[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Rules and Regulations]
[Pages 92316-92343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30070]
[[Page 92315]]
Vol. 81
Monday,
No. 243
December 19, 2016
Part VI
Department of Labor
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Employee Benefits Security Administration
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29 CFR Part 2560
Claims Procedure for Plans Providing Disability Benefits; Final Rule
Federal Register / Vol. 81 , No. 243 / Monday, December 19, 2016 /
Rules and Regulations
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2560
RIN 1210-AB39
Claims Procedure for Plans Providing Disability Benefits
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Final rule.
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SUMMARY: This document contains a final regulation revising the claims
procedure regulations under the Employee Retirement Income Security Act
of 1974 (ERISA) for employee benefit plans providing disability
benefits. The final rule revises and strengthens the current rules
primarily by adopting certain procedural protections and safeguards for
disability benefit claims that are currently applicable to claims for
group health benefits pursuant to the Affordable Care Act. This rule
affects plan administrators and participants and beneficiaries of plans
providing disability benefits, and others who assist in the provision
of these benefits, such as third-party benefits administrators and
other service providers.
DATES: Effective Date: This rule is effective January 18, 2017.
Applicability Date: This regulation applies to all claims for
disability benefits filed on or after January 1, 2018.
FOR FURTHER INFORMATION CONTACT: Frances P. Steen, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8500. This is not a toll free number.
SUPPLEMENTARY INFORMATION:
I. Background
Section 503 of ERISA requires every employee benefit plan, in
accordance with regulations of the Department, to ``provide adequate
notice in writing to any participant or beneficiary whose claim for
benefits under the plan has been denied, setting forth the specific
reasons for such denial, written in a manner calculated to be
understood by the participant'' and ``afford a reasonable opportunity
to any participant whose claim for benefits has been denied for a full
and fair review by the appropriate named fiduciary of the decision
denying the claim.''
In 1977, the Department published a regulation pursuant to section
503, at 29 CFR 2560.503-1, establishing minimum requirements for
benefit claims procedures for employee benefit plans covered by title I
of ERISA (hereinafter ``Section 503 Regulation'').\1\ The Department
revised and updated the Section 503 Regulation in 2000 by improving and
strengthening the minimum requirements for employee benefit plan claims
procedures.\2\ As revised in 2000, the Section 503 Regulation provided
new time frames and enhanced requirements for notices and disclosure
with respect to decisions at both the initial claims decision stage and
on review for group health and disability benefits. The regulations
were designed to help reduce lawsuits over benefit disputes, promote
consistency in handling benefit claims, and provide participants and
beneficiaries a non-adversarial method of having a plan fiduciary
review and settle claims disputes. Although the Section 503 Regulation
applies to all covered employee benefit plans, including pension plans,
group health plans, and plans that provide disability benefits, the
more stringent procedural protections under the Section 503 Regulation
apply to claims for group health benefits and disability benefits.\3\
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\1\ 42 FR 27426 (May 27, 1977).
\2\ 65 FR 70246 (Nov. 21, 2000), amended at 66 FR 35887 (July 9,
2001).
\3\ A benefit is a disability benefit, subject to the special
rules for disability claims under the Section 503 Regulation, if the
plan conditions its availability to the claimant upon a showing of
disability. 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 Section 503 Regulation, and
it does not matter how the benefit is characterized by the plan or
whether the plan as a whole is a pension plan or a welfare plan. On
the other hand, when a plan, including a pension plan, provides a
benefit the availability of which is conditioned on a finding of
disability made by a party other than the plan, (e.g., the Social
Security Administration or the employer's long-term disability
plan), then a claim for such benefits is not treated as a disability
claim for purposes of the Section 503 Regulation. See FAQs About The
Benefit Claims Procedure Regulation, A-9 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
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The Department's experience since 2000 with the Section 503
Regulation and related changes in the governing law for group health
benefits led the Department to conclude that it was appropriate to re-
examine the rules governing disability benefit claims. Even though
fewer private-sector employees participate in disability plans than in
group health and other types of plans,\4\ disability cases dominate the
ERISA litigation landscape today. An empirical study of ERISA employee
benefits litigation from 2006 to 2010 concluded that cases involving
long-term disability claims accounted for 64.5% of benefits litigation
whereas lawsuits involving health care plans and pension plans
accounted for only 14.4% and 9.3%, respectively. \5\ Insurers and plans
looking to contain disability benefit costs may be motivated to
aggressively dispute disability claims.\6\ Concerns exist regarding
conflicts of interest impairing the objectivity and fairness of the
process for deciding claims for group health benefits. Those concerns
resulted in the Affordable Care Act recognizing the need to enhance the
Section 503 Regulation with added procedural protections and consumer
safeguards for claims for group health benefits.\7\ The Departments of
Health and Human Services, Labor, and the Department of the Treasury
issued regulations improving the internal claims and appeals process
and establishing rules for the external review processes required under
the Affordable Care Act (``ACA'').\8\ These additional protections for
a fair process include the right of claimants to respond to new and
additional evidence and rationales and the requirement for independence
and impartiality of the persons involved in making benefit
determinations.
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\4\ BLS National Compensation Survey, March 2014, at
www.bls.gov/ncs/ebs/benefits/2014/ebbl0055.pdf.
\5\ See Sean M. Anderson, ERISA Benefits Litigation: An
Empirical Picture, 28 ABA J. Lab. & Emp. L. 1 (2012).
\6\ See, e.g., Salomaa v. Honda Long Term Disability Plan, 642
F.3d 666, 678 (9th Cir. 2011) (``The plan's reasons for denial were
shifting and inconsistent as well as illogical. . . . Failing to pay
out money owed based on a false statement of reasons for denying is
cheating, every bit as much as making a false claim.''); Lauder v.
First Unum Life Ins. Co., 76 F. App'x 348, 350 (2d Cir. 2003)
(reversing district court's denial of attorneys' fees to plaintiff-
insured and describing ``ample demonstration of bad faith on First
Unum's part, including . . . the frivolous nature of virtually every
position it has advocated in the litigation.''); Schully v.
Continental Cas. Co., 634 F. Supp. 2d 663, 687 (E.D. La. 2009) (``In
concluding that plaintiff was not disabled, the Hartford not only
disregarded considerable objective medical evidence, but it also
relied heavily on inconclusive and irrelevant evidence . . .
Hartford's denial of coverage results from its preferential and
predetermined conclusions.''); Rabuck v. Hartford Life and Accident
Ins. Co., 522 F. Supp. 2d 844, 882 (W.D. Mich. 2007) (insurer
``obviously motivated by its own self-interest, engaged in an
unprincipled and overly aggressive campaign to cut off benefits for
a gravely ill insured who could not possibly have endured the rigors
of his former occupation on a full-time basis.''); Curtin v. Unum
Life Ins. Co. of America, 298 F. Supp. 2d 149, 159 (D. Me. 2004)
(``[T]his Court finds that Defendants exhibited a low level of care
to avoid improper denial of claims at great human expense.'').
\7\ The Patient Protection and Affordable Care Act, Public Law
111-148, was enacted on March 23, 2010, and the Health Care and
Education Reconciliation Act, Public Law 111-152, was enacted on
March 30, 2010. (These statutes are collectively known as the
``Affordable Care Act.'')
\8\ 80 FR 72192 (Nov. 18, 2015).
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The Department's independent ERISA advisory group also urged the
[[Page 92317]]
Department to re-examine the disability claims process. Specifically,
in 2012, the ERISA Advisory Council undertook a study on issues
relating to managing disability in an environment of individual
responsibility. The Council concluded based on the public input it
received that ``[n]ot all results have been positive for the
participant under ERISA-covered plans and the implementing claim
procedures regulations, even though these rules were intended to
protect participants'' and noted that ``[t]he Council was made aware of
reoccurring issues and administrative practices that participants and
beneficiaries face when appealing a claim that may be inconsistent with
the existing regulations.'' The Advisory Council's report included the
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following recommendation for the Department:
Review current claims regulations to determine updates and
modifications, drawing upon analogous processes described in health
care regulations where appropriate, for disability benefit claims
including: (a) Content for denials of such claims; (b) rule
regarding full and fair review, addressing what is an adequate
opportunity to develop the record and address retroactive rescission
of an approved benefit; (c) alternatives that would resolve any
conflict between the administrative claims and appeals process and
the participants' ability to timely bring suit; (d) the
applicability of the ERISA claim procedures to offsets and
eligibility determinations.
2012 ERISA Advisory Council Report, Managing Disability Risks in an
Environment of Individual Responsibility, available at www.dol.gov/sites/default/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2012ACreport2.pdf.
The Department agreed that the amendments to the claims regulation
for group health plans could serve as an appropriate model for
improvements to the claims process for disability claims. Those
amendments aimed to ensure full and fair consideration of health
benefit claims by giving claimants ready access to the relevant
evidence and standards; ensuring the impartiality of persons involved
in benefit determinations; giving claimants notice and a fair
opportunity to respond to the evidence, rationales, and guidelines for
decision; and making sure that the bases for decisions are fully and
fairly communicated to the claimant. In the Department's view, these
basic safeguards are just as necessary for a full and fair process in
the disability context as in the health context. Moreover, as in the
group health plan context, disability claims are often reviewed by a
court under an abuse of discretion standard based on the administrative
record. Because the claimant may have limited opportunities to
supplement the record, the Department concluded that it is particularly
important that the claimant be given a full opportunity to develop the
record that will serve as the basis for review and to respond to the
evidence, rationales, and guidelines relevant to the decision.
The Department's determination to revise the claims procedures was
additionally affected by the aggressive posture insurers and plans can
take to disability claims as described above coupled with the
judicially recognized conflicts of interest insurers and plans often
have in deciding benefit claims.\9\ In light of these concerns, the
Department concluded that enhancements in procedural safeguards and
protections similar to those required for group health plans under the
Affordable Care Act were as important, if not more important, in the
case of claims for disability benefits.
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\9\ Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008)
(insurance company plan administrator of an ERISA long-term
disability plan that both evaluates and pays claims for the employer
has a conflict of interest that courts must consider in reviewing
denials of benefit claims).
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The Department decided to start by proposing to amend the current
standards applicable to the processing of claims and appeals for
disability benefits so that they included improvements to certain basic
procedural protections in the current Section 503 Regulation, many of
which already apply to ERISA-covered group health plans pursuant to the
Department's regulations implementing the requirements of the
Affordable Care Act.
On November 18, 2015, the Department published in the Federal
Register a proposed rule revising the claims procedure regulations for
plans providing disability benefits under ERISA.\10\ The Department
received 145 public comments in response to the proposed rule from plan
participants, consumer groups representing disability benefit
claimants, employer groups, individual insurers and trade groups
representing disability insurance providers. The comments were posted
on the Department's Web site at www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB39. After
careful consideration of the issues raised by the written public
comments, the Department decided to adopt the improvements in
procedural protections and other safeguards largely as set forth in the
November 2015 proposal. The Department revised some of the requirements
in response to public comments as part of its overall effort to strike
a balance between improving a claimant's reasonable opportunity to
pursue a full and fair review and the attendant costs and
administrative burdens on plans providing disability benefits.
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\10\ 80 FR 72014.
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The Department believes that this action is necessary to ensure
that disability claimants receive a full and fair review of their
claims, as required by ERISA section 503, under the more stringent
procedural protections that Congress established for group health care
claimants under the ACA and the Department's implementing regulation at
29 CFR 2590.715-2719 (``ACA Claims and Appeals Final Rule'').\11\ This
final rule will promote fairness and accuracy in the claims review
process and protect participants and beneficiaries in ERISA-covered
disability plans by ensuring they receive benefits that otherwise might
have been denied by plan administrators in the absence of the fuller
protections provided by this final regulation. The final rule also will
help alleviate the financial and emotional hardship suffered by many
individuals when they are unable to work after becoming disabled and
their claims are denied.
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\11\ 80 FR 72192 (Nov. 18, 2015).
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II. Overview of Final Rule
A. Comments on Overall Need To Improve Claims Procedure Rules for
Disability Benefits
Numerous disabled claimants and their representatives submitted
comments stating general support for the proposed rule. For example,
some commenters described the proposal as reinforcing the integrity of
disability benefit plan administration and markedly improving the
claims process by strengthening notice and disclosure protections,
prescribing more exacting standards of conduct for review of denied
claims, ensuring claimants' more effective access to the claims
process, and providing safeguards to ensure full court review of
adverse benefit determinations. Some commenters supported the proposed
amendments as ``good first steps'' towards providing more transparency
and accountability, but advocated additional steps to strengthen,
improve, and update the current rules. Some commenters emphasized that
disability and lost earnings impose severe hardship on many
individuals, arguing that disability claimants have a ``poor'' prospect
of fair review under the current
[[Page 92318]]
regulation primarily because of the economic incentive for insurance
companies to deny otherwise valid claims and because plans are often
able to secure a deferential standard of review in court.
Commenters, primarily disability insurers and benefit providers,
commented that the disability claims regulation should not mirror
Affordable Care Act requirements because unlike disability claims: (i)
The vast majority of medical claims are determined electronically with
little or no human involvement, i.e., no reviewers studying materials
and consulting with varied professionals; (ii) medical claims typically
involve only a limited treatment over a relatively short period of
time, whereas disability claims require a series of determinations over
a period of several years; (iii) medical claims rarely involve a need
to consult with outside professionals; (iv) medical claims involve an
isolated issue, whereas disability claims involve a more complex,
multi-layered analysis; and (v) medical claim files may consist of only
a few pages of materials, whereas disability claim files can consist of
hundreds, sometimes thousands of pages of information. As a result of
these factors, the commenters stressed that it can take significant
time to review and render a decision. Some of those commenters argued
that applying ACA protections to disability benefit claims was contrary
to Congressional intent because disability plans were not subject to
the ACA's group health plan provisions. Some claimed that the proposed
rules in their current form will have unintended consequences (undue
delay and increased costs and litigation), and will result in expenses
and burdens that will increase the cost of coverage and discourage
employers from sponsoring disability benefit plans. Finally, some
claimed that the increased protections and transparency that would be
required under the proposal would weaken protection against disability
fraud and were unnecessary because the current regulations provide
ample protections for claimants, are written to benefit the insured,
and have worked well for more than a decade as evidenced by the
asserted fact that the vast majority of disability claims incurred by
insurers are paid, and, of the claims denied, only a very small
percentage are ultimately litigated. Some argued that technological
advances that have expedited processing of health care claims do not
apply to disability claims adjudication, contended that the Department
had not properly quantified or qualified the benefits associated with
the proposed regulations or provided a sufficient cost analysis
associated with the proposed regulations, and commented that the
Department should withdraw the proposal until better data is collected.
After careful consideration of the issues raised by the written
comments, the Department does not agree with the commenters' assertion
that the ACA changes for group health plans are not an appropriate
model for improving claims procedures for disability benefits. The
enactment of the ACA, and the issuance of the implementing regulations,
has resulted in disability benefit claimants receiving fewer procedural
protections than group health plan participants even though litigation
regarding disability benefit claims is prevalent today. As noted above,
the Department's Section 503 Regulation imposes more stringent
procedural protections on claims for group health and disability
benefits than on claims for other types of benefits. The Department
believes that disability benefit claimants should continue to receive
procedural protections similar to those that apply to group health
plans, and that it makes sense to model the final rule on the
procedural protections and consumer safeguards that Congress and the
President established for group health care claimants under the ACA.
These protections and safeguards will allow some participants to
receive benefits that might have been incorrectly denied in the absence
of the fuller protections provided by the regulation. It will also help
alleviate the financial and emotional hardship suffered by many
individuals when they lose earnings due to their becoming disabled.
Moreover, the Department carefully selected among the ACA
amendments to the claims procedures for group health plans, and
incorporated into the proposal only certain of the basic improvements
in procedural protections and consumer safeguards. The proposal, and
final rule, also include several adjustments to the ACA requirements to
account for the different features and characteristics of disability
benefit claims.
The Department agrees with the commenters who supported the
proposed changes who emphasized that disability and lost earnings
impose severe hardship on many individuals. Under those circumstances,
and considering the judicially recognized economic incentive for
insurance companies to deny otherwise valid claims, the Department
views enhancements in procedural safeguards and protections similar to
those required for group health plans under the Affordable Care Act as
being just as important, if not more important, in the case of claims
for disability benefits. This view was supported by the assertions by
some plans and disability insurance providers that disability claims
processing involves more human involvement, with reviewers studying
pages of materials and consulting with varied professionals on claims
that involve a more complex, multi-layered analysis. Even assuming the
characteristics cited by the commenter fairly describe a percentage of
processed disability claims, the Department does not believe those
characteristics support a decision to treat the processing of
disability benefits more leniently than group health benefits. The
Department believes there is potential for error and opportunity for
the insurer's conflict of interest to inappropriately influence a
benefit determination under highly automated claims processing, as well
as claims processing with more human involvement.\12\ Increased
transparency and accountability in all claims processes is important if
claimants of disability benefits are to have a reasonable opportunity
to pursue a full and fair review of a benefit denial, as required by
ERISA section 503. Also, and as more fully discussed in the Regulatory
Impact Analysis section of this document, the Department does not agree
that the adoption of these basic procedural protections will cause
excessive increases in costs and litigation, or result in expenses and
burdens that will discourage employers from sponsoring plans providing
disability benefits. In fact, comments from some industry groups
support the conclusion that the protections adopted in the final rule
reflect best practices that many insurers and benefit providers already
follow on a voluntary basis.
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\12\ While commenters contended that disability claim files are
larger than health benefit claim files, in the Department's view,
this is not a reason for denying claimants the same procedural
protections and safeguards that the ACA provided for group health
benefit claims. Furthermore, in the 2000 claims regulation, the
Department already accommodated differences between health and
disability claims by allowing more time for decisions on disability
claims. See 29 CFR 2560.503-1(f)(2)(iii)(B) (up to 30 days after
receipt of claim with up to 15 days for an extension for post-
service health claims); id. Sec. 2560.503-1(f)(3) (up to 45 days
after receipt of claim with two possible 30-day extensions for
disability claims).
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Thus, while the Department has made some changes and clarifications
in response to comments, the final rule, described below, is
substantially the same as the proposal. Specifically, the major
provisions in the final rule
[[Page 92319]]
require that: (1) Claims and appeals must be adjudicated in a manner
designed to ensure independence and impartiality of the persons
involved in making the benefit determination; (2) benefit denial
notices must contain a complete discussion of why the plan denied the
claim and the standards applied in reaching the decision, including the
basis for disagreeing with the views of health care professionals,
vocational professionals, or with disability benefit determinations by
the Social Security Administration (SSA); (3) claimants must be given
timely notice of their right to access to their entire claim file and
other relevant documents and be guaranteed the right to present
evidence and testimony in support of their claim during the review
process; (4) claimants must be given notice and a fair opportunity to
respond before denials at the appeals stage are based on new or
additional evidence or rationales; (5) plans cannot prohibit a claimant
from seeking court review of a claim denial based on a failure to
exhaust administrative remedies under the plan if the plan failed to
comply with the claims procedure requirements unless the violation was
the result of a minor error; (6) certain rescissions of coverage are to
be treated as adverse benefit determinations triggering the plan's
appeals procedures; and (7) required notices and disclosures issued
under the claims procedure regulation must be written in a culturally
and linguistically appropriate manner.
B. Comments on Major Provisions of Final Rule
1. Independence and Impartiality--Avoiding Conflicts of Interest
Consistent with the ACA Claims and Appeals Final Rule governing
group health plans, paragraph (b)(7) of this final rule explicitly
provides 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.'' Therefore, this final rule
requires that decisions regarding hiring, compensation, termination,
promotion, or similar matters with respect to any individual must not
be made based upon the likelihood that the individual will support the
denial of disability benefits. For example, a plan cannot provide
bonuses based on the number of denials made by a claims adjudicator.
Similarly, a plan cannot contract with a medical expert based on the
expert's reputation for outcomes in contested cases, rather than based
on the expert's professional qualifications. These added criteria for
disability benefit claims address practices and behavior which cannot
be reconciled with the ``full and fair review'' guarantee in section
503 of ERISA, and with the basic fiduciary standards that must be
followed in implementing the plan's claims procedures. For the reasons
described below, paragraph (b)(7) of the final rule therefore remains
largely unchanged from the proposal.
The Department received numerous comments either generally
supporting or not objecting to the idea that the independence and
impartiality requirements for claims procedures for disability claims
should be consistent with the ACA's claims procedures requirements for
group health plans. Several commenters pointed out that even prior to
the proposal, many disability plans had already taken affirmative steps
to ensure the independence and impartiality of the persons involved in
the decision-making process. Other commenters who opposed the provision
as unnecessary similarly cited the fact that the proposed amendments
reflect current industry practice and argued that issues regarding the
independence and impartiality of the appeal process is already the
subject of the well-developed body of case law. Although the Department
agrees that the proposal was intended to be consistent with industry
best practice trends and developing case law in the area, the
Department does not believe that industry trends or court decisions are
an acceptable substitute for including these provisions in a generally
applicable regulation.
Several commenters suggested that the examples of individuals
covered by this provision should include vocational experts. The
commenters pointed out that vocational experts are often actively
involved in the decision-making process for disability claims and play
a role in the claims process similar to the role of a medical or health
care professional. They noted that opinions of vocational experts are
often relied on in making determinations on eligibility for and the
amount of disability benefits. Although the list in the proposed
provision was intended to merely reflect examples, not be an exhaustive
list, the Department nonetheless agrees that it would be appropriate to
add vocational experts to avoid disputes regarding their status under
this provision of the final rule. This clarification of the provision
from its proposed form is also consistent with the current regulation's
express acknowledgement of the important role of vocational experts in
the disability claims process. Specifically, paragraph (h)(3)(iv) of
the current regulation already requires that the claims procedure for
disability benefit claims must provide for the identification of
medical or vocational experts whose advice was obtained on behalf of
the plan in connection with a claimant's adverse benefit determination,
without regard to whether the advice was relied upon in making the
benefit determination. Accordingly, the final rule adds ``vocational
expert'' to the examples of persons involved in the decision-making
process who must be insulated from the plan's or issuer's conflicts of
interest. Decisions regarding hiring, compensation, termination,
promotion, or other similar matters must not be based upon the
likelihood that the individual will support the denial of benefits.
Commenters also asked the Department to clarify whether
``consulting experts'' are ``involved in making the decision'' for
purposes of the independence and impartiality requirements. Some
commenters were concerned that consulting experts would fall outside of
these requirements because plans or claims administrators might assert
that consulting experts merely supply information and do not decide
claims. In the Department's view, the text of paragraph (b)(7) is clear
that the independence and impartiality requirements are not limited to
persons responsible for making the decision. For example, paragraph
(b)(7) of the final rule, as in the proposal, refers to a ``medical
expert'' as an example of a person covered by the provision. The text
also refers to individuals who may ``support the denial of benefits.''
Thus, in the Department's view, the independence and impartiality
requirements apply to plans' decisions regarding hiring, compensation,
termination, promotion, or other similar matters with respect to
consulting experts. Although some commenters suggested that the
Department expand the regulatory text to expressly include ``consulting
experts,'' in the Department's view, the regulatory text is
sufficiently clear to address commenters' concerns especially with the
inclusion of ``vocational experts'' in this provision of the final rule
as described above. The Department also believes that it should avoid
creating differences in the text of parallel provisions in the rules
for group health benefits under the ACA Claims and Appeals Final Rule
and disability benefits absent a reason that addresses a specific issue
for disability claims
[[Page 92320]]
(like the vocational expert issue discussed above).
Several commenters asked the Department to clarify that the
independence and impartiality requirements apply even where the plan
does not directly hire or compensate the individuals ``involved in
making the decision'' on a claim. The text of the rule does not limit
its scope to individuals that the plan directly hires. Rather, the
rule's coverage extends to individuals hired or compensated by third
parties engaged by the plan with respect to claims. Thus, for example,
if a plan's service provider is responsible for hiring, compensating,
terminating, or promoting an individual involved in making a decision,
this final rule requires the plan to take steps (e.g., in the terms of
its service contract and ongoing monitoring) to ensure that the service
provider's policies, practices, and decisions regarding hiring,
compensating, terminating, or promoting covered individuals are not
based upon the likelihood that the individual will support the denial
of benefits.
One commenter, who supported applying independence and impartiality
requirements, expressed concern about a statement in the preamble to
the proposed rule that a plan cannot contract with a medical expert
based on the expert's reputation for outcomes in contested cases rather
than based on the expert's professional qualifications. The commenter
did not object to the prohibition on hiring a medical expert based on a
reputation for denying claims, but expressed concern that the statement
in the preamble might result in claimants requesting statistics and
other information on cases in which the medical expert expressed
opinions in support of denying rather than granting a disability
benefit claims. Another commenter who opposed the provision also
expressed concern about court litigation and discovery regarding
``reputation'' issues arising from the text in the preamble. In the
Department's view, the preamble statement accurately describes one way
that the independence and impartiality standard could be violated. That
said, the independence and impartiality requirements in the rule do not
modify the scope of ``relevant documents'' subject to the disclosure
requirements in paragraphs (g)(1(vii)(C) and (h)(2)(iii) of the Section
503 Regulation, as amended by this rule. Nor do the independence and
impartiality requirements in the rule prescribe limits on the extent to
which information about consulting experts would be discoverable in a
court proceeding as part of an evaluation of the extent to which the
claims administrator or insurer was acting under a conflict of interest
that should be considered in evaluating an adverse benefit
determination.
Several commenters urged the Department to implement the
independence and impartiality requirements with specific quantifiable
limitations on the relationship between plans and consultants. For
example, one commenter suggested a medical consultant be required to
certify that no more than 20% of the consultant's income is derived
from reviewing files for insurance companies and/or self-funded
disability benefit plans. Several commenters recommended that plans be
required to disclose to claimants a range of quantifiable information
regarding its relationship with certain consultants (e.g., number of
times a plan has relied upon the third-party vendor who hired the
expert in the past year). A few commenters suggested that the
Department establish rules on the qualifications, credentials, or
licensing of an expert and the nature and type of such expert's
professional practice. For example, one commenter suggested that the
rule provide that when a fiduciary relies on a physician or
psychologist or other professional, such as a vocational specialist,
the person must be licensed in the same jurisdiction where the plan
beneficiary resides. Although the Department agrees that more specific
quantifiable or other standards relating to the nature and type of an
expert's professional practice might provide additional protections
against conflicts of interest, the parallel provisions in the claims
procedure rule for group health plans under the ACA Claims and Appeals
Final Rule do not contain such provisions. Moreover, an attempt to
establish specific measures or other standards would benefit from a
further proposal and public input. Accordingly, the final rule does not
adopt the commenters' suggestions.
2. Improvements to Disclosure Requirements
The Department proposed to improve the disclosure requirements for
disability benefit claims in three respects. First, the proposal
included a provision that expressly required adverse benefit
determinations on disability benefit claims to contain a ``discussion
of the decision,'' including the basis for disagreeing with any
disability determination by the SSA or other third party disability
payer, or any views of health care professionals treating a claimant to
the extent the determination or views were presented by the claimant to
the plan. Second, notices of adverse benefit determinations must
contain the internal rules, guidelines, protocols, standards or other
similar criteria of the plan that were relied upon in denying the claim
(or a statement that such criteria do not exist). Third, consistent
with the current rule applicable to notices of adverse benefit
determinations at the review stage, a notice of adverse benefit
determination at the initial claims stage must contain a statement that
the claimant is entitled to receive, upon request, relevant documents.
In the Department's view, the existing claims procedure regulation
for disability claims already imposes a requirement that denial notices
include a reasoned explanation for the denial.\13\ For example, the
rule requires that the notice must be written in a manner calculated to
be understood by the claimant, must include any specific reasons for
the adverse determination, must reference the specific provision in
governing plan documents on which the determination is based, must
include a description of any additional information required to perfect
the claim, must include a description of the internal appeal process,
and must include the plan's rules, if any, that were used in denying
the claim (or a statement that such rules are available upon request).
---------------------------------------------------------------------------
\13\ For example, the Department noted in the preamble to the
proposed rule the fact that several federal courts concluded that a
failure to provide a discussion of the decision or the specific
criteria relied upon in making the adverse benefit determination
could make a claim denial arbitrary and capricious.
---------------------------------------------------------------------------
The Department's experience in enforcing the claims procedure
requirements and its review of litigation activity, however, leads it
to conclude that some plans are providing disability claim notices that
are not consistent with the letter or spirit of the Section 503
Regulation. Accordingly, the Department believes that expressly setting
forth additional requirements in the regulation, even if some may
already apply under the current rule, is an appropriate way of
reinforcing the need for plan fiduciaries to administer the plan's
claims procedure in a way that is transparent and that encourages an
appropriate dialogue between a claimant and the plan regarding adverse
benefit determinations that ERISA and the current claims procedure
regulation contemplate.
Commenters generally either supported or did not object to the
requirement to explain a disagreement with a treating health care
professional in adverse benefit determinations. The
[[Page 92321]]
Department, accordingly, is adopting this provision from the proposal.
This provision in the final rule would not be satisfied merely by
stating that the plan or a reviewing physician disagrees with the
treating physician or health care professional. Rather, the rule
requires that the adverse benefit determination must include a
discussion of the basis for disagreeing with the health care
professional's views. Several commenters suggested, similar to their
comments described above on the need to subject vocational experts to
the independence and impartiality requirements, that this disclosure
provision should also apply to vocational professionals. As noted
above, the commenters pointed out that vocational experts have a role
somewhat similar to the role of a medical or health care professional
in the claims determination process. The Department agrees, and,
accordingly, added ``vocational professional'' to this provision.
An issue raised in the comments related to whether the plan is
required to address only third party views presented to the plan by the
claimant. The concern was that plans may not know whether other third
party views even exist so that any requirement to address third party
views should be limited to third party findings where they are
presented by the claimant. Although the Department does not believe it
would be appropriate to require plans to address views that they were
not aware of and had no obligation to discover, the Department's
consideration of this comment led it to conclude that the provision
needed to be revised to include medical or vocational experts whose
advice was obtained on behalf of the plan in connection with a
claimant's adverse benefit determination. The Department's experience
enforcing the current regulation has revealed circumstances where
claims adjudicators may consult several experts and deny a claim based
on the view of one expert when advice from other experts who were
consulted supported a decision to grant the claim. Some of these cases
may have involved intentional ``expert shopping.'' Requiring plans to
explain the basis for disagreeing with experts whose advice the plan
sought would not present the problem raised in the comments of
addressing third party views the plan does not know even exist, but it
would be consistent with and enhance the requirement in paragraph
(h)(3)(iv) of the current regulation which already requires that the
claims procedure for disability benefit claims must provide for the
identification of medical or vocational experts whose advice was
obtained on behalf of the plan in connection with a claimant's adverse
benefit determination, without regard to whether the advice was relied
upon in making the benefit determination. In fact, the Department
believes that a request for relevant documents under the current
regulation would require the plan to disclose materials related to such
a consultation. The plan would also be required under the current
regulation to explain its basis for not adopting views of an expert the
plan consulted who supported granting the claim if the claimant raised
the expert's views as part of an appeal of an adverse benefit
determination. In the Department's view, this is not a new substantive
element of the requirement that plans explain the reasons for a denial,
but rather is a process enhancement that removes unnecessary procedural
steps for claimants to get an explanation of the reasons the plan
disagrees with the views of its own consulting experts.
Accordingly, the final rule revises paragraphs (g)(1)(vii)(A) and
(j)(6)(i) to require that adverse benefit determinations on disability
benefit claims contain a discussion of the basis for disagreeing with
the views of health care professionals who treated the claimant or
vocational professionals who evaluated the claimant, when the claimant
presents those views to the plan. The final rule also revises
paragraphs (g)(1)(vii)(A) and (j)(6)(i) to clarify that adverse benefit
determinations on disability benefit claims must contain a discussion
of the basis for disagreeing with the views of medical or vocational
experts whose advice was obtained on behalf of the plan in connection
with a claimant's adverse benefit determination, without regard to
whether the advice was relied upon in making the benefit determination.
One commenter suggested that references to the ``views'' of
treating health care professionals is very broad and that it is not
clear what is intended to be covered by this reference. The commenter
argued that ``views'' is not synonymous with an opinion or conclusion
about whether a claimant is disabled, and that, in many cases, health
care professionals do not provide an opinion on the claimant's
disability at all, and if they do, they are not providing an opinion on
disability as defined by the plan. Another commenter asserted that a
health care professional's focus is on the patient's diagnosis and
treatment and that the claims adjudicator considers the long-term
effect of the individual's condition on their ability to work. These
commenters argued that claims adjudicators are not necessarily agreeing
or disagreeing with medical findings by a treating health care
provider, rather they are considering if the claimant's disease or
illness significantly impairs their work skills. The commenters said
that to require a plan to discuss why it did not agree with the views
expressed by a myriad of health care professionals does nothing to help
explain why a claims administrator found that the claimant was not
disabled under the terms of the plan.
The Department does not believe it is appropriate to limit the
scope of the final rule to opinions or conclusions about whether a
claimant is disabled. Medical and vocational professionals provide
views that may be important to the ultimate determination of whether a
person is disabled. In the Department's view, to the extent the claims
adjudicator disagrees with foundational information in denying a claim,
the claimant has a right to know that fact to the same extent the
claimant should be made aware that the claims adjudicator disagrees
with an opinion from a medical or vocational expert that the claimant
is disabled. Further, it is part of the fiduciary role of the ERISA
claims adjudicator to weigh input from medical and vocational experts
in reaching a conclusion on a benefit claim. When the claims
adjudicator acting in a fiduciary capacity disagrees with the judgments
of medical and vocational professionals in denying a claim, the claims
adjudicator as a matter of basic fiduciary accountability should be
able to identify those circumstances and explain the basis for that
decision. The Department also notes that the final rule requires this
explanation in cases where the plan or claims adjudicator disagrees
with the views of the medical or vocational expert. There is no
disagreement to explain if, as the commenter posed, a treating health
care consultant expresses a view only on a diagnosis or treatment which
the plan fully accepts in evaluating the question of whether the
claimant meets the definition of a disability under the plan. Rather,
in such a case, the plan would be under the same obligation that exists
under the current regulation to explain why it reached the conclusion
that the diagnosed illness or treatment did not impair the claimant's
work skills or ability to work or otherwise failed to satisfy the
plan's definition of disability. In summary, the Department believes
that an explanation of the basis for disagreement with the judgments of
[[Page 92322]]
health care and vocational professionals is required in order to be
responsive to the information submitted by the claimant or developed
during evaluation of the claim, and is also necessary for a reasoned
explanation of a denial.
With respect to the requirement to explain the basis for
disagreeing with or not following disability determinations by the SSA
and other payers of disability benefits, several commenters who
supported the requirement pointed out that reviewing courts in
evaluating whether a plan's adverse benefit determination was arbitrary
and capricious have found an SSA determination to award benefits to be
a factor that the plan fiduciary deciding a benefit should consider.
Courts have criticized the failure to consider the SSA determination,
especially if a plan's administrator operates under a conflict of
interest and if the plan requires or encourages claimants to pursue SSA
decisions in order to offset any SSA award against the amount they pay
in disability benefits. See, e.g., Montour v. Hartford Life and
Accident Ins. Co., 588 F.3d 623, 637 (9th Cir. 2009) (``failure to
explain why it reached a different conclusion than the SSA is yet
another factor to consider in reviewing the administrator's decision
for abuse of discretion, particularly where, as here, a plan
administrator operating with a conflict of interest requires a claimant
to apply and then benefits financially from the SSA's disability
finding.''); Brown v. Hartford Life Ins. Co., 301 F. App'x 772, 776
(10th Cir. 2008) (insurer's discussion was ``conclusory'' and
``provided no specific discussion of how the rationale for the SSA's
decision, or the evidence the SSA considered, differed from its own
policy criteria or the medical documentation it considered''). Other
commenters, however, urged the Department to remove the requirement to
discuss the basis for disagreeing with the disability determinations of
the SSA or other payers of benefits. Those commenters argued that it
would not be reasonable to require an ERISA plan fiduciary to go
outside the plan's governing document and make a judgment about a
disability determination made by some other party that is based upon
another plan or program's definition of disability, which may have
entirely different or inconsistent definitions of disability or
conditions. The commenters further argued that the plan fiduciary might
not be able to get from the SSA or other payer of benefits the
documents, case file or other information necessary even to try to
conduct such an evaluation. Those commenters also requested that, if
such a requirement was to be included in the final rule, then the rule
should allow plans to take into account in the discussion of its
decision the extent to which the claimant provided the plan, or gave
the plan a way to obtain, sufficient documentation from the SSA or
other third party to allow a meaningful review of such third-party
findings.
The Department is persuaded that the final rule should limit the
category of ``other payers of benefits'' to disability benefit
determinations by the SSA. The Department accepts for purposes of this
final rule that claims adjudicators generally are trained to understand
their own plan or insurance policy requirements and apply those
standards to claims in accordance with the internal rules, guidelines,
policies, and procedures governing the plan. The Department also agrees
that a determination that an individual is entitled to benefits under
another employee benefit plan or other insurance coverage may not be
governed by the same definitions or criteria, and that it may be
difficult for the adjudicator to obtain a comprehensive explanation of
the determination or relevant underlying information that was relied on
by the other payer in making its determination.
The Department does not believe, however, that those same
difficulties are involved in the case of SSA determinations. SSA
determinations may include a written decision from an ALJ, and the
definitions and presumptions are set forth in publicly available
regulations and SSA guidance. Accordingly, the final rule revises
paragraphs (g)(1)(vii)(A) and (j)(6)(i) to require that adverse benefit
determinations on disability benefit claims contain a discussion of the
basis for disagreeing with an SSA disability determination regarding
the claimant presented by the claimant to the plan. Although the plan's
claims procedures may place the burden on the claimant to submit any
SSA determination that the claimant wants the plan to consider, claims
administrators working with an apparently deficient administrative
record must inform claimants of the alleged deficiency and provide them
with an opportunity to resolve the stated problem by furnishing missing
information. It also would not be sufficient for the benefit
determination merely to include boilerplate text about possible
differences in applicable definitions, presumptions, or evidence. A
discussion of the actual differences would be necessary. Further,
although the final rule does not, as some commenters requested, require
that plans defer to a favorable SSA determination, a more detailed
justification would be required in a case where the SSA definitions
were functionally equivalent to those under the plan.
Several commenters requested that the Department adopt a rule
requiring deference to a treating physician's opinion for disability
determinations, with some commenters suggesting a rule identical to the
one applied under the SSA disability program. Nothing in ERISA or the
Department's regulations mandates that a plan administrator give
special weight to the opinions of a claimant's treating physician when
rendering a benefit determination. The Department also does not believe
the public record on this rulemaking supports the Department imposing
such a rule. In the Department's view, a treating physician rule is not
necessary to guard against arbitrary decision-making by plan
administrators. In addition to the various improvements in safeguards
and procedural protections being adopted as part of this final rule,
courts can review adverse benefit determinations to determine whether
the claims adjudicator acted unreasonably in disregarding evidence of a
claimant's disability, including the opinions of treating physicians.
Nor does the Department believe it would be appropriate to adopt the
treating physician rule applicable under the Social Security disability
program. That rule was adopted by the Commissioner of Social Security
in regulations issued in 1991, to bring nationwide uniformity to a vast
statutory benefits program and to address varying decisions by courts
of appeals addressing the question. ERISA, by contrast, governs a broad
range of private benefit plans to which both the statute and
implementing regulations issued by the Secretary of Labor permit
significant flexibility in the processing of claims. Moreover, the
SSA's treating physician rule has not been uniformly or generally
applied even under statutory disability programs other than Social
Security. See Brief for the United States as amicus curiae supporting
petitioner, Black & Decker Disability Plan v. Nord, 538 U.S. 822
(2003).
Under the current Section 503 Regulation, if a claim is denied
based on a medical necessity, experimental treatment, or similar
exclusion or limit, the adverse benefit determination must include
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
[[Page 92323]]
explanation will be provided free of charge upon request. These
requirements in paragraphs (g)(1)(v)(B) and (j)(5)(ii) apply to notices
of adverse benefit determinations for both group health and disability
claims. In proposing new paragraphs (g)(1)(vii) and (j)(6) applicable
to disability claims, these requirements were intended to be subsumed
in the general requirement in the proposal that adverse benefit
determinations include a ``discussion of the decision.'' The Department
is concerned, however, that removing the explicit requirement in the
disability claims procedure to explain a denial based on medical
necessity, experimental treatment, or similar exclusion may be
misinterpreted by some as eliminating that requirement (especially with
the group health plan claims procedures continuing to have that
explicit requirement). That clearly was not the Department's intention,
and, accordingly, the final rule expressly sets forth in paragraphs
(g)(1)(vii)(B) and (j)(6)(ii) the requirement of an explanation of the
scientific or clinical judgment for such denials.\14\
---------------------------------------------------------------------------
\14\ The current Section 503 Regulation in paragraph (j)(5)(iii)
requires a statement concerning voluntary dispute resolution options
in notices of adverse benefit determinations on review for both
group health and disability claims. The Department previously issued
an FAQ on that provision noting that information on the specific
voluntary appeal procedures offered under the plan must be provided
under paragraph (j)(4) of the regulation in the notice of adverse
benefit determination, along with a statement of the claimant's
right to bring a civil action under section 502(a) of ERISA. The
Department, therefore, stated in the FAQ that, pending further
review, it will not seek to enforce compliance with the requirements
of paragraph (j)(5)(iii). See FAQs About The Benefit Claims
Procedure Regulation, D-13 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf). In light of the fact that this proposal
was limited to disability benefit claims, the Department does not
believe it would be appropriate to modify the requirement in
paragraph (j)(5)(iii) as part of this final rule. Accordingly, the
Department will continue the enforcement position articulated in FAQ
D-13.
---------------------------------------------------------------------------
The Department received numerous comments in favor of the
disclosure requirement in paragraphs (g)(1)(vii)(B) and (j)(6)(ii) of
the proposal that notices of adverse benefit determinations include the
internal rules, guidelines, protocols, standards or other similar
criteria of the plan that were relied upon in denying the claim (or a
statement that such criteria do not exist). Commenters who supported
the proposal noted that the proposed requirement should not be onerous
given that adverse benefit determinations are already required to
include the reasons for the denial and the applicable plan terms, and
also argued that this further level of transparency would promote the
dialogue between claimant and plan regarding adverse benefit
determinations that ERISA contemplates. These commenters also pointed
out that this requirement would address a problem confronted by some
claimants where a plan or claims adjudicator says it is relying on an
internal rule in denying a claim, and then refuses to disclose it to
the claimant based on an assertion that the internal rule is
confidential or proprietary. Commenters who opposed the provision
argued that the proposal would be overly burdensome for plans and
insurers. They read the provision as requiring disclosure of ``details
of internal processes that are irrelevant to the claim decision and
that would provide little in the way of useful information to
claimants.'' The comments included concerns about the time and cost to
review claims manuals and other internal documents that may include
rules, guidelines, protocols, standards or other similar criteria to
determine that no provision has any application to a claim in order to
make the statement that such internal rules, etc. do not exist.
The final rule, like the proposal, provides that internal rules,
guidelines, protocols, standards or other similar criteria of the plan
relied upon in making an adverse benefit determination must be provided
with the adverse benefit determination. The Department does not agree
with commenters who asserted that the requirement will be overly
burdensome to plans. Even under the existing claims procedure
regulation, internal rules, guidelines, protocols, standards or similar
criteria relied upon in denying the claim already must be provided to
the claimant upon request. Although the additional requirement to
affirmatively include them in the adverse benefit determination adds an
incremental paperwork burden, where a plan utilizes a specific internal
rule or protocol, understanding the terms of the specific protocol may
be crucial to a claimant's ability to successfully contest the denial
on review. With respect to the comments about disclosing an internal
process that is irrelevant to the claim decision, it is hard to see how
something that is in fact ``irrelevant'' can be something that was
``relied upon'' in denying the claim. Furthermore, the Department does
not agree that it should change the proposed text based on expressed
concerns about the time and cost to review claims manuals and other
internal documents to determine that nothing in those materials have
application to a claim. Aside from the fact that this provision of the
final rule requires the plan to affirmatively include only rules,
guidelines, protocols, standards or other similar criteria that were
relied on in denying the claim, in the Department's view, it would
present substantial questions about whether the plan or claims
adjudicator complied with ERISA's fiduciary standards if a claim was
denied without the claims adjudicator having considered a rule,
guideline, protocol or standard that was intended to govern the
determination of the claim. Moreover, the current Section 503
regulation for disability plans gives claimants the right to reasonable
access to and copies of documents, records, and other information
``relevant'' to the claimant's claim for benefits. In addition to
capturing documents, records, and other information ``relied upon'' in
making the benefit determination, the definition of ``relevant'' also
captures information submitted, considered or generated in the course
of making the benefit determination or that demonstrates compliance
with the administrative processes and safeguards designed to ensure and
verify that benefit claim determinations have been made in accordance
with governing plan documents and that those provisions have been
applied consistently with respect to similarly situated claimants. In
the case of plans providing group health or disability benefits,
``relevant'' also includes documents, records, or other information
that constitutes a statement of policy or guidance with respect to the
plan concerning the denied treatment option or benefit, without regard
to whether such advice or statement was relied upon in making the
benefit determination. Such a statement of policy or guidance would
include any policy or guidance generated or commissioned by the plan or
issuer concerning the denied benefit that would or should contribute to
deciding generally whether to pay the claim (e.g., studies, surveys or
assessments generated or commissioned by the plan or issuer that
implicate a denied treatment option or benefit but do not relate
specifically to the plan itself). Thus, in the Department's view, even
under the current rule, plans would be required, on request, to verify
that the plan has produced all the internal rules, guidelines,
protocols, standards or other similar criteria concerning the denied
claim that were or should have been considered in deciding the claim.
Another commenter argued that it did not make sense to require
plans to
[[Page 92324]]
affirmatively state in an adverse benefit determination that plans did
not rely on any rule or guideline. They argued that, if the adverse
benefit determination failed to cite reliance on such a rule or
guideline, the claimant could ask and the plan would respond with a
statement that none were relied on. They argued that such a process
gives the claimant the ability to obtain that information in cases
where the claimant believes that information is important to
understanding or contesting the basis for the denial. It is the
Department's view, however, that an affirmative statement would be
helpful to the claimant by providing certainty about the existence of
any applicable rule or guideline. The Department also does not believe
the absence of a statement of reliance in an adverse benefit statement
fairly puts a claimant on notice to request confirmation that no rule
or guideline was relied upon. Further, the Department does not believe
merely requiring such an affirmative statement is burdensome on plans
because the plan should know whether it relied on a rule or guideline
in denying a claim.
Finally, the existing Section 503 regulation already requires that
rules, guidelines, protocols, standards or other similar criteria that
were relied on in denying the claim must be disclosed to claimants on
request. Nothing in the current regulation allows a plan fiduciary to
decline to comply with that requirement based on an assertion that the
information is proprietary or confidential. Indeed, the Department has
taken the position that internal rules, guidelines, protocols, or
similar criteria would constitute instruments under which a plan is
established or operated within the meaning of section 104(b)(4) of
ERISA and, as such, must be disclosed to participants and
beneficiaries. See FAQs About The Benefit Claims Procedure Regulation,
C-17 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).\15\
Similarly, this final rule does not permit a plan to conceal such
information from the claimant under an assertion that the information
is proprietary or constitutes confidential business information.
---------------------------------------------------------------------------
\15\ FAQ C-17 states: ``It is the view of the department that
where a rule, guideline, protocol, or similar criterion serves as a
basis for making a benefit determination, either at the initial
level or upon review, the rule, guideline, protocol, or criterion
must be set forth in the notice of adverse benefit determination or,
following disclosure of reliance and availability, provided to the
claimant upon request. However, the underlying data or information
used to develop any such rule, guideline, protocol, or similar
criterion would not be required to be provided in order to satisfy
this requirement. The department also has taken the position that
internal rules, guidelines, protocols, or similar criteria would
constitute instruments under which a plan is established or operated
within the meaning of section 104(b)(4) of ERISA and, as such, must
be disclosed to participants and beneficiaries. See Sec. Sec.
2560.503-1(g)(v) (A) and (j)(5)(i); 65 FR at 70251. Also see Sec.
Sec. 2560.503-1(h)(2)(iii) and 2560.503-1(m)(8)(i); Advisory
Opinion 96-14A (July 31, 1996).
---------------------------------------------------------------------------
The third new disclosure requirement, set forth in paragraph
(g)(1)(vii)(C) of the proposal, adds a requirement that an adverse
benefit determination at the initial claims stage must include a
statement that the claimant is entitled to receive, upon request,
documents relevant to the claim for benefits. Although the current
Section 503 Regulation provides that claimants challenging an initial
denial of a claim have a right to request relevant documents, a
statement advising claimants of their right to relevant documents
currently is required only in notices of an adverse benefit
determination on appeal. No commenters objected to the addition of this
statement to the adverse benefit determination at the initial claims
stage. The Department believes such a statement in the initial denial
notice simply confirms rights claimants already have under the current
claims regulation and will help ensure claimants understand their right
of access to the information needed to understand the reasons for the
denial and decide whether and how they may challenge the denial on
appeal. Accordingly, this provision was adopted without change in the
final rule.
3. Right To Review and Respond to New Information Before Final Decision
The Department continues to believe that a full and fair review
requires that claimants have a right to review and respond to new
evidence or rationales developed by the plan during the pendency of the
appeal and have the opportunity to fully and fairly present his or her
case at the administrative appeal level, as opposed merely to having a
right to review such information on request only after the claim has
already been denied on appeal. Accordingly, the final rule adopts those
provisions of the proposal with certain modifications described below.
Paragraph (h)(4) of the final rule, consistent with the proposal,
requires that plans provide claimants, free of charge, with new or
additional evidence considered, relied upon, or generated by the plan,
insurer, or other person making the benefit determination (or at the
direction of the plan, insurer or such other person) during the
pendency of the appeal in connection with the claim. Consistent with
the proposal, paragraph (h)(4) also provides a similar disclosure
requirement for an adverse benefit determination based on a new or
additional rationale. The evidence or rationale must be provided as
soon as possible and 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. These requirements already
apply to claims involving group health benefits under the ACA Claims
and Appeals Final Rule. Further, the Department has interpreted ERISA
section 503 and the current Section 503 Regulation as already requiring
that plans provide claimants with new or additional evidence or
rationales upon request and provide them an opportunity to respond in
at least certain circumstances.\16\
---------------------------------------------------------------------------
\16\ As a practical matter, these requirements to provide
claimants with evidence or rationales that were relied on or used as
a basis for an adverse benefit determination largely conforms the
rule to the existing process by which benefits claims should be
handled in such cases. E.g., Saffon v. Wells Fargo & Co. Long Term
Disability Plan, 511 F.3d 1206, 1215 (9th Cir. 2008) (finding that a
full and fair review requires a plan administrator to disclose the
reasons for denial in the administrative process); 75 FR at 43333
n.7 (noting the DOL's position that the existing claims procedure
regulation already requires plans to provide claimants with new or
additional evidence or rationale upon request and an opportunity to
respond in certain circumstances).
---------------------------------------------------------------------------
The objective of these provisions is to ensure the claimant's
ability to obtain a full and fair review of denied disability claims by
explicitly providing that claimants have a right to review and respond
to new or additional evidence or rationales developed by the plan
during the pendency of the appeal, as opposed merely to having a right
to such information on request only after the claim has already been
denied on appeal, as some courts have held under the Section 503
Regulation. These protections are direct imports from the ACA Claims
and Appeals Final Rule, and they would correct procedural problems
evidenced in litigation even predating the ACA.\17\ It was and
continues to be the view of the Department that claimants are deprived
of a full and fair review, as required by
[[Page 92325]]
section 503 of ERISA, when they are prevented from responding, at the
administrative stage level, to all evidence and rationales.\18\
---------------------------------------------------------------------------
\17\ See, e.g., Metzger v. Unum Life Ins. Co. of America, 476
F.3d 1161, 1165-67 (10th Cir. 2007) (holding that ``subsection
(h)(2)(iii) does not require a plan administrator to provide a
claimant with access to the medical opinion reports of appeal-level
reviewers prior to a final decision on appeal.''). Accord Glazer v.
Reliance Standard Life Ins. Co., 524 F.3d 1241 (11th Cir. 2008);
Midgett v. Washington Group Int'l Long Term Disability Plan, 561
F.3d 887 (8th Cir. 2009).
\18\ Brief of the Secretary of Labor, Hilda L. Solis, as Amicus
Curiae in Support of Plaintiff-Appellant's Petition for Rehearing,
Midgett v. Washington Group Int'l Long Term Disability Plan, 561
F.3d 887 (8th Cir. 2009) (No. 08-2523).
---------------------------------------------------------------------------
As an example of how these new provisions would work, assume the
plan denies a claim at the initial stage based on a medical report
generated by the plan administrator. Also assume the claimant appeals
the adverse benefit determination and, during the 45-day period the
plan has to make its decision on appeal, the plan administrator causes
a new medical report to be generated. The proposal and the final rule
would require the plan to automatically furnish to the claimant any new
or additional evidence in the second report. The obligation applies to
any new or additional evidence, including, in particular, evidence that
may support granting the claim. The plan would have to furnish the new
or additional evidence to the claimant before the expiration of the 45-
day period. The evidence would have to be furnished as soon as possible
and sufficiently in advance of the applicable deadline (including an
extension if available) in order to give the claimant a reasonable
opportunity to address the new or additional evidence. The plan would
be required to consider any response from the claimant. If the
claimant's response happened to cause the plan to generate a third
medical report containing new or additional evidence, the plan would
have to automatically furnish to the claimant any new or additional
evidence in the third report. The new or additional evidence would have
to be furnished as soon as possible and sufficiently in advance of the
applicable deadline to allow the claimant a reasonable opportunity to
respond to the new or additional evidence in the third report.
Several commenters asked for clarification regarding the
application of the rights in paragraph (h)(4)(i) of the proposal which
would have required that the plan's claims procedures must allow a
claimant to review the claim file and to present evidence and testimony
as part of the ``disability benefit claims and appeals process.'' The
commenters noted that, although subsection (h) deals with the appeals
portion of the claim process, use of the phrase ``claims and appeals
process'' could cause confusion as to whether the requirements of that
subsection are intended to apply only to the appeals portion of the
process or also to the initial stage of the claim process. Those
commenters also suggested that this provision be deleted in its
entirety because it was redundant and unnecessary. They pointed out
that paragraph (g)(1)(vii)(C) of the proposal already added a
requirement that claimants be notified as part of a denial at the
initial claims stage of their right to review copies of documents and
other information relevant to the claim for benefits. They pointed to
the definition of ``relevant'' in the current regulation at paragraph
(m)(8), which includes documents, records or other information that
were relied upon in making the benefit determination, submitted,
considered or generated in the course of making the benefit
determination, demonstrates compliance with the certain administrative
safeguards and requirements required under the regulation, or
constitutes a statement of policy or guidance with respect to the plan
concerning a denied treatment option or benefit or the claimant's
diagnosis. The commenters also noted that paragraph (h)(2)(ii) of the
regulation currently gives claimants the right to ``submit written
comments, documents, records, and other information'' as part of an
initial claim. Consequently, they asserted that a provision stating
that they can also submit ``evidence'' and ``testimony'' does not
appear to add to the current requirements.
The text in paragraph (h)(4)(i) was intended to parallel text in
the regulation for group health plans under the ACA Claims and Appeals
Final Rule. The ACA Claims and Appeals Final Rule specifically
addressed rights to review and respond to new or additional evidence or
rationales during the appeal stage. The Department agrees with the
commenters that the provision is intended to be limited to the appeal
stage. The Department also agrees that the new text in proposed
paragraph (h)(4)(i) on rights to review the claims file and to present
evidence is unnecessary in the disability claims procedure regulation
because those rights already exist under the current Section 503
regulation. Accordingly, because that provision in the proposal would
not have added new substantive requirements, the Department has deleted
the provision from the final rule. In light of the deletion of proposed
paragraph (h)(4)(i) from the final rule, the definition in the proposal
of ``claim file'' is also unnecessary, and, accordingly, the Department
is not including that definitional provision in the final rule. The
changes from the proposal should not be viewed, however, as in any way
restricting claimant's rights to documents, records, or other
information under the regulation, or to restrict claimant's rights to
present evidence. For example, in the Department's view, if the plan or
claims adjudicator maintains a claims file or other similar compilation
of documents, records, and other information, such a file by definition
would constitute relevant materials and be subject to mandatory
disclosure under the final rule.
In response to the paragraph (h)(4)(i) as drafted in the proposal,
several commenters expressed concern that some plans would have read
the language as imposing courtroom evidentiary standards for claimants
submitting proof of their claim. Others expressed concern about a
statement in the proposal's preamble that referenced ``written''
testimony because they thought some plans might rely on that reference
to prohibit claimants from submitting audio or video evidence. The
Department did not intend that the provision be read to limit the types
of evidence that claimants can submit or otherwise put claimants in a
worse position than they face under the current regulation. For
example, the Department does not believe that plans could refuse to
accept evidence submitted in the form of video, audio or other
electronic media. Further, in the Department's view, even under the
current regulation, it would not be permissible for a plan to impose
courtroom evidentiary standards in determining whether the plan will
accept or consider information or materials submitted by a claimant.
Several commenters argued that giving claimants new or additional
evidence or rationales developed during the pendency of the appeal and
requiring plans to consider and address claimant submissions regarding
the new or additional evidence or rationale would set up an unnecessary
cycle of review and re-review leading to delay and increased costs. The
Department is not persuaded by this argument. The requirement conforms
the disability claims regulation to the group health plan claims
process requirements under the ACA Claims and Appeals Final Rule.
Granting both parties (the claimant and the plan) the opportunity to
address the other side's evidence has not resulted in an endless loop
of submissions in group health claims under the ACA Claims and Appeals
Final Rule, and there is no reason to believe that this would occur in
the disability claims administrative process. The Department also has
previously stated its view that the supposed ``endless loop'' is
necessarily limited by claimants' ability to generate new or
[[Page 92326]]
additional evidence requiring further review by the plan. Such
submissions ordinarily become repetitive in short order, and are
further circumscribed by the limited financial resources of most
claimants. If a claimant's assertions do not include new factual
information or medical diagnoses, a plan need not generate report after
report rather than relying on the reports it already has in hand merely
because a claimant objects to or disagrees with the evidence or
rationale. The process also necessarily resolves itself when the plan
decides it has enough evidence to properly decide the claim and does
not generate new or additional evidence or rationales to support its
decision.\19\ The fiduciary obligation to pay benefits in accordance
with the terms of the plan does not require a fiduciary to endlessly
rebut credible evidence supplied by a claimant that, if accepted, would
be sufficient to justify granting the claim. In fact, an aggressive
claims processing practice of routinely rejecting or seeking to
undermine credible evidence supplied by a claimant raises questions
about whether a fiduciary, especially one operating under a conflict of
interest, is violating the fiduciary's loyalty obligation under ERISA
to act solely in the interest of the plan's participants and
beneficiaries.
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\19\ Brief of the Secretary of Labor, Hilda L. Solis, as Amicus
Curiae in Support of Plaintiff-Appellant's Petition for Rehearing,
Midgett v. Washington Group Int'l Long Term Disability Plan, 561
F.3d 887 (8th Cir. 2009) (No. 08-2523), p. 13.
---------------------------------------------------------------------------
Several commenters complained about the possibility of claimants
arguing that plans failed to comply with the claims procedure whenever
any additional evidence was relied on to support a rationale that was
already used as a basis for denying a claim. They expressed similar
concerns about determining whether a rationale relied on in denying a
claim on review was a ``new'' or ``additional'' rationale. They asked
the Department to include in the final rule a definition of what
constitutes ``new or additional'' evidence or a ``new or additional''
rationale. They asserted that the rule might be read to permit a
claimant to receive and rebut medical opinion reports generated in the
course of an administrative appeal, even when those reports contain no
new factual information and deny benefits on the same basis as the
initial decision.
The Department does not believe it is necessary or appropriate to
include definitions of the terms ``new evidence'' or ``new rationale''
in the final rule. Those same terms exist in the parallel claims
procedure requirement applicable to group health plans under the ACA
Claims and Appeals Final Rule, and have been part of the claims
procedure requirements for those plans for several years. The
Department does, however, intend that the terms be applied broadly so
that claimants have the opportunity to respond at the administrative
stage level to all evidence and rationales. Many federal courts have
held that in reviewing a plan administrator's decision for abuse of
discretion, the courts are limited to the ``administrative record''--
the materials compiled by the administrator in the course of making his
or her decision. See Miller v. United Welfare Fund, 72 F.3d 1066, 1071
(2d Cir.1995) (compiling cases and stating that ``[m]ost circuits have
declared that, in reviewing decisions of plan fiduciaries under the
arbitrary and capricious standard, district courts may consider only
the evidence that the fiduciaries themselves considered''). While some
courts have held that when conducting a de novo review, any party may
be free to submit additional evidence outside the administrative
record,\20\ most circuits have adopted rules allowing the admission of
additional evidence in de novo cases only in limited circumstances. In
addition to requiring the deciding fiduciary to consider the claimant's
response to new or additional evidence or rationales, the Department
believes it is important that the claimant have the right and
opportunity to ensure that a full administrative record is before a
reviewing court when new or additional evidence or rationales are
introduced into the record by the plan or deciding fiduciary.\21\
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\20\ See Moon v. Am. Home Assurance Co., 888 F.2d 86, 89 (11th
Cir.1989).
\21\ Some commenters suggested that the Department define ``new
or additional evidence'' to be ``new and additional medical reviews,
including independent medical reports.'' As noted above, these
requirements already apply to claims involving group health benefits
under the ACA Claims and Appeals Final Rule and we do not think that
it is appropriate to restrict this rule to medical reviews since
other types of evidence, if new, would clearly need to be provided
to claimants to ensure the full and fair review as described above.
For example, if a plan were to obtain video evidence of a disability
benefit claimant during the pendency of the appeal, but only provide
the claimant with a portion of that video evidence, e.g., the
portion that supports the denial of benefits, while withholding the
portions that favor the claimant, that would be a failure by the
plan to provide new evidence developed to the claimant.
---------------------------------------------------------------------------
The Department requested comments on whether, and to what extent,
modifications to the existing timing rules are needed to ensure that
disability benefit claimants and plans will have ample time to engage
in the back-and-forth dialogue that is contemplated by these new review
and response rights. The current Section 503 Regulation requires that
the plan must decide claims and appeals within a reasonable period,
taking into account all circumstances. The following timeframes reflect
the maximum period by which a plan must make a determination: (1)
Initial claim: 45 days after submission; additional 30 days with prior
notice for circumstances beyond control of the plan; and (2) Appeal: 45
days after receipt of appeal; additional 45 days with prior notice for
``special circumstances.'' A special deadline for deciding appeals
applies when the named fiduciary is a board or committee of a
multiemployer plan that meets at least quarterly. The Department
received several comments with suggestions on possible new timing
requirements for the claimant to respond to the new evidence and a time
deadline for the claims administrator to make its final decision. Other
commenters asserted that the current regulations are sufficient for the
needs of consumers covered under this final regulation and provide
``ample'' time for plans and claimants to engage in the necessary
dialogue. One commenter raised an issue concerning this rule and its
impact on the prompt administration of disability claims. The commenter
described, by way of example, that the plan would have to send
claimants new or additional evidence before the plan may have
determined whether and how the evidence may contribute to an adverse
appeal decision, claimants would receive new or additional evidence
piecemeal as the appeals process continues and claimants could be
required to provide comments back without necessarily knowing how that
information may, if at all, affect the decision. The Department does
not believe that the rule envisions this kind of process. This
provision by its terms does not apply if a plan grants the claim on
appeal. Instead, when the plan has decided that it is going to deny the
claim on appeal, that is the point at which the rule requires new or
additional evidence must be provided to the claimant, sufficiently in
advance of final decision so that the claimant can address such
evidence. The provision does not require that the plan provide the
claimant with information in a piecemeal fashion without knowing
whether, and if so how, that information may affect the decision.
The Department noted in the preamble to the proposal that the group
health plan claims regulation provides that if the new or additional
evidence or rationale is received by a plan so late that it would be
impossible to provide it to the claimant in time for the
[[Page 92327]]
claimant to have a reasonable opportunity to respond, the period for
providing a notice of final internal adverse benefit determination is
tolled until such time as the claimant has a reasonable opportunity to
respond. The Department did not include this special tolling provision
in the proposed amendments because the current disability claims
regulation, as described above, already permits plans to take
extensions at the appeals stage. In the Department's view, the current
disability claims regulation ``special circumstances'' provision
permits the extension and tolling expressly added to the group health
plan rule under the ACA Claims and Appeals Final Rule.\22\ Although the
Department is not including special timing provisions in the final
rule, the Department is open to considering comments on whether sub-
regulatory guidance regarding the current provisions on extensions and
tolling would be helpful in the context of the new review and response
rights.
---------------------------------------------------------------------------
\22\ In connection with the ACA Claims and Appeals Final Rule,
the Department explained the process as follows: ``To address the
narrow circumstance raised by some comments that the new or
additional information could be first received so late that it would
be impossible to provide it, these final regulations provide that if
the new or additional evidence is received so late that it would be
impossible to provide it to the claimant in time for the claimant to
have a reasonable opportunity to respond, the period for providing a
notice of final internal adverse benefit determination is tolled
until such time as the claimant has a reasonable opportunity to
respond. After the claimant responds, or has a reasonable
opportunity to respond but fails to do so, the plan or issuer must
notify the claimant of the benefit determination as soon as a plan
or issuer acting in a reasonable and prompt fashion can provide the
notice, taking into account the medical exigencies.''
---------------------------------------------------------------------------
Commenters asked the Department to confirm that a plan could
satisfy the new review and response requirements through a current
procedure, which was described as ``universal and a result of
established case law.'' Specifically the commenters stated that some
plans currently provide claimants with a voluntary opportunity to
appeal any rationale raised for the first time in an appeal denial
letter. They contended that this process works well because it gives
the claimant a choice of whether to appeal and supplement the
administrative record based on a challenge to the new evidence or
rationale. They also asserted that the procedure would address
commenters' concern that this requirement may conflict with claims
administrator's obligation to meet the requisite time requirements for
deciding claims and appeals. In fact, a few other commenters
specifically asked that the new requirement not apply to plans that
currently offer a voluntary additional level of appeal. The Department
does not agree that a voluntary additional level of appeal provides the
same rights to claimants because the additional level of appeal is not
subject to the rule's provisions on timing of notification of benefit
determinations on appeal. In the Department's view, it would not be
appropriate to condition a claimant's right to review and respond to
new evidence on the claimant effectively being required to give up
rights to a timely review and decision at the appeal stage.
Finally, the Department's experience enforcing the current
regulation for group health plans has revealed circumstances where
claims adjudicators assert that they are satisfying this requirement by
providing claimants with a notice informing them that the plan relied
on new or additional evidence or a new or additional rationale in
denying the claim, and offering to provide the new evidence or
rationale on request. As the Department explained in the preamble to
the ACA Claims and Appeals Final Rule for group health plans,\23\ in
order to comply with this requirement, a plan or issuer must send the
new or additional evidence or rationale automatically to the claimant
as soon as it becomes available to the plan. Merely sending a notice
informing claimants of the availability of such information fails to
satisfy the requirement, and if a plan's claims procedure says the plan
will send a notice of the availability of such information, the
responsible plan fiduciary similarly would fail to have met the
requirement under ERISA section 503 for the plan to establish and
maintain a reasonable procedure governing the filing of benefit claims,
notification of benefit determinations, and appeal of adverse benefit
determinations.
---------------------------------------------------------------------------
\23\ That rulemaking notice (at 80 FR 72207) included the
following explanation in responding to public comments on that rule:
``Commenters requested additional guidance related to the timing and
amount of information required to be provided in order to satisfy
this requirement. Specifically, individuals asked whether such
information actually must be provided automatically to participants
and whether or not it would be sufficient to send participants a
notice informing them of the availability of new or additional
evidence or rationale. The Departments retain the requirement that
plans and issuers provide the new or additional evidence or
rationale automatically. In the Departments' view, fundamental
fairness requires that participants and beneficiaries have an
opportunity to rebut or respond to any new or additional evidence
upon which a plan or issuer may rely. Therefore, plans and issuers
that wish to rely on any new or additional evidence or rationale in
making a benefit determination must send such new or additional
evidence or rationale to participants as soon as it becomes
available to the plan or issuer. In order to comply with this
requirement, a plan or issuer must send the new or additional
evidence or rationale to the participant. Merely sending a notice
informing participants of the availability of such information fails
to satisfy this requirement.'' This same explanation applies with
equal force to the identical requirement in this final rule
applicable to disability benefit claims.
---------------------------------------------------------------------------
4. Deemed Exhaustion of Claims and Appeals Processes
The final rule tracks the proposal and provides that if a plan
fails to adhere to all the requirements in the claims procedure
regulation, the claimant would be deemed to have exhausted
administrative remedies, with a limited exception where the violation
was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good
cause or matters beyond the plan's control; (iv) in the context of an
ongoing good-faith exchange of information; and (v) not reflective of a
pattern or practice of non-compliance. The rule thus mirrors the
existing standard applicable to group health plans under the ACA Claims
and Appeals Final Rule and is stricter than a mere ``substantial
compliance'' requirement.
The Department received a number of generally favorable comments
regarding the deemed exhaustion provisions in paragraphs (l)(1) and (2)
of the proposal. Those commenters argued that claimants should not have
to follow a claims and appeals process that is less than full, fair,
and timely. Some of those commenters expressed concern that the
language in proposed paragraph (l)(2)(i) was potentially inconsistent
with language in the preamble. The commenters noted that the preamble
stated that ``in those situations when the minor errors exception does
not apply, the proposal clarifies that the reviewing tribunal should
not give special deference to the plan's decision, but rather should
review the dispute de novo.'' By contrast, they point out that proposed
paragraph (l)(2)(i) provides that ``[i]f a claimant chooses to pursue
remedies under section 502(a) of ERISA under such circumstances, the
claim or appeal is deemed denied on review without the exercise of
discretion by an appropriate fiduciary.'' According to the commenters,
plans could argue that the language in proposed paragraph (l)(2)(i)
does not go far enough and suggested that the regulation should
expressly require de novo review.
The Department does not intend to establish a general rule
regarding the level of deference that a reviewing court may choose to
give a fiduciary's decision interpreting benefit provisions in the
plan's governing documents. However, the cases reviewing a plan
fiduciary's decision under a deferential arbitrary or capricious
standard are based on the idea that the plan
[[Page 92328]]
documents give the fiduciary discretionary authority to interpret the
plan documents. By providing that the claim is deemed denied without
the exercise of fiduciary discretion, the regulation relies on the
regulatory authority granted the Department in ERISA sections 503 and
505 and is intended to define what constitutes a denial of a claim. The
legal effect of the definition may be that a court would conclude that
de novo review is appropriate because of the regulation that determines
as a matter of law that no fiduciary discretion was exercised in
denying the claim.
A number of commenters expressed concern with proposed paragraph
(l)(2)(i), arguing that the proposal encourages claimants to circumvent
a plan's claims and appeals process, to seek remedies in court in the
case of insignificant missteps in claims management practices that have
no impact on claim outcomes, and, therefore, will result in increased
litigation. One commenter asked that the proposal be deleted. A few
commenters suggested alternative approaches to the proposal. For
example, they suggested that the Department consider a rule which first
requires claimants to notify the plan that they intend to pursue
judicial review based upon the plan's procedural error, and provide
plans with a reasonable period of time to cure the error before the
claimant can dispense with further administrative review. The
Department does not believe that the typical participant pursuing a
disability benefit claim in the context of a fair and timely review
process will, as the commenters claimed, seek remedies in court in the
case of insignificant missteps in claims management processes that have
no impact on the ultimate decision on the claim. Further, the
Department does not believe it would be appropriate to create a rule
that could create incentives for plans and insurers to violate
procedural requirements designed to protect claimants and ensure
transparency in the decision-making process knowing that before the
claimant could seek redress that the claimant would have to identify
the violation, notify the plan of the violation, and give the plan time
to cure the error. Rather, after careful consideration of these
comments, the Department continues to believe that claimants should not
have to follow a claims and appeals process that is less than full,
fair, and timely. Accordingly, the Department decided to retain the
deemed exhaustion provisions as proposed, including the exception to
the strict compliance standard for errors that are minor and that meet
certain other specified conditions.\24\
---------------------------------------------------------------------------
\24\ The provisions in this final rule supersede any and all
prior Departmental guidance with respect to disability benefit
claims to the extent such guidance is contrary to this final rule,
including but not limited to the deemed exhaustion discussion in FAQ
F-2 in FAQs About The Benefit Claims Procedure Regulation.
(www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
---------------------------------------------------------------------------
5. Coverage Rescissions--Adverse Benefit Determinations
Paragraph (m)(4) of the final rule amends the definition of an
adverse benefit determination to include, for plans providing
disability benefits, a rescission of disability benefit coverage that
has a retroactive effect, except to the extent it is attributable to a
failure to timely pay required premiums or contributions towards the
cost of coverage. The Department did not receive any comments objecting
to this provision in the proposed rule, and, accordingly, the provision
is adopted without change in the final rule.
Several commenters suggested that the provision be expanded to
expressly include situations, particularly in cases involving mental
health and substance use disorder claims, where a plan approves
treatment for a period less than that requested, but defers the right
to appeal until the date the approved benefits end. The Department did
not make such a modification to paragraph (m)(4) in the final rule
because the Department does not agree that such cases should be
addressed as rescissions.
Rather, it appears that the commenters were making a more general
point that the claims procedure regulation should expressly define an
adverse benefit determination to include instances in which such a
limitation is invoked. In that regard, the current regulation provides
that the term ``adverse benefit determination'' includes any denial,
reduction, or termination of, or a failure to provide or make payment
(in whole or in part) for, a benefit. The Department issued a set of
FAQs under the current regulation explaining the application of that
definition to various situations. One FAQ stated that if a plan
provides for the payment of disability benefits for a pre-determined,
fixed period (e.g., a specified number of weeks or months or until a
specified date), the termination of benefits at the end of the
specified period would not constitute an adverse benefit determination
under the regulation. Rather, the Department concluded that any request
by a claimant for payment of disability benefits beyond the specified
period would constitute a new claim.\25\ Another FAQ, however,
addressed the different situation where the plan pays less than the
total amount of expenses submitted with regard to a post-service claim.
We explained that, while the plan is paying out the benefits to which
the claimant is entitled under its terms, the claimant is nonetheless
receiving less than full reimbursement of the submitted expenses.
Therefore, in order to permit the claimant to challenge the plan's
calculation of how much it is required to pay, that decision is
required to be treated as an adverse benefit determination under the
regulation.\26\ Whether the situation presented by the commenters
should be treated more like the former or latter FAQ will depend on the
terms of the plan and the particular facts and circumstances.
---------------------------------------------------------------------------
\25\ See FAQs About The Benefit Claims Procedure Regulation, C-
18 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
\26\ See FAQs About The Benefit Claims Procedure Regulation, C-
12 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
---------------------------------------------------------------------------
One commenter asked whether the proposed rule regarding rescissions
of coverage applies to adjustments or suspensions of benefits that
reduce or eliminate a disability pension benefit under section 305 of
ERISA, which corresponds to section 432 of the Internal Revenue Code of
1986 (Code). It is the Department's view that a retroactive reduction
or elimination of disability pension benefits pursuant to section 305
of ERISA is not a rescission of coverage under paragraph (m)(4)(ii) of
the final rule. However, a retroactive reduction or elimination of
disability pension benefits, that results from a finding by the plan
that the claimant was not disabled within the meaning of the plan when
the disability pension benefits were reduced or eliminated under ERISA
section 305, would be an adverse benefit determination under the claims
procedure regulation. 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 Section 503
Regulation.\27\
---------------------------------------------------------------------------
\27\ See footnote 3, supra, and FAQs About The Benefit Claims
Procedure Regulation, A-9 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf) discussing when a benefit is a disability
benefit, subject to the special rules for disability claims under
the Section 503 Regulation.
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[[Page 92329]]
6. Culturally & Linguistically Appropriate Notices
Paragraphs (g)(1)(vii)(C), (j)(7) and (o) of the final rule require
plans to provide notice to claimants in a culturally and linguistically
appropriate manner. The final rule adopts the standards already
applicable to group health plans under the ACA Claims and Appeals Final
Rule. Specifically, if a claimant's address is in a county where ten
percent or more of the population residing in that county are literate
only in the same non-English language as determined in guidance based
on American Community Survey data published by the United States Census
Bureau, notices of adverse benefit determinations to the claimant would
have to include a statement prominently displayed in the applicable
non-English language clearly indicating how to access language services
provided by the plan. In addition, plans must 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.\28\
---------------------------------------------------------------------------
\28\ Each year the U.S. Census Bureau publishes a list of
counties that meet the 10% threshold. For 2016, the applicable
languages are Chinese, Tagalog, Navajo and Spanish. A complete list
of counties is available at www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/internal-claims-and-appeals.
---------------------------------------------------------------------------
A few commenters requested clarification that the culturally and
linguistically appropriate standards (CLAS) requirements in the
regulation apply only to notices of adverse benefit determinations and
not to other communications regarding disability claims. In the
Department's view, the text of paragraphs (g)(1)(vii)(C) and (j)(7) is
clear that the CLAS requirements are applicable to notices of adverse
benefit determinations. The final rule does not address whether, and
under what circumstances, the fiduciary duty or other provisions in
ERISA would require plans to provide plan participants and
beneficiaries with access to language services (see, for example, the
discussion below regarding summary plan description (SPD)
requirements).
A few commenters requested that the Department remove the CLAS
standards. Other commenters supported the CLAS requirements but
requested that the Department provide a reasonable time for compliance
with this provision, citing operational changes and costs associated
with the CLAS requirements. Other commenters requested that the
threshold percentage that triggers the CLAS requirements be reduced to
a lower percentage to capture a greater number of counties or to
reflect a percentage of plan participants as opposed to the population
of a relevant county. One commenter suggested that the Department may
have unintentionally reduced protections for non-English speaking
participants. The commenter pointed out that although a particular
county may not meet the threshold under this rule, particular
workforces may meet the Department's thresholds under section Sec.
2520.102-2(c).
In light of all the comments received, this final rule retains the
CLAS requirements as set forth in the proposal. The Department believes
that the CLAS requirements impose reasonable language access
requirements on plans and appropriately balance the objective of
protecting claimants by providing reasonable language assistance to
individuals who communicate in languages other than English with the
goal of mitigating administrative burdens on plans. The Department
continues to believe that it is important to provide claims denial
notices in a culturally and linguistically appropriate manner to ensure
that individuals get the important information needed to properly
evaluate the decision denying a claim and to allow for an informed
decision on options for seeking review of a denial. Therefore, the
final rule adopts the requirements in the proposal without change.
The Department does not agree that the final rule supersedes the
summary plan description foreign language rules in Sec. 2520.102-2(c)
which include a requirement to offer assistance (which could include
language services) calculated to provide participants with a reasonable
opportunity to become informed as to their rights and obligations under
the plan. Non-English speaking participants could be eligible for
language services under either this final rule or Sec. 2520.102-2(c),
depending on the circumstances.
Finally, one commenter asked that the Department clarify that the
English version of the notices takes precedence in the event of any
conflict with the translated documents. Another commenter asked for
clarification that the requirement to provide ``assistance with filing
claims and appeals in any applicable non-English language'' is limited
to procedural, not substantive, assistance. The Department was not
persuaded that including such provisions in the final rule is necessary
or appropriate. Notices provided to participants or beneficiaries
should be complete and accurate notwithstanding the language used.
Further, a ``substantive versus procedural'' distinction between the
type of assistance required is not, in the Department's view,
particularly meaningful or helpful. Rather, the final rule requires
plan fiduciaries to provide disability benefit claimants with the
requisite level and amount of assistance necessary to assist the
claimants in understanding their rights and obligations so that they
can effectively file claims and appeals in pursuing a claim for
disability benefits.
7. Miscellaneous
a. Technical Correction
The Department determined that a minor technical fix to the Section
503 Regulation is required with respect to disability claims. The
Department proposed to clarify that the extended time frames for
deciding disability claims, provided by the quarterly meeting rule
found in the current regulation at 29 CFR 2560.503-1(i)(1)(ii), are
applicable only to multiemployer plans. The Department did not receive
any adverse comments on the proposed technical fix, and, accordingly,
the final rule amends paragraph (i)(3) to correctly refer to the
appropriate subparagraph in (i)(1) of the Section 503 Regulation.
b. Contractual Limitations Periods for Challenging Benefit Denials
In the proposal, the Department asked for comments on whether the
claims procedure rule should address limitations periods in plans that
govern the period after a final adverse benefit determination within
which a civil action may be filed under section 502(a)(1)(B) of ERISA.
We pointed out that ERISA does not specify that period and noted that
the federal courts have generally looked to analogous state laws to
determine an appropriate limitations period. Analogous state law
limitations periods vary, but they generally start with the same event,
the plan's final benefit determination. We acknowledged that the
Supreme Court recently upheld the use of contractual limitations
periods in plan documents and insurance contracts which may override
analogous state laws so long as they are reasonable. See Heimeshoff v.
Hartford Life & Accident Ins. Co., 134 S.Ct. 604, 611 (2013). We
pointed out that contractual limitations periods are not uniform, the
events that trigger the clock vary, and the documents in which the
limitations periods are embedded may be difficult for claimants to
obtain and understand. We also highlighted a
[[Page 92330]]
separate issue, not before the Supreme Court in Heimeshoff, of whether
plans must provide participants notice with respect to contractual
limitations periods in adverse benefit determinations on review.
Although many federal courts have held that plans should provide such
notice under the Section 503 Regulation, the court decisions are not
uniform.\29\ Accordingly, the Department solicited comments on whether
the final regulation should require plans to provide claimants with a
clear and prominent statement of any applicable contractual limitations
period and its expiration date for the claim at issue in the final
notice of adverse benefit determination on appeal and with an updated
notice of that expiration date if tolling or some other event causes
that date to change.
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\29\ See Moyer v. Metropolitan Life Ins. Co., 762 F.3d 503, 505
(6th Cir. 2014) (``The claimant's right to bring a civil action is
expressly included as a part of those procedures for which
applicable time limits must be provided'' in the notice of adverse
benefit determination on review) and Kienstra v. Carpenters' Health
& Welfare Trust Fund of St. Louis, 2014 WL 562557, at *4 (E.D. Mo.
Feb. 13, 2014), aff'd sub nom. Munro-Kienstra v. Carpenters' Health
& Welfare Trust Fund of St. Louis, 790 F.3d 799 (8th Cir. 2015)
(``an adverse benefit determination must include [a] description of
the plan's review procedures and the time limits applicable to such
procedures, including a statement of the claimant's right to bring a
civil action under section 502(a) of [ERISA] following an adverse
benefit determination on review.''); Ortega Candelaria v.
Orthobiologics LLC, 661 F.3d 675, 680 (1st Cir.2011) (``[The
employer] was required by [29 CFR 2560.503-1(g)(1)(iv) ] to provide
[the employee] with notice of his right to bring suit under ERISA,
and the time frame for doing so, when it denied his request for
benefits.''); McGowan v. New Orleans Empl'rs Int'l Longshoremen's
Ass'n, 538 F. App'x 495, 498 (5th Cir.2013) (finding that a benefit
termination letter substantially complied with 29 CFR 2560.503-
1(g)(1)(iv) because, in addition to enclosing the benefit booklet
and specifying the pages containing the review procedures and time
limits, the letter ``mentioned McGowan's right to file suit under
Sec. 502(a) of ERISA, as well as the one-year time limit''); White
v. Sun Life Assurance Co. of Canada, 488 F.3d 240, 247 n. 2 (4th
Cir.2007) (emphasizing that the right to bring a civil action is an
integral part of a full and fair benefit review and that the adverse
benefit determination letter must include the relevant information
related to that right) (abrogated on other grounds by Heimeshoff v.
Hartford Life & Acc. Ins. Co., 134 S.Ct. 604, 612 (2013)); Novick v.
Metropolitan Life Ins. Co., 764 F.Supp.2d 653, 660-64 (S.D.N.Y.2011)
(concluding that 29 CFR 2560.503-1(g) requires that the adverse
benefit determination letter include the time limits for judicial
review); Solien v. Raytheon Long Term Disability Plan # 590, 2008 WL
2323915, at 8 (D.Ariz. June 2, 2008) (holding that ``[j]udicial
review is an appeal procedure for an adverse benefit determination
and is therefore a part of the claim procedures covered by these
regulations, especially when the time limit for filing a judicial
action is established contractually by the Plan''). But see Wilson
v. Standard Ins. Co., 613 F. App'x 841, 844 n.3 (11th Cir. 2015)
(unpublished) (finding that 29 CFR 2560.503-1(g)(1)(iv) ``can also
be reasonably read to mean that notice must be given of the time
limits applicable to the `plan's review procedures,' and the letter
must also inform the claimant of her right to bring a civil action
without requiring notice of the time period for doing so''); Scharff
v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899, 907-08
(9th Cir. 2009) (declining to supplement ERISA's comprehensive
scheme for regulating disclosures to participants with a California
law requiring the express disclosure of a statute of limitations).
In an unpublished decision, the Tenth Circuit similarly interpreted
language in a plan that was virtually identical to section 2560.503-
1(g)(1)(iv) as only requiring denial letters to include time limits
applicable to internal review procedures. See Young v. United Parcel
Services, 416 F. App'x 734, 740 (10th Cir. 2011) (unpublished)
(concluding that requiring a notification of the time limit for
filing suit ``conflates the internal appeals process, and its
associated deadlines, with the filing of a legal action after that
process has been fully exhausted'').
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In response, the Department received many comments from claimants
and participant advocates supporting a contractual limitations period
notice requirement. Numerous commenters further requested that any
required notice include the date on which the relevant contractual
limitations period expires. They also asked the Department to include a
definition of a ``reasonable limitations period.'' One commenter argued
to the contrary that a rule requiring inclusion of a specific date
would create confusion for claimants and carries a risk that the
insurer or other administrative entity is seen as providing legal
advice. Another commenter urged that such a rule should not be adopted
because the date by which suit must be filed may be subject to dispute
in litigation. A commenter expressed concern that such a notice
requirement is largely unnecessary as the information is generally
already included in plan documents, (e.g., the summary plan
description), and that it could impose significant administrative
burden. The commenter suggested that a more appropriate rule would be
to require that the notice of adverse benefit determination on review
include a statement alerting participants that they should review the
terms of the applicable plan documents to determine any deadline by
which they must file a civil action. Finally, a number of commenters
asked the Department to specifically address whether it is allowable
for a contractual limitations period to be structured so that it could
actually expire before the plan's appeals process is completed.
In light of the issues identified regarding contractual limitations
periods, the Department concluded that it was appropriate in this final
rule to address certain basic points.
First, section 503 of ERISA requires that a plan afford a
reasonable opportunity to any participant whose claim for benefits has
been denied for a full and fair review of that decision by an
appropriate named fiduciary. The Department does not believe that a
claims procedure would satisfy the statutory requirement if the plan
included a contractual limitations period that expired before the
review was concluded. In the Department's view, this is clear from the
Supreme Court's holding in Heimeshoff. In that case, the Supreme Court
held that an ERISA disability plan's three-year limitations period,
running from the date of proof of loss, was enforceable even though the
statute of limitations began to run before the participant's cause of
action accrued. The Court pointed out that there was nothing to suggest
the 3-year contractual limitations period was not ``reasonable'' in
light of the Department's regulation that would require the internal
claims and appeals process to be completed well inside a three-year
period. Heimeshoff, 134 S.Ct. at 612 (citing Order of United Commercial
Travelers of America v. Wolfe, 67 S.Ct. 1355 (1947)). A limitations
period that expires before the conclusion of the plan's internal
appeals process on its face violates ERISA section 503's requirement of
a full and fair review process. A process that effectively requires the
claimant to forego the right to judicial review and thereby insulates
the administrator from impartial judicial review falls far short of the
statutory fairness standard and undermines the claims administrator's
incentives to decide claims correctly.
Further, in rejecting the challenge to the contractual limitations
period at issue in Heimeshoff, the Court emphasized that the claimant
was allowed a year or more to bring suit after the close of the
internal claims review process.\30\ A contractual limitations period
that does not allow such a reasonable period after the conclusion of
the appeal in which to bring a lawsuit is unenforceable.\31\ Moreover,
as the
[[Page 92331]]
Supreme Court also recognized in Heimeshoff, even in cases with an
otherwise enforceable contractual limitations period, traditional
doctrines, such as waiver and estoppel, may apply if a plan's internal
review prevents a claimant from bringing section 502(a)(1)(B) actions
within the contractual period. Heimeshoff, 134 S.Ct. at 615. In
addition to such traditional remedies, plans that offer appeals or
dispute resolution beyond what is contemplated in the claims procedure
regulations must agree to toll the limitations provision during that
time. See 29 CFR 2560.503-1(c)(3)(ii).
---------------------------------------------------------------------------
\30\ Heimeshoff, 134 S.Ct. at 612 (``Neither Heimeshoff nor the
United States claims that the Plan's 3-year limitations provision is
unreasonably short on its face. And with good reason: the United
States acknowledges that the regulations governing internal review
mean for `mainstream' claims to be resolved in about one year, Tr.
of Oral Arg. 22, leaving the participant with two years to file
suit. Even in this case, where the administrative review process
required more time than usual, Heimeshoff was left with
approximately one year in which to file suit. Heimeshoff does not
dispute that a hypothetical 1-year limitations period commencing at
the conclusion of internal review would be reasonable. Id., at 4'')
(footnote omitted).
\31\ The Department also believes that additional public input
beyond the public record for this rulemaking would be needed for the
Department to define a minimum period of time necessary for such a
period to constitute a reasonable period in which to bring an action
under ERISA section 502(a).
---------------------------------------------------------------------------
Second, the Department agrees with the conclusion of those federal
courts that have found that the current regulation fairly read requires
some basic disclosure of contractual limitations periods in adverse
benefit determinations. In fact, in the Department's view, the
statement of the claimant's right to bring a civil action under section
502(a) of ERISA following an adverse benefit determination on review
would be incomplete and potentially misleading if it failed to include
limitations or restrictions in the documents governing the plan on the
right to bring such a civil action. Accordingly, this final rule
includes in new paragraph (j)(4)(ii) a requirement that the notice of
an adverse benefit determination on review must include a description
of any applicable contractual limitations period and its expiration
date.
The Department is not persuaded that inclusion in the notice of
adverse benefit determination on review of any applicable contractual
limitations period and its expiration date will result in confusion.
The Department also does not agree that a statement of the plan's view
as to the exact date the limitations period expires will somehow
inappropriately foreclose or otherwise prejudice legitimate arguments
about application of the limitations period in individual cases. Nor
does the Department believe that disclosure of a contractual
limitations period requires the plan to provide legal advice.
Additionally, as described below, the Department does not believe that
including a description of any contractual limitations period,
including the date by which the claimant must bring a lawsuit, would
impose more than a minimal additional burden. Although the final rule
provision is technically applicable only to disability benefit claims,
as explained above, the Department believes that notices of adverse
benefit determinations on review for other benefit types would be
required to include some disclosure about any applicable contractual
limitations period. What would be sufficient will depend on the
controlling judicial precedent and the individual facts and
circumstances, but the Department would consider the inclusion of the
information in paragraph (j)(4)(ii) to be an appropriate disclosure for
all plan types.
Several comments raised other issues pertaining to the disclosure
of contractual and statutory limitations on a claimant's right to bring
a civil action under section 502(a) of ERISA. Issues beyond this final
rule may be addressed in a future regulatory action or other guidance
by the Department.
c. Comments Beyond the Scope of the Rulemaking
Some commenters raised disability claims procedure issues
pertaining to matters that the Department considers to be beyond the
scope of this rulemaking. For example, one commenter suggested that the
Department amend its Model Statement of ERISA Rights for SPDs for
disability plans to include notification of eligibility for language
services. Other commenters requested that the Department propose a rule
requiring that adverse benefit determinations on review notify
disability benefit claimants of the ERISA venue provisions. Other
issues raised by some commenters relate to substantive limitations on
recoupment of benefit overpayments, rights to supplement the
administrative record for court review, and the validity of
discretionary clauses in plans that are used as a basis for seeking a
deferential ``arbitrary or capricious'' standard for court review of
benefit denials. Although the Department agrees that the issues raised
by the commenters may merit an evaluation of additional regulatory
actions on procedural safeguards and protections, those subjects are
beyond the scope of this rulemaking. As the Department noted in the
preamble to the proposal, this rulemaking was a start to improving the
current standards applicable to the processing of claims and appeals
for disability benefits so that they include improvements to certain
basic procedural protections in the current Section 503 Regulation.
Issues beyond this final rule may be addressed in a future regulatory
action or other guidance by the Department.
III. Economic Impact and Paperwork Burden
A. Background and Need for Regulatory Action
As discussed in Section I of this preamble, the final amendments
would revise and strengthen the current rules regarding claims and
appeals applicable to ERISA-covered plans providing disability benefits
primarily by adopting several of the new procedural protections and
safeguards made applicable to ERISA-covered group health plans by the
Affordable Care Act. Before the enactment of the ACA, group health plan
sponsors and sponsors of ERISA-covered plans providing disability
benefits were required to implement claims and appeal processes that
complied with the Department's regulation establishing minimum
requirements for benefit claims procedures for employee benefit plans
covered by Title I of ERISA.\32\ The enactment of the ACA and the
issuance of the implementing interim final regulations in 2010 resulted
in disability benefit claimants receiving fewer procedural protections
than group health plan participants even though disputes and litigation
regarding disability benefit claims are more prevalent than health care
benefit claims.\33\ In order to ensure fundamental fairness in the
claim and appeals procedure process, health and disability plan
claimants are entitled to receive the same procedural protections as
they did when the 2000 regulation was issued.
---------------------------------------------------------------------------
\32\ 65 FR 70246 (Nov. 21, 2000), amended at 66 FR 35877 (July
9, 2001).
\33\ See Sean M. Anderson, ERISA Benefits Litigation: An
Empirical Picture, 28 ABA J. Lab. & Emp. L. 1(2012).
---------------------------------------------------------------------------
The Department believes this action is necessary to ensure that
disability claimants receive a full and fair review of their claims
under the more stringent procedural protections that Congress
established for group health care claimants under the ACA. The final
rule will promote fairness and accuracy in the claims review process
and protect participants and beneficiaries in ERISA-covered disability
plans by ensuring they receive benefits that otherwise might have been
denied by plan administrators in the absence of the fuller protections
provided by this final regulation. The final rule also will help
alleviate the financial and emotional hardship suffered by many
individuals when they are unable to work after becoming disabled and
their claims are denied.
As stated earlier in this preamble, this action also is necessary
to correct
[[Page 92332]]
procedural problems evidenced in litigation under the 2000 regulation
predating the ACA, which in the Department's view, resulted in
claimants not receiving a full and fair review as required by ERISA
section 503. Specifically, some courts held that under the 2000
regulation, claimants only have the right to review and respond to new
evidence or rationales developed during the pendency of an appeal after
the claim has been denied on appeal. The final rule levels the playing
field by explicitly requiring plan administrators to provide claimants,
free of charge, with any new evidence or rationale relied upon,
considered, or generated by the plan in connection with the claim and a
reasonable opportunity for the claimant to respond.
The Department disagrees with commenters' assertion that disability
plan claim procedures should not mirror the ACA group health plan
amendments because of the difference between health and disability
claims. For reasons discussed earlier in this preamble, after careful
consideration, the Department incorporated into the final rule only
certain of the ACA group health plan claims procedure amendments to
ensure that disability plan claimants receive the same opportunity to
pursue a full and fair review of their claims as required by ERISA
section 503 with the procedural safeguards and consumer protections
that are aligned with those required by group health plans under the
ACA and the Department's implementing regulation at 29 CFR 2590.715-
2719. This final rule aligns the disability claims procedures with the
ACA procedural safeguards and consumer protections for group health
plans. The Department did not amend other provisions of the 2000
regulation that affect how disability plan claims are processed or the
timing requirements. Therefore, as discussed more fully below, the
Department does not expect that the final rule will lead to delays and
significant increased cost for disability claims and appeals processes.
The Department considered comments asserting that some of its cost
estimates in the proposed Regulatory Impact Analysis (``RIA'') were
underestimated and made adjustments where appropriate.
The Department has crafted these final regulations to secure the
protections of those submitting disability benefit claims. In
accordance with OMB Circular A-4, the Department has quantified the
costs where possible and provided a qualitative discussion of the
benefits that are associated with these final regulations.
B. Executive Order 12866 and 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects; distributive impacts; and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility.
Under Executive Order 12866 (58 FR 51735), ``significant''
regulatory actions are subject to review by the Office of Management
and Budget (OMB). Section 3(f) of the Executive 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 in any one year, 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 a
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. It has
been determined that this rule is significant within the meaning of
section 3(f) (4) of the Executive Order. Therefore, OMB has reviewed
the final rule pursuant to the Executive Order. The Department provides
an assessment of the potential costs and benefits of the final rule
below, as summarized in Table 1, below. The Department concludes that
the economic benefits of these final regulations justify their costs.
Table 1--Accounting Table
----------------------------------------------------------------------------------------------------------------
Category Estimate Year dollar Discount rate Period covered
----------------------------------------------------------------------------------------------------------------
Benefits--Qualitative........................... The Department expects that these final regulations will
improve the procedural protections for workers who become
disabled and make claims for disability benefits from ERISA-
covered employee benefit plans. This would result in some
participants receiving benefits they might otherwise have been
denied absent the fuller protections provided by the final
regulation. Greater certainty and consistency in the handling
of disability benefit claims and appeals and improved access
to information about the manner in which claims and appeals
are adjudicated will be achieved. Fairness and accuracy will
increase as fuller and fairer disability claims processes
provide claimants with sufficient information to evaluate the
claims process and defend their rights under their plan.
----------------------------------------------------------------------------------------------------------------
Costs:
Annualized.................................. $15,806,000 2016 7% 2018-2027
Monetized................................... 15,806,000 2016 3% 2018-2027
[[Page 92333]]
Qualitative............................. The Department believes that these requirements have modest
costs associated with them, since many chiefly clarify
provisions of the current DOL claims procedure regulation. As
discussed in detail in the cost section below, the Department
quantified the costs associated with two provisions of the
final regulations for which it had sufficient data: The
requirements to provide (1) additional information to
claimants in the appeals process and (2) information in a
culturally and linguistically appropriate manner.
----------------------------------------------------------------------------------------------------------------
1. Estimated Number of Affected Entities
The Department does not have complete data on the number of plans
providing disability benefits or the total number of participants
covered by such plans. ERISA-covered welfare benefit plans with more
than 100 participants generally are required to file the Form 5500
Annual Return/Report. Currently, only a small number of ERISA-covered
welfare benefit plans with less than 100 participants are required to
file the form. Based on current trends in the establishment of pension
and health plans, there are many more small plans than large plans, but
the majority of participants are covered by the large plans.
Data from the 2014 Form 5500 Schedule A indicates that there are
39,135 plans reporting a code indicating they provide temporary
disability benefits covering 40.1 million participants, and 26,171
plans reporting a code indicating they provide long-term disability
benefits covering 22.4 million participants.\34\ To put the number of
large and small plans in perspective, the Department estimates that
there are 150,000 large group health plans and 2.1 million small group
health plans using 2016 Medical Expenditure Panel Survey-Insurance
Component. While most plans are small plans most participants are in
large plans.
---------------------------------------------------------------------------
\34\ Almost all plans reporting this code are welfare plans.
---------------------------------------------------------------------------
2. Benefits
In developing these final regulations, the Department closely
considered their potential economic effects, including both benefits
and costs. The Department does not have sufficient data to quantify the
benefits associated with these final regulations due to data
limitations and a lack of effective measures. Therefore, the Department
provides a qualitative discussion of the benefits below.
These final regulations implement a more uniform, rigorous, and
fair disability claims and appeals process as required by ERISA section
503 that conforms to a carefully selected set of the requirements
applicable to group health plans under the ACA Claims and Appeals Final
Rule. In general, the Department expects that these final regulations
will improve the procedural protections for disabled workers who make
claims for disability benefits from ERISA-covered employee benefit
plans. This will cause some participants to receive benefits that,
absent the fuller protections of the regulation, they might otherwise
have been incorrectly denied. In other circumstances, expenditures in
the claims process incurred by plans may be reduced as a fuller and
fairer system of claims and appeals processing helps facilitate
participant acceptance of cost management efforts. The Department
expects that greater certainty and consistency in the handling of
disability benefit claims and appeals and improved access to
information about the manner in which claims and appeals are
adjudicated will lead to efficiency gains in the system, both in terms
of the allocation of spending at a macro-economic level as well as
operational efficiencies among individual plans. This certainty and
consistency also are expected to benefit, to varying degrees, all
parties within the system and lead to broader social welfare gains,
particularly for disability benefit plan claimants.
The Department expects that these final regulations also will
improve the efficiency of disability benefit plans by improving their
transparency and fostering participants' confidence in their fairness.
The enhanced disclosure and notice requirements contained in these
final regulations will help ensure that benefit participants and
beneficiaries have a clear understanding of the reasons underlying
adverse benefit determinations and their appeal rights.
For example, the final regulations require all adverse benefit
determinations to contain a discussion of the decision, including an
explanation of the basis for disagreeing with the views of a treating
health care professional or vocational professional who evaluated the
claimant or any disability determination regarding the claimant made by
the Social Security Administration and presented to the plan by the
claimant. This provision would address the confusion often experienced
by claimants when there is little or no explanation provided for their
plan's determination and/or their plan's determination is contrary to
their treating professional's opinion or their SSA award of disability
benefits.
The final rule also requires adverse benefit determinations to
contain the internal rules, guidelines, protocols, standards or other
similar criteria of the plan that were relied upon in denying the claim
(or a statement that these do not exist), and a notice of adverse
benefit determination at the claims stage must contain a statement that
the claimant is entitled to receive, upon request and free of charge,
reasonable access to, and copies of, all documents, records, and other
information relevant to the claimant's benefit claim. These provisions
will benefit claimants by ensuring that they fully understand the
reasons why their claim was denied so they are able to meaningfully
evaluate the merits of pursuing an appeal or litigation.
The requirement to include a discussion of the decision, as well as
the requirement to include specific internal rules, guideline,
protocols, standards, or similar criteria relied upon by the plan will
improve the accuracy of claims determinations. The process of
documenting and explaining the reasoning of the decision will help
ensure that plans' terms are followed and accurate information is used,
and will enable plan participants to challenge inadequate or faulty
evidence or reasoning.
Under the final rule, adverse benefit determinations must be
provided in a culturally and linguistically appropriate manner for
certain participants and beneficiaries that are not fluent in
[[Page 92334]]
English. Specifically, if a claimant's address is in a county where 10
percent or more of the population residing in that county, as
determined based on American Community Survey (ACS) data published by
the United States Census Bureau, are literate only in the same non-
English language, notices of adverse benefit determinations to the
claimant would have to include a prominent one-sentence statement in
the relevant non-English language about the availability of language
services. This provision will ensure that certain disability claimants
that are not fluent in English understand the notices received from the
plan regarding their disability claims and their right to appeal denied
claims.
These important protections would benefit participants and
beneficiaries by correcting procedural wrongs evidenced in the
litigation even predating the ACA.
The voluntary nature of the employment-based benefit system in
conjunction with the open and dynamic character of labor markets make
explicit as well as implicit negotiations on compensation a key
determinant of the prevalence of employee benefits coverage. The
prevalence of benefits is therefore largely dependent on the efficacy
of this exchange. If workers perceive that there is the potential for
inappropriate denial of benefits or handling of appeals, they will
discount the value of such benefits to adjust for this risk. This
discount drives a wedge in compensation negotiation, limiting its
efficiency. If workers undervalue the full benefit of disability
coverage, fewer employers will provide such coverage or fewer
participants will enroll. To the extent that workers perceive that the
final rule, supported by the Department's enforcement authority, will
reduce the risk of inappropriate denials of disability benefits, the
differential between the employers' costs and workers' willingness to
accept wage offsets is minimized.
These final regulations would reduce the likelihood of
inappropriate benefit denials by requiring all disability claims and
appeals to be adjudicated by persons that are independent and
impartial. Specifically, the final rule would prohibit hiring,
compensation, termination, promotion, or other similar decisions with
respect to any individual (such as a claims adjudicator or a medical or
vocational expert) to be made based upon the likelihood that the
individual will support the plan's benefits denial. This will ensure
that all disability benefit plan claims and appeals processes are
adjudicated in a manner designed to ensure the independence and
impartiality of persons involved in making the decisions and enhance
participants' perception that their disability plan's claims and
appeals processes are operated in a fair manner.
As stated above, the final rule requires claimants to have the
right to review and respond to new evidence or rationales developed by
the plan during the pendency of an appeal, as opposed merely to having
a right to such information upon request only after the claim has
already been denied on appeal, as some courts have held under the
Section 503 Regulation. These provisions will benefit claimants by
correcting certain procedural flaws that currently occur when
disability benefit claims are litigated and ensuring that they have a
right to review and respond to new evidence or rationales developed by
the plan during the pendency of the appeal.
In summary, the final rules provide more uniform standards for
handling disability benefit claims and appeals that are comparable to
the rules applicable to group health plans under the ACA Claims and
Appeals Final Rule. These rules will reduce the incidence of
inappropriate denials, averting serious financial hardship and
emotional distress for participants and beneficiaries that are impacted
by a disability. They also would enhance participants' confidence in
the fairness of their plans' claims and appeals processes. Finally, by
improving the transparency and flow of information between plans and
claimants, the final regulations will enhance the efficiency of labor
and insurance markets.
3. Costs and Transfers
The Department has quantified the costs related to the final
regulations' requirements to (1) provide the claimant free of charge
with any new or additional evidence considered, and (2) to providing
notices of adverse benefit determinations in a culturally and
linguistically appropriate manner. These requirements and their
associated costs are discussed below
Provision of new or additional evidence or rationale: As stated
earlier in this preamble, before a plan providing disability benefits
can issue an adverse benefit determination on review on a disability
benefit claim, these final regulations require such plans to provide
the claimant, free of charge, with any new or additional evidence
considered, relied upon, or generated by (or at the direction of) the
plan or any new or additional rationale upon which the adverse
determination is based as soon as possible and sufficiently in advance
of the date the notice of adverse benefit determination on review is
required to be provided. This requirement may increase the
administrative burden on plans to prepare and deliver the enhanced
information to claimants. The Department is not aware of a data source
substantiating how often plans rely on new or additional evidence or
rationale during the appeals process or the volume of materials that
comprise the new evidence or rationale. Based on comments and
discussions with the regulated community, the Department understands
that few plans base adverse benefit determinations on appeal on new
evidence or rationales. The Department also understands that the most
critical new information relied on by plans when issuing adverse
benefit determinations on review are new independent medical reports,
and that at least some plans and insurers have a practice of providing
claimants with rights to a voluntary additional level of appeal to
respond to the new independent medical report if they disagree with its
findings.
These final rules further require adverse benefit determinations on
review for disability benefit plans to include a description of any
contractual limitations period, including the date by which the
claimant must bring a lawsuit. In the regulatory impact analysis for
the proposal, the Department estimated these costs by assuming that
compliance will require medical office staff, or other similar staff
for another service provider with a labor rate of $30, five minutes
\35\ to collect and distribute the additional evidence or rationale
considered, relied upon, or generated by (or at the direction of) the
plan during the appeals process. Additionally, including a description
of any contractual limitations period, including the date by which the
claimant must bring a lawsuit would have minimal additional burden as
plans already maintain such information in the ordinary course of their
claims administration process and would just need to add it to the
notice.
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\35\ For a description of the Department's methodology for
calculating wage rates, see https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-august-2016.pdf.
---------------------------------------------------------------------------
One commenter questioned the Department's assumption asserting that
it does not account for time to identify the additional or new
information or rationale and for staff to respond. Commenters also
asserted that providing the information will trigger a response by the
claimant to which they
[[Page 92335]]
will have to respond. The commenter provided no alternative estimates
or data supporting their assertions that the Department could use to
revise its cost estimate.
In the absence of such data, the Department disagrees with the
comments. While some effort is required to provide claimants with the
new information or rationale, the Department does not find the
commenters' assertion of significant burden to be credible. As part of
its customary and usual business practices, the insurer or TPA should
have an existing system in place to track any new information or
rationale it relies on in making an adverse benefit determination in
order to identify, document, and evaluate the information during its
claim adjudication process. The Department acknowledges, however, that
an average of five minutes may be inadequate time to collect the
information and provide it to the claimants; therefore, it has
increased the estimate to an average of 30 minutes, which should
provide a reasonable amount of time to perform this task.
The Department also agrees that making the new or additional
information or rationale available to the claimant may trigger a
response from the claimant. However, the Department does not have
sufficient data to estimate the number of claimants that will respond
with information that the insurer or TPA will need to evaluate or how
much time will be required to evaluate the information. Moreover, the
Department's consultations with EBSA field investigators that
investigate disability plan issues indicate that many disability plans
already allow claimants to respond to the new information or rationale
in a back-and-forth process. The requirement imposes no new costs on
these plans, insurers, and TPAs. The requirement does impose an
additional burden on plans that do not allow claimants to respond to
the new information or rationale, but the Department does not have
sufficient data to estimate the increased costs. One industry commenter
agreed that that it would be difficult to estimate the burden
associated with responding to claimants.
Commenters also raised concern regarding a potentially endless
cycle of appeals, responses, and reconsiderations that would extend the
claim determination process and substantially increase costs. As
discussed elsewhere in the preamble, the Department also does not find
this claim to be credible. The requirement only requires action if the
insurer or TPA produces new or additional information or rationale
after reviewing the new information submitted by the claimant, not if
it just evaluates the information submitted by the claimant, and the
Department's consultations with its investigators indicated that this
occurs infrequently.
Additionally, while a plan fiduciary has a responsibility to ensure
the accurate evaluation of all claims, that responsibility does not
require the fiduciary to rebut every piece of evidence submitted or
seek to deny every claim. Indeed, an endless effort to rebut every
piece of evidence submitted by the claimant would call into question
whether the fiduciary was impartially resolving claims as required by
the duties of prudence and loyalty.
Furthermore, the Department has interpreted ERISA section 503 and
the current Section 503 Regulation as already requiring that plans
provide claimants with new or additional evidence or rationales upon
request and an opportunity to respond in certain circumstances. See
Brief of the Secretary of Labor, Hilda L. Solis, as Amicus Curiae in
Support of Plaintiff-Appellant's Petition for Rehearing, Midgett v.
Washington Group Int'l Long Term Disability Plan, 561 F.3d 887 (8th
Cir. 2009) (No. 08-2523), (expressing disagreement with cases holding
that there is no such requirement). The supposed ``endless loop'' is
necessarily limited by claimants' ability to generate new evidence
requiring further review by the plan. Such submissions ordinarily
become repetitive in short order, and are further circumscribed by the
limited financial resources of most claimants.
For purposes of this regulatory impact analysis, the Department
assumes, as an upper bound, that all appealed claims will involve a
reliance on additional evidence or rationale. Based on that assumption,
the Department assumes that this requirement will impose an annual
aggregate cost of $14.5 million. The Department estimates this cost by
assuming that compliance will require medical office staff, or another
service providers' similar staff with a labor rate of $42.08, thirty
minutes \36\ to collect and distribute the additional evidence
considered, relied upon, or generated by (or at the direction of) the
plan during the appeals process. The Department estimates that on
average, material, printing and postage costs will total $2.15 per
mailing (20 pages * 0.05 cents per copy + $1.15 postage). The
Department further assumes that 30 percent of all mailings will be
distributed electronically with no associated material, printing or
postage costs.\37\
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\36\ For a description of the Department's methodology for
calculating wage rates, see https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-august-2016.pdf.
\37\ Commenters disagreed in general with the estimates of the
burden for providing the notice in a culturally and linguistically
appropriate manner. Their concern was that most notices would be
delivered on paper and not electronically. While one commenter did
not provide any supporting evidence for this assertion, another
commenter reported that a large company's past experience was that
30 percent of the claims filed under its disability plan were
electronic. For purposes of this regulatory impact analysis, the
Department accepted the suggestion posited in the comment that a
significant percentage of disability benefit claimants are at home
without access to an electronic means of communication at work that
is required by the Department's electronic disclosure rule.
Therefore, the Department assumes that a higher percentage of
notices will be transmitted via mail even though data was provided
only for a single company.
---------------------------------------------------------------------------
The Department does not have sufficient data on the number of
disability claims that are filed or denied. Therefore, the Department
estimates the number of short- and long-term disability claims based on
the percentage of private sector employees (122 million) \38\ that
participate in short- and long-term disability programs (approximately
39 and 33 percent respectively).\39\ The Department estimates the
number of claims per covered life for long-term disability benefits
based on the percentage of covered individuals that file claims under
the Social Security Disability Insurance Program (SSDI) (two percent of
covered individuals). The Department notes that SSDI uses a standard
for disability determinations that is stricter than the standard used
in many long-term disability plans offered by private employers.
However, the number of claims filed with the SSDI is an acceptable
proxy as most employer plans require claimants to file with the SSDI as
a condition of receiving benefits from the plan as they offset the
benefits paid by plan with the amount received from SSDI.
---------------------------------------------------------------------------
\38\ BLS Employment, Hours, and Earnings from the Current
Employment Statistics survey (National) Table B-1, May 2016. It
should be noted that this estimate differs from the estimates from
the Form 5500 reported in the affected entities section. The Form
55000 numbers only include large plans, and some filings could
combine estimates for both short and long term disability.
\39\ ``Beyond the Numbers: Disability Insurance Plans Trends in
Employee Access and Employer Cost,'' February 2015 Vol. 4 No. 4.
http://www.bls.gov/opub/btn/volume-4/disability-insurance-plans.htm.
---------------------------------------------------------------------------
The Department does not have sufficient data to estimate the
percentage of covered individuals that file short-term disability
claims. Therefore, for purposes of this analysis, the Department
estimates, as it did in
[[Page 92336]]
the proposal, that six percent of covered lives file such claims,
because it believes that short-term disability claims rates are higher
than long-term disability claim rates. The Department received no
comments regarding this assumption.
The Department estimates the number of denied claims that would be
covered by the rule in the following manner: For long-term disability,
the percent of claims denied is estimated using the percent of denied
claims for the SSDI Program (75 percent). This estimate may overstate
the denial rates for ERISA-covered long-term disability plans, because
as discussed above, many plans require claimants to file for SSDI
benefits as a requirement to receive benefits from their plan. Plans
often have a lower benefit determination standard, at least initially,
than the SSDI Program resulting in less denied claims. Therefore, using
the SSDI denied claims rate as a proxy for the ERISA-covered plan
claims denial rate may overstate the number of private long-term
disability plan denied claims. For short-term disability, the estimate
of denied claims (three percent) is an assumption based on previous
regulations and feedback. The estimates are provided in the table
below.
Table 2--Fair and Full Review Burden
[In thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Short-term Long-term Total
------------------------------------------------------------------------------------------
Electronic Paper Electronic Paper Electronic Paper All
--------------------------------------------------------------------------------------------------------------------------------------------------------
Denied Claims and lost Appeals with Additional Information... 26 60 168 391 193 451 644
Mailing cost per event....................................... $0.00 $2.15 $0.00 $2.15 $0.00 $2.15 ...........
------------------------------------------------------------------------------------------
Total Mailing Cost....................................... $0.00 $129 $0.00 $841 $0.00 $969 $969
Preparation Cost per event................................... $21.04 $21.04 $21.04 $21.04 $21.04 $21.04 $21.04
Total Preparation cost....................................... $540 $1,260 $3,526 $8,227 $4,066 $9,487 $13,553
------------------------------------------------------------------------------------------
Total.................................................... $540 $1,388 $3,526 $9,068 $4,066 $10,456 $14,522
--------------------------------------------------------------------------------------------------------------------------------------------------------
Adverse benefit determinations on disability benefit claims would
have to contain a discussion of the decision, including the basis for
disagreeing with SSA Disability Determination and Views of Treating
Physician: Commenters on the proposal noted that costs were not
quantified for the added burden of including in the benefit
determination a discussion of why the plan did not follow the
determination of the SSA or views of health care professionals that
treated the claimant. Commenters did not provide data or information
that would provide the Department with sufficient data to quantify such
costs. Thus, while the Department agrees that there could be added
burden imposed on plans to provide this discussion in adverse benefit
determinations, the Department is unable to estimate the burden because
it does not have sufficient data on the number or percent of claims
that would need to contain this discussion.
Departmental investigators reviewing disability claims report that
if the plan deviates from an attending physician's recommendation, a
review is conducted by a supervisor, nurse, medical director or a
consultant. This additional review usually generates documentation in
the claim file. While this documentation may not be adequate in its
current form to satisfy the requirement, the incremental costs to
comply could be small, because it appears that deviations from
physician's recommendations are documented currently. Plans or insurers
may still need to prepare a response using the already available
information. The Department does not know how many claim determinations
would require this discussion. The average hourly labor rate of a nurse
is $46.02 and that of a physician is $157.80, and the Department
estimates that preparing a report with information already available
should not take more than one hour.
Adverse benefit determination would have to contain the internal
rules, guidelines, protocols, standards, or other similar criteria of
the plan used in denying the claim. The Department believes that this
requirement will have minimal costs. In the process of determining a
claim, plans will know, or should know, the internal rules, guidelines
or protocols that were used to make a benefit determination. A
commenter was concerned about the time and costs that would be required
to comb through hundreds of pages of a claim manual to determine that
no provision has any conceivable application to a particular claim in
order to substantiate this requirement. The Department believes that
neither the proposal nor the final rule requires this type of costly
and time consuming process. The rule requires only the inclusion of
those items that were relied upon and that should already be documented
in the claim file at the time it was used to make a determination.
A notice of adverse benefit determination at the claims stage would
have to contain a statement that the claimant is entitled to receive
relevant documents upon request. The Department believes that this
requirement will have a negligible cost impact, because an
insignificant amount of time will be required to add the statement to
the notice. Although the current claims procedure regulation provides
claimants with the right to request relevant documents when challenging
an initial claims denial, a statement was required to be included only
in notices of adverse benefit determinations on appeal. Including the
statement in the initial denial notice as required by the final rule,
in the Department's view, merely confirms claimants' rights under the
current claims procedure regulation and will help ensure that they
understand their right to receive such information to help them
understand the reasons for the denial and to make informed decisions
regarding whether and how they challenge a denial on appeal. The
Department acknowledges that it is likely that more claimants will
request this information when they are informed of their right to
receive it; however, the Department does not have sufficient data to
estimate the number of requests that will be made.
Culturally and Linguistically Appropriate Notices: The final
regulations require notices of adverse benefit determinations with
respect to disability benefits to be provided in a culturally and
linguistically appropriate manner in certain situations. This
requirement is satisfied if plans provide oral language services
including
[[Page 92337]]
answering questions and providing assistance with filing claims and
appeals in any applicable non-English language. The final regulations
also require each notice sent by a plan to which the requirement
applies to include a one-sentence statement in the relevant non-English
language that translation services are available. The Department
believes that this requirement will have a negligible cost impact.
Plans also must provide, upon request, a notice in any applicable non-
English language.
Although, one commenter reported that oral translation services are
not provided by plans, the Department's conversations with the
regulated community indicate that oral translation services generally
are offered as a standard service. Based on this information, the
Department assumes that only a small number of plans will need to begin
offering oral translation services for the first time upon the issuance
of the final rule. Therefore, the Department assumes that this
requirement will impose minimal additional costs.
The Department expects that the largest cost associated with the
requirement is for plans to provide notices in the applicable non-
English language upon request. Based on 2014 ACS data, the Department
estimates that there are about 22.7 million individuals living in
covered counties that are literate only in a covered non-English
Language.\40\ To estimate the number of these individuals that might
request a notice in a non-English language, the Department estimated
the number of workers in each county (total population in county *
state labor force participation rate * (1--state unemployment rate))
41 42 and calculated the number with access to short-term
and long-term disability insurance by multiplying those estimates by
the estimates of the share of workers participating in disability
benefit programs (39 percent for short-term and 33 percent for long
term disability.) \43\ It should be noted that the sums in the right
two columns are all workers in the county with disability insurance,
not just workers with disability insurance that are eligible to receive
notices in the applicable non-English language, because the calculation
for the number of requests for translation is based on workers with
insurance.
---------------------------------------------------------------------------
\40\ http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-CLAS-County-Data.pdf.
\41\ Labor force Participation rate: http://www.bls.gov/lau/staadata.txt. Unemployment rate: http://www.bls.gov/lau/lastrk14.htm.
\42\ Please note that using state estimates of labor
participation rates and unemployment rates could lead to an over
estimate as those reporting in the ACS survey that they speak
English less than ``very well'' are less likely to be employed.
Also, this estimate includes both private and public workers,
instead of just private workers leading to an overestimate of the
costs.
\43\ ``Beyond the Numbers: Disability Insurance Plans Trends in
Employee Access and Employer Cost,'' February 2015 Vol. 4 No. 4.
http://www.bls.gov/opub/btn/volume-4/disability-insurance-plans.htm.
Table 3--Workers in Affected Counties by State
--------------------------------------------------------------------------------------------------------------------------------------------------------
State labor
Total effected force State Workers with Workers with
Pop in the foreign participation unemployment short-term long-term
county language pop rate (2015) rate (2015) disability disability
in county (%) (%) coverage coverage
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama................................................. 29,519 3,979 56 6 6,097 5,159
Alaska.................................................. 8,634 2,677 67.1 6.5 2,113 1,788
Arizona................................................. 296,362 160,492 59.8 6.1 64,901 54,917
Arkansas................................................ 15,864 4,598 57.9 5.2 3,396 2,874
California.............................................. 26,248,619 8,845,211 62.2 6.2 5,972,612 5,053,748
Colorado................................................ 513,177 122,183 66.7 3.9 128,287 108,550
Florida................................................. 3,166,261 1,785,759 59.3 5.4 692,719 586,147
Georgia................................................. 284,282 72,578 61.3 5.9 63,953 54,114
Idaho................................................... 87,012 21,145 63.9 4.1 20,795 17,596
Illinois................................................ 484,509 126,443 64.7 5.9 115,043 97,344
Iowa.................................................... 35,029 7,861 69.9 3.7 9,196 7,781
Kansas.................................................. 254,997 72,446 67.9 4.2 64,690 54,737
Missouri................................................ 6,170 919 65.6 5.0 1,500 1,269
Nebraska................................................ 106,532 26,134 70.1 3.0 28,251 23,905
Nevada.................................................. 1,869,086 431,029 63.2 6.7 429,826 363,699
New Jersey.............................................. 1,736,310 563,516 64.1 5.6 409,753 346,714
New Mexico.............................................. 512,864 218,554 57.2 6.6 106,859 90,419
New York................................................ 4,983,647 1,472,029 61.1 5.3 1,124,613 951,596
North Carolina.......................................... 55,317 10,260 61.2 5.7 12,450 10,535
Oklahoma................................................ 23,150 7,325 61.9 4.2 5,354 4,530
Oregon.................................................. 31,532 8,897 61.1 5.7 7,085 5,995
Texas................................................... 12,541,167 5,304,121 63.7 4.5 2,975,400 2,517,646
Virginia................................................ 50,989 15,060 65.2 4.4 12,395 10,488
Washington.............................................. 437,583 164,140 63.0 5.7 101,386 85,788
Puerto Rico............................................. 3,433,930 3,252,314 39.8 11.2 473,317 400,499
-----------------------------------------------------------------------------------------------
Total............................................... 57,212,542 22,699,670 .............. .............. 12,825,893 10,852,679
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Department's discussions with the regulated community indicate
that in California, which has a State law requirement for providing
translation services for health benefit claims, requests for
translations of written documents averages 0.098 requests per 1,000
members (note that requirement applies to all members not just foreign
language speaking) for health claims. While the requirements of
California differ from those contained in these final regulations and
the demographics for California do not match those of covered counties,
for purposes of this
[[Page 92338]]
analysis, the Department used this percentage to estimate the number of
translation service requests that plans could expect to receive. The
Department believes that this estimate significantly overstates the
number of translation requests that will be received, because there are
fewer disability claims than health claims. Industry experts also told
the Department that while the cost of translation services varies, $500
per document is a reasonable approximation of translation cost, and the
Department used this amount in its cost estimate for the final rule.
This number was provided to the Department in 2010; therefore, for
purposes of this analysis, the Department has adjusted this amount to
$553 to account for inflation.\44\
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\44\ The 2010 and 2016 GDP Deflator was 100.056 in 2010 and
110.714 in 2016. The adjustment is $500 * (110.714/100.056) = $553.
https://fred.stlouisfed.org/series/GNPDEF.
---------------------------------------------------------------------------
Based on the foregoing, the Department estimates that the cost to
provide translation services pursuant to the final rule will be
approximately $1,283,840 annually (23,678,572 lives * 0.098/1000 *
$553).
Commenters questioned the data the Department used in the
regulatory impact analysis for the proposed rule to estimate the costs
incurred by TPAs and insurers to provide culturally and linguistically
appropriate notices. One commenter questioned whether the $500 per
document translation cost accurately reflects the costs to comply with
this provision. The commenter, however, failed to explain its rationale
or provide any alternative information the Department could use to
refine its estimate.
Another commenter questioned whether it was valid to rely on cost
estimates to translate a notice into a non-English language based on
data used by the Department to quantify the costs of complying with the
a similar ACA requirement for group health plans. The Department
believes that its experience with ACA group health plan claims and
appeals regulations is directly applicable to this final regulation
regarding disability claims and appeals. Contrary to the commenter's
assertion that disability claims are so different from health claims
that information about one cannot inform the other, the Department
believes that translation of a notice into a different language is very
similar for health and disability benefits, particularly as the same
translation companies offer services for both types of notices. Also,
while commenters argue that disability claims files are much larger
than medical claim files, the distinction is not relevant here, because
the claim file is not required to be translated; only the notice is.
Another comment received was that there would be additional costs
due to privacy issues arising from sharing personal information with a
third-party. The same privacy issues arise in the health claims
context. Pricing for translation services used in the analysis,
therefore already have the costs for privacy issues built into the
estimates.
The Department did not have sufficient data to quantify other costs
associated with the final rule; and therefore, has provided a
qualitative discussion of these costs below and a response to cost-
related comments received in response to the regulatory impact analysis
for the proposed regulation.
Independence and Impartiality-Avoiding Conflicts of Interest: The
Department's claims and appeals regulation required certain standards
of independence for persons making claims decisions before the final
rules were issued. These final rules add new criteria for avoiding
conflicts that require plans providing disability benefits to 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 decisions.'' Also decisions regarding
hiring, compensation, termination, promotion, or other similar matters
must not be made based on the likelihood that the individual will
support the denial of benefits.
These requirements provide protections to claimants by ensuring
that their claims are processed impartially and already are considered
best practice by many plan administrators who comply with this
standard. Some plans and insurers may need to evaluate their policies
and procedures to ensure they are compliant with this this requirement.
The Department did not have sufficient data to quantify the costs of
these requirements.
One commenter, who supported applying independence and impartiality
requirements, expressed concern about a statement in the preamble to
the proposed rule where the Department explained, as an example, that a
plan cannot contract with a medical expert based on the expert's
reputation for outcomes in contested cases rather than based on the
expert's professional qualifications. The commenter expressed concern
that the statement in the preamble might result in claimants requesting
statistics and other information on cases in which the medical expert
expressed opinions in support of denying versus granting a disability
benefit claims.
In the Department's view, the preamble statement is an accurate
example of one way that the independence and impartiality standard
would be violated, and, accordingly, does not believe it would be
appropriate to disclaim or caveat the statement in the final rule. That
said, the independence and impartiality requirements in the rule do not
modify the scope of what would be ``relevant documents'' subject to the
disclosure requirements in paragraphs (g)(1)(vii)(C) and (h)(2)(iii) of
the Section 503 Regulation, as amended by this rule. Nor does the rule
prescribe limits on the extent to which information about consulting
experts would be discoverable in a court proceeding as part of an
evaluation of the extent to which the claims administrator or insurer
was acting under a conflict of interest that should be considered in
evaluating an adverse benefit determination. Thus, the Department
acknowledges that plans may incur costs to respond to claimants'
requests for statistics and other information described by the
commenter. However, the commenter provided no evidence or data to
support their assertion and did not quantify the additional cost, thus
the Department does not have sufficient data to quantify such costs.
Deemed Exhaustion of Claims and Appeals Process: The final rule
tracks the proposal and provides that if a plan fails to adhere to all
the requirements in the claims procedure regulation, the claimant would
be deemed to have exhausted administrative remedies, with a limited
exception where the violation was (i) de minimis; (ii) non-prejudicial;
(iii) attributable to good cause or matters beyond the plan's control;
(iv) in the context of an ongoing good-faith exchange of information;
and (v) not reflective of a pattern or practice of non-compliance.
Litigation costs are the primary cost related to this requirement,
because claimants may proceed directly to court after a deemed
exhaustion. Pursing litigation is more expensive than the plan appeals
process, however, it may be the only option claimants have available to
obtain denied benefits. Deemed exhaustion is available for the
situations when plans are not following the procedural rules of the
regulation. At times it may still be in a claimant's best interest to
pursue an appeal inside the plan due to cost and time to resolve issues
instead of using the court system. Commenters raised a concern the
[[Page 92339]]
claimants would be hurt by the higher costs and delay in obtaining a
resolution if they sought resolution through litigation. However, this
provision allows claimants to decide if the added costs and time of
litigation are offset by the cost to them of remaining in an appeals
process that is in violation of the procedural rules.
Some commenters maintained that their liability exposure increases
when claimants' ability to go to court is enhanced. These commenters
expressed concern about the expense of discovery to even determine if
the procedural requirements have not been followed and asserted that
claimants will allege that plans have violated their procedures and go
to court to force a settlement.
While all of these scenarios are possible, the Department does not
know of, nor did commenters provide, any data or information that would
even be suggestive of, the frequency of these events, or the added
expense resulting from their occurrence. The Department is not aware of
systematic abuses or complaints of abuse with respect to a similar
deemed exhaustion requirement contained in the ACA and the Departments'
implementing regulation at 29 CFR 2590.715.2719. Thus, the Department
believes these occurrences will be infrequent.
Covered Rescissions-Adverse Benefit Determinations: The final rule
adds a new provision to address coverage rescissions. Specifically, the
2000 regulation already covered a rescission if it is the basis, in
whole or in part, of an adverse benefit determination. The final
regulation amends the definition of adverse benefit determination to
include a rescission of disability benefit coverage that has a
retroactive effect, whether or not there is an adverse effect on a
benefit at that time.
The Department understands that this situation occurs infrequently.
When it does occur, plans will incur the cost of providing an appeal of
the rescission. The Department does not have sufficient data to
estimate the cost to review and appeal a rescission of coverage.
However, the Department expects that it would be less than the cost to
appeal other disability benefit denials because medical or vocation
professionals are not needed to review the claim. Instead, the facts of
the coverage situation are required. When a rescission is reversed, the
provision of future benefits would be considered a transfer from the
plan to the claimant whose rescission was reversed.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency determines that a final rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 604 of the RFA requires the agency to present a
final regulatory flexibility analysis (FRFA) of the final rule
describing the rule's impact on small entities and explaining how the
agency made its decisions with respect to the application of the rule
to small entities. Pursuant to section 605(b) of the RFA, the Assistant
Secretary of the Employee Benefits Security Administration hereby
certifies that the final rule will not have a significant economic
impact on a substantial number of small entities. The Department
discusses the impacts of the final rule and the basis for its
certification below.
Need for and Objectives of the Rule: As discussed in section II
above, the final rule will revise and strengthen the current rules
regarding claims and appeals applicable to ERISA-covered plans
providing disability benefits primarily by adopting several of the new
procedural protections and safeguards made applicable to ERISA-covered
group health plans by the Affordable Care Act. Before the enactment of
the Affordable Care Act, group health plan sponsors and sponsors of
ERISA-covered plans providing disability benefits were required to
implement internal claims and appeal processes that complied with the
Section 503 Regulation. The enactment of the Affordable Care Act and
the issuance of the implementing interim final regulations resulted in
disability plan claimants receiving fewer procedural protections than
group health plan participants even though litigation regarding
disability benefit claims is prevalent today.
The Department believes this action is necessary to ensure that
disability claimants receive the same protections that Congress and the
President established for group health care claimants under the
Affordable Care Act. This will result in some participants receiving
benefits they might otherwise have been incorrectly denied in the
absence of the fuller protections provided by the final regulation.
This will help alleviate the financial and emotional hardship suffered
by many individuals when they lose earnings due to their becoming
disabled.
Affected Small Entities: The Department does not have complete data
on the number of plans providing disability benefits or the total
number of participants covered by such plans. ERISA-covered welfare
benefit plans with more than 100 participants generally are required to
file a Form 5500. Only some ERISA-covered welfare benefit plans with
less than 100 participants are required to file for various reasons,
but this number is very small. Based on current trends in the
establishment of pension and health plans, there are many more small
plans than large plans, but the majority of participants are covered by
the large plans.
Data from the 2014 Form 5500 Schedule A indicates that there are
39,135 plans reporting a code indicating they provide temporary
disability benefits covering 40.1 million participants, and 26,171
plans reporting a code indicating they provide long-term disability
benefits covering 22.4 million participants. To put the number of large
and small plans in perspective, the Department estimates that there are
150,000 large group health plans and 2.1 million small group health
plans using 2016 Medical Expenditure Panel Survey-Insurance Component.
Impact of the Rule: The Department has quantified some of the costs
associated with these final regulations' requirements to (1) provide
the claimant free of charge with any new or additional evidence
considered, and (2) to providing notices of adverse benefit
determinations in a culturally and linguistically appropriate manner.
These requirements and their associated costs are discussed in the
Costs and Transfers section above. Additionally other costs are
qualitatively discussed in the Costs section. Comments addressing the
burden of the regulations were received and are discussed above as
well.
Provision of new or additional evidence or rationale: As stated
earlier in this preamble, before a plan can issue a notice of adverse
benefit determination on review, the final rule requires plans to
provide disability benefit claimants, free of charge, with any new or
additional evidence considered, relied upon, or generated by (or at the
direction of) the plan as soon as possible and sufficiently in advance
of the date the notice of adverse benefit determination on review is
required to be provided and any new or additional
[[Page 92340]]
rationale sufficiently in advance of the due date of the response to an
adverse benefit determination on review.
The Department is not aware of data suggesting how often plans rely
on new or additional evidence or rationale during the appeals process
or the volume of materials that are received. The Department estimated
the cost per claim by assuming that compliance will require medical
office staff, or other similar staff in other service setting with a
labor rate of $30, 30 minutes to collect and distribute the additional
evidence considered, relied upon, or generated by (or at the direction
of) the plan during the appeals process. The Department estimates that
on average, material, printing and postage costs will total $2.50 per
mailing. The Department further assumes that 30 percent of all mailings
will be distributed electronically with no associated material,
printing or postage costs.
Providing Notices in a Culturally and Linguistically Appropriate
Manner: The final rule would require notices of adverse benefit
determinations with respect to disability benefits to be provided in a
culturally and linguistically appropriate manner in certain situations.
This requirement is satisfied if plans provide oral language services
including answering questions and providing assistance with filing
claims and appeals in any applicable non-English language. The final
rule also requires such notices of adverse benefit determinations sent
by a plan to which the requirement applies to include a one-sentence
statement in the relevant non-English language about the availability
of language services. Plans also must provide, upon request, such
notices of adverse benefit determinations in the applicable non-English
language.
The Department expects that the largest cost associated with the
requirement for culturally and linguistically appropriate notices will
be for plans to provide notices in the applicable non-English language
upon request. Industry experts also told the Department that while the
cost of translation services varies, $553 per document is a reasonable
approximation of translation cost.
In discussions with the regulated community, the Department found
that experience in California, which has a State law requirement for
providing translation services, indicates that requests for
translations of written documents averages 0.098 requests per 1,000
members for health claims. While the California law is not identical to
the final rule, and the demographics for California do not match other
counties, for purposes of this analysis, the Department used this
percentage to estimate of the number of translation service requests
plans could expect to receive. Based on the low number of requests per
claim, the Department expects that translation costs would be included
as part of a package of services offered to a plan, and that the costs
of actual requests will be spread across multiple plans.
Duplication, Overlap, and Conflict With Other Rules and
Regulations: The Department does not believe that the final rule will
conflict with any relevant regulations, federal or other.
D. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the Department submitted an
information collection request (ICR) to OMB regarding the ICRs
contained in the final rule in accordance with 44 U.S.C. 3507(d), for
OMB's review. OMB approved the ICR under OMB Control Number 1210-0053,
which currently is scheduled to expire on November 30, 2019.
As discussed earlier in this preamble, the Department's final
amendments to its claims and appeals procedure regulation would revise
and strengthen the current rules regarding claims and appeals
applicable to ERISA-covered plans providing disability benefits
primarily by adopting several of the procedural protections and
safeguards made applicable to ERISA-covered group health plans by the
ACA. Some of these amendments revise disclosure requirements under the
current rule that are information collections covered by the PRA. For
example, benefit denial notices must contain a full discussion of why
the plan denied the claim, and to the extent the plan did not follow or
agree with the views presented by the claimant to the plan or health
care professional treating the claimant or vocational professionals who
evaluated the claimant, or a disability determination regarding the
claimant presented by the claimant to the plan made by the SSA, the
discussion must include an explanation of the basis for disagreeing
with the views or disability determination. The notices also must
include either (1) the specific internal rules, guidelines, protocols,
standards or other similar criteria of the plan relied upon in making
the adverse determination or, alternatively, or (2) a statement that
such rules, guidelines, protocols, standards or other similar criteria
of the plan do not exist.
A copy of the ICR may be obtained by contacting the PRA addressee
shown below or at http://www.RegInfo.gov. PRA ADDRESSEE: G. Christopher
Cosby, Office of Policy and Research, U.S. Department of Labor,
Employee Benefits Security Administration, 200 Constitution Avenue NW.,
Room N- 5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax:
(202) 219-4745. These are not toll-free numbers.
After the implementation of the ACA claims regulations, disability
plans claimants received fewer procedural protections than group health
plan participants even though disability plan claimants experience more
issues with the claims review process. These final regulations will
reduce the inconsistent procedural rules applied to health and
disability benefit plan claims and provide similar procedural
protections to claimants of both types of plans.
The burdens associated with the regulatory requirements of the ICRs
contained in the final rule are summarized below.
Type of Review: Revised collection.
Agencies: Employee Benefits Security Administration, Department of
Labor.
Title: ERISA Claims Procedures.
OMB Number: 1210-0053.
Affected Public: Business or other for-profit; not-for-profit
institutions.
Total Respondents: 5,808,000.
Total Responses: 311,790,000.
Frequency of Response: Occasionally.
Estimated Total Annual Burden Hours: 516,000.
Estimated Total Annual Burden Cost: $814,450,000.
IV. Congressional Review Act
The final rule is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the
Comptroller General for review. The final rule is not a ``major rule''
as that term is defined in 5 U.S.C. 804, because it is not likely to
result in an annual effect on the economy of $100 million or more.
V. Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1501 et seq.), as well as Executive Order 12875, this final rule does
not include any federal mandate that may result in expenditures by
state, local, or tribal governments, or the private sector, which may
impose an annual burden of $100 million or more (as adjusted for
inflation).
VI. Federalism Statement
Executive Order 13132 outlines fundamental principles of
federalism,
[[Page 92341]]
and requires the adherence to specific criteria by Federal agencies in
the process of their formulation and implementation of policies that
have ``substantial direct effects'' on the States, the relationship
between the national government and States, or on the distribution of
power and responsibilities among the various levels of government.
Federal agencies promulgating regulations that have federalism
implications must consult with State and local officials and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the final regulation.
In the Department of Labor's view, these final regulations have
federalism implications because they would have direct effects on the
States, the relationship between the national government and the
States, or on the distribution of power and responsibilities among
various levels of government to the extent states have enacted laws
affecting disability plan claims and appeals that contain similar
requirements to the final rule. The Department believes these effects
are limited, because although section 514 of ERISA supersedes State
laws to the extent they relate to any covered employee benefit plan, it
preserves State laws that regulate insurance, banking, or securities.
In compliance with the requirement of Executive Order 13132 that
agencies examine closely any policies that may have federalism
implications or limit the policy making discretion of the States, the
Department solicited input from affected States, including the National
Association of Insurance Commissioners and State insurance officials,
regarding this assessment at the proposed rule stage but did not
receive any comments.
List of Subjects in 29 CFR Part 2560
Claims, Employee benefit plans.
For the reasons stated in the preamble, the Department of Labor
amends 29 CFR part 2560 as set forth below:
PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT
0
1. The authority citation for part 2560 is revised to read as follows:
Authority: 29 U.S.C. 1132, 1135, and Secretary of Labor's Order
1-2011, 77 FR 1088 (Jan. 9, 2012). Section 2560.503-1 also issued
under 29 U.S.C. 1133. Section 2560.502c-7 also issued under 29
U.S.C. 1132(c)(7). Section 2560.502c-4 also issued under 29 U.S.C.
1132(c)(4). Section 2560.502c-8 also issued under 29 U.S.C.
1132(c)(8).
0
2. Section 2560.503-1 is amended by:
0
a. Adding paragraph (b)(7).
0
b. Revising paragraph (g)(1)(v).
0
c. Adding paragraphs (g)(1)(vii) and (viii).
0
d. Revising paragraphs (h)(4) and (i)(3)(i).
0
e. Revising paragraphs (j)(4) and (j)(5) introductory text.
0
f. Adding paragraphs (j)(6) and (7).
0
g. Revising paragraphs (l) and (m)(4).
0
i. Redesignating paragraph (o) as (p), and adding new paragraph (o).
0
j. Revising newly redesignated paragraph (p).
The revisions and additions read as follows:
Sec. 2560.503-1 Claims procedure.
* * * * *
(b) * * *
(7) In the case of a plan providing disability benefits, the plan
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.
Accordingly, decisions regarding hiring, compensation, termination,
promotion, or other similar matters with respect to any individual
(such as a claims adjudicator or medical or vocational expert) must not
be made based upon the likelihood that the individual will support the
denial of benefits.
* * * * *
(g) * * * (1) * * *
(v) In the case of an adverse benefit determination by a group
health plan--
* * * * *
(vii) In the case of an adverse benefit determination with respect
to disability benefits--
(A) A discussion of the decision, including an explanation of the
basis for disagreeing with or not following:
(i) The views presented by the claimant to the plan of health care
professionals treating the claimant and vocational professionals who
evaluated the claimant;
(ii) The views of medical or vocational experts whose advice was
obtained on behalf of the plan in connection with a claimant's adverse
benefit determination, without regard to whether the advice was relied
upon in making the benefit determination; and
(iii) A disability determination regarding the claimant presented
by the claimant to the plan made by the Social Security Administration;
(B) If the adverse benefit determination is based on a medical
necessity or experimental treatment or similar exclusion or limit,
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;
(C) Either the specific internal rules, guidelines, protocols,
standards or other similar criteria of the plan relied upon in making
the adverse determination or, alternatively, a statement that such
rules, guidelines, protocols, standards or other similar criteria of
the plan do not exist; and
(D) A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all
documents, records, and other information relevant to the claimant's
claim for benefits. Whether a document, record, or other information is
relevant to a claim for benefits shall be determined by reference to
paragraph (m)(8) of this section.
(viii) In the case of an adverse benefit determination with respect
to disability benefits, the notification shall be provided in a
culturally and linguistically appropriate manner (as described in
paragraph (o) of this section).
* * * * *
(h) * * *
(4) Plans providing disability benefits. The claims procedures of a
plan providing disability benefits will not, with respect to claims for
such benefits, be deemed to provide a claimant with a reasonable
opportunity for a full and fair review of a claim and adverse benefit
determination unless, in addition to complying with the requirements of
paragraphs (h)(2)(ii) through (iv) and (h)(3)(i) through (v) of this
section, the claims procedures--
(i) Provide that before the plan can issue an adverse benefit
determination on review on a disability benefit claim, the plan
administrator shall provide the claimant, free of charge, with any new
or additional evidence considered, relied upon, or generated by the
plan, insurer, or other person making the benefit determination (or at
the direction of the plan, insurer or such other person) in connection
with the claim; such evidence must be provided as soon as possible and
sufficiently in advance of the date on which the notice of adverse
benefit determination on review is required to be provided under
paragraph (i) of this section to give the claimant a reasonable
opportunity to respond prior to that date; and
(ii) Provide that, before the plan can issue an adverse benefit
determination on review on a disability benefit claim based on a new or
additional rationale, the plan administrator shall provide the
[[Page 92342]]
claimant, free of charge, with the rationale; the rationale must be
provided as soon as possible and sufficiently in advance of the date on
which the notice of adverse benefit determination on review is required
to be provided under paragraph (i) of this section to give the claimant
a reasonable opportunity to respond prior to that date.
* * * * *
(i) * * *
(3) Disability claims. (i) Except as provided in paragraph
(i)(3)(ii) of this section, claims involving disability benefits
(whether the plan provides for one or two appeals) shall be governed by
paragraph (i)(1)(i) of this section, except that a period of 45 days
shall apply instead of 60 days for purposes of that paragraph.
* * * * *
(j) * * *
(4)(i) A statement describing any voluntary appeal procedures
offered by the plan and the claimant's right to obtain the information
about such procedures described in paragraph (c)(3)(iv) of this
section, and a statement of the claimant's right to bring an action
under section 502(a) of the Act; and,
(ii) In the case of a plan providing disability benefits, in
addition to the information described in paragraph (j)(4)(i) of this
section, the statement of the claimant's right to bring an action under
section 502(a) of the Act shall also describe any applicable
contractual limitations period that applies to the claimant's right to
bring such an action, including the calendar date on which the
contractual limitations period expires for the claim.
(5) In the case of a group health plan--
* * * * *
(6) In the case of an adverse benefit decision with respect to
disability benefits--
(i) A discussion of the decision, including an explanation of the
basis for disagreeing with or not following:
(A) The views presented by the claimant to the plan of health care
professionals treating the claimant and vocational professionals 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 adverse
benefit determination, without regard to whether the advice was relied
upon in making the benefit determination; and
(C) A disability determination regarding the claimant presented by
the claimant to the plan made by the Social Security Administration;
(ii) If the adverse benefit determination is based on a medical
necessity or experimental treatment or similar exclusion or limit,
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 change upon request; and
(iii) Either the specific internal rules, guidelines, protocols,
standards or other similar criteria of the plan relied upon in making
the adverse determination or, alternatively, a statement that such
rules, guidelines, protocols, standards or other similar criteria of
the plan do not exist.
(7) In the case of an adverse benefit determination on review with
respect to a claim for disability benefits, the notification shall be
provided in a culturally and linguistically appropriate manner (as
described in paragraph (o) of this section).
* * * * *
(l) Failure to establish and follow reasonable claims procedures.
(1) In general. Except as provided in paragraph (l)(2) of this section,
in the case of the failure of a plan to establish or follow claims
procedures consistent with the requirements of this section, a claimant
shall be deemed to have exhausted the administrative remedies available
under the plan and shall be entitled to pursue any available remedies
under section 502(a) of the Act on the basis that the plan has failed
to provide a reasonable claims procedure that would yield a decision on
the merits of the claim.
(2) Plans providing disability benefits. (i) In the case of a claim
for disability benefits, if the plan fails to strictly adhere to all
the requirements of this section with respect to a claim, the claimant
is deemed to have exhausted the administrative remedies available under
the plan, except as provided in paragraph (l)(2)(ii) of this section.
Accordingly, the claimant is entitled to pursue any available remedies
under section 502(a) of the Act on the basis that the plan has failed
to provide a reasonable claims procedure that would yield a decision on
the merits of the claim. If a claimant chooses to pursue remedies under
section 502(a) of the Act under such circumstances, the claim or appeal
is deemed denied on review without the exercise of discretion by an
appropriate fiduciary.
(ii) Notwithstanding paragraph (l)(2)(i) of this section, the
administrative remedies available under a plan with respect to claims
for disability benefits will not be deemed exhausted based on de
minimis violations that do not cause, and are not likely to cause,
prejudice or harm to the claimant so long as the plan demonstrates that
the violation was for good cause or due to matters beyond the control
of the plan and that the violation occurred in the context of an
ongoing, good faith exchange of information between the plan and the
claimant. This exception is not available if the violation is part of a
pattern or practice of violations by the plan. The claimant may request
a written explanation of the violation from the plan, and the plan must
provide such explanation within 10 days, including a specific
description of its bases, if any, for asserting that the violation
should not cause the administrative remedies available under the plan
to be deemed exhausted. If a court rejects the claimant's request for
immediate review under paragraph (l)(2)(i) of this section on the basis
that the plan met the standards for the exception under this paragraph
(l)(2)(ii), the claim shall be considered as re-filed on appeal upon
the plan's receipt of the decision of the court. Within a reasonable
time after the receipt of the decision, the plan shall provide the
claimant with notice of the resubmission.
* * * * *
(m) * * *
(4) The term ``adverse benefit determination'' means:
(i) Any of the following: A denial, reduction, or termination of,
or a failure to provide or make payment (in whole or in part) for, a
benefit, including any such denial, reduction, termination, or failure
to provide or make payment that is based on a determination of a
participant's or beneficiary's eligibility to participate in a plan,
and including, with respect to group health plans, a denial, reduction,
or termination of, or a failure to provide or make payment (in whole or
in part) for, a benefit resulting from the application of any
utilization review, as well as a failure to cover an item or service
for which benefits are otherwise provided because it is determined to
be experimental or investigational or not medically necessary or
appropriate; and
(ii) In the case of a plan providing disability benefits, the term
``adverse benefit determination'' also means any rescission of
disability coverage with respect to a participant or beneficiary
(whether or not, in connection with the rescission, there is an adverse
effect on any particular benefit at that time). For this purpose, the
term ``rescission'' means a cancellation or discontinuance
[[Page 92343]]
of coverage that has retroactive effect, except to the extent it is
attributable to a failure to timely pay required premiums or
contributions towards the cost of coverage.
* * * * *
(o) Standards for culturally and linguistically appropriate
notices. A plan is considered to provide relevant notices in a
``culturally and linguistically appropriate manner'' if the plan meets
all the requirements of paragraph (o)(1) of this section with respect
to the applicable non-English languages described in paragraph (o)(2)
of this section.
(1) Requirements. (i) The plan must provide oral language services
(such as a telephone customer assistance hotline) that include
answering questions in any applicable non-English language and
providing assistance with filing claims and appeals in any applicable
non-English language;
(ii) The plan must provide, upon request, a notice in any
applicable non-English language; and
(iii) The plan must include in the English versions of all notices,
a statement prominently displayed in any applicable non-English
language clearly indicating how to access the language services
provided by the plan.
(2) Applicable non-English language. With respect to an address in
any United States county to which a notice is sent, a non-English
language is an applicable non-English language if ten percent or more
of the population residing in the county is literate only in the same
non-English language, as determined in guidance published by the
Secretary.
(p) Applicability dates and temporarily applicable provisions. (1)
Except as provided in paragraphs (p)(2), (p)(3) and (p)(4) 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.
(3) Paragraphs (b)(7), (g)(1)(vii) and (viii), (j)(4)(ii), (j)(6)
and (7), (l)(2), (m)(4)(ii), and (o) of this section shall apply to
claims for disability benefits filed under a plan on or after January
1, 2018, in addition to the other paragraphs in this rule applicable to
such claims.
(4) With respect to claims for disability benefits filed under a
plan from January 18, 2017 through December 31, 2017, this paragraph
(p)(4) shall apply instead of paragraphs (g)(1)(vii), (g)(1)(viii),
(h)(4), (j)(6) and (j)(7).
(i) In the case of a notification of benefit determination and a
notification of benefit determination on review by a plan providing
disability benefits, the notification shall set forth, in a manner
calculated to be understood by the claimant--
(A) If an internal rule, guideline, protocol, or other similar
criterion was relied upon in making the adverse determination, either
the specific rule, guideline, protocol, or other similar criterion; or
a statement that such a rule, guideline, protocol, or other similar
criterion was relied upon in making the adverse determination and that
a copy of such rule, guideline, protocol, or other criterion will be
provided free of charge to the claimant upon request; and
(B) If the adverse benefit determination is based on a medical
necessity or experimental treatment or similar exclusion or limit,
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.
(ii) The claims procedures of a plan providing disability benefits
will not, with respect to claims for such benefits, be deemed to
provide a claimant with a reasonable opportunity for a full and fair
review of a claim and adverse benefit determination unless the claims
procedures comply with the requirements of paragraphs (h)(2)(ii)
through (iv) and (h)(3)(i) through (v) of this section.
Signed at Washington, DC, this 9th day of December, 2016.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2016-30070 Filed 12-16-16; 8:45 am]
BILLING CODE 4510-29-P