reviewed by the Office of Management and Budget. By 
delaying the applicability date of the claims procedure regulation for 
group health plans, this action will slightly alter the timing of the 
regulation's economic effects for such plans, but generally will not 
alter the magnitude or nature of those effects. In particular, this 
action will allow group health plans to spread the start-up cost of 
complying with the regulation for six to twelve months beyond January 
1, 2002. Once the regulation is applicable, its ongoing costs and 
benefits are expected to be the same as originally estimated.

2. Regulatory Flexibility Act

    Because this amendment is being published as a final rule without 
prior notice and a period for comment, the Regulatory Flexibility Act 
does not apply.

3. Paperwork Reduction Act

    This action is not subject to the requirements of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because it does not 
contain a ``collection of information'' as defined in 44 U.S.C. 
3502(3). This final rule will not substantially or materially change 
the information collection provisions of 29 CFR Sec. 2560.503-1 as 
currently approved by OMB control number 1210-0053.

4. Unfunded Mandates Reform Act

    Because this amendment is a final rule, section 202 of the Unfunded 
Mandates Reform Act of 1995, 2 U.S.C. 1531 (UMRA), does not apply. For 
purposes of Executive Order 12875, this rule does not include a Federal 
mandate that may result in expenditures by state, local or tribal 
governments.

5. Small Business Regulatory Enforcement Fairness Act

    This final rule is subject to the provisions of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) 
(SBREFA). The rule is not a major rule, as that term is defined by 5 
U.S.C. 804, and has been transmitted to Congress and the Comptroller 
General for review.

List of Subjects in 29 CFR Part 2560

    Employee benefit plans, Employee retirement income security act, 
benefit claims procedures

    For the reasons set out in the preamble, 29 CFR part 2560 is 
amended as follows:

PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT

    1. The authority citation for part 2560 continues to read as 
follows:

    Authority: Secs. 502, 505 of ERISA, 29 U.S.C. 1132, 1135, and 
Secretary's Order 1-87, 52 FR 13139 (April 21, 1987).
    Section 2560-502-1 also issued under sec. 502(b)(1), 29 U.S.C. 
1132(b)(1).
    Section 2560-502i-1 also issued under sec. 502(i), 29 U.S.C. 
1132(i).
    Section 2560-503-1 also issued under sec. 503, 29 U.S.C. 1133.


    2. Revise paragraph (o) of Sec. 2560.503-1 to read as follows:

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Sec. 2560.503-1  Claims Procedure.

* * * * *
    (o) Applicability dates.
    (1) Except as provided in paragraph (o)(2) of this section, this 
section shall apply to claims filed under a plan on or after January 1, 
2002.
    (2) This section shall apply to claims filed under a group health 
plan on or after the first day of the first plan year beginning on or 
after July 1, 2002, but in no event later than January 1, 2003.

    Signed at Washington, DC, this 3rd day of July, 2002.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S. 
Department of Labor.
[FR Doc. 01-17145 Filed 7-5-01; 11:26 am]
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