PPACA Claims and External Review Guidance Provides More Transition Relief

November 8, 2011

Under PPACA, non-grandfathered health plans are required to (1) update their current internal ERISA claims procedures and (2) provide for an independent external review process.  The purpose of this Alert is to discuss these new requirements and to provide group health plans with action steps for timely compliance.

Earlier this year, interim final regulations (the “2011 Regulations”) were issued under the Patient Protection and Affordable Care Act (“PPACA”).  These regulations update ERISA’s claims procedures and give guidance on the new external review process that health plans must provide.  At the same time, a Technical Release was issued giving additional guidance on claims and appeals and providing models for various related notices required under PPACA.

Some of the new rules are effective for plan years beginning on or after July 1, 2011, while others are not effective until plan years beginning on or after January 1, 2012.  Generally speaking, this means the effective date for full compliance is January 1, 2012 for calendar-year plans.

Note:  The PPACA claims and appeals rules apply only to non-grandfathered group health plans and health insurance companies; they do not apply to grandfathered plans (regardless of whether they are subject to ERISA).
I. Internal ERISA Claims Procedures

ERISA-covered group health plans have always been required to comply with ERISA’s claims procedures.  Those procedures, which must be included in the health plan’s summary plan description, must set forth the deadlines for filing and responding to claims and appeals.  They also require an employer providing notice of an “adverse determination” to describe the reasons for the denial of the claim and to tell the claimant what information might be missing, how to perfect the claim, and how to appeal.

PPACA made a number of changes to ERISA’s claims procedures.  Earlier regulations (the “2010 Regulations”) initially added several new requirements to the existing ERISA claims procedures.  The 2011 Regulations then relaxed or clarified some of those new requirements.  The following is a list of the new requirements as added by the 2010 Regulations.  Where applicable, the changes made by the 2011 Regulations are noted.

  • Rescission is added to definition of “adverse determination.”  ERISA’s definition of “adverse determination” is broadened to include rescission of coverage.  A rescission is a retroactive cancellation or discontinuance of coverage unless it results from a failure to timely pay premiums or contributions toward the cost of coverage.
  • Urgent care claims response time shortened. The time period for responding to a claim involving urgent care is shortened from 72 to 24 hours.

2011 Regulations Update:  The time period has been restored back to 72 hours, provided the plan or insurer defers to the attending physician as to whether a claim requires “urgent care.”

  • New evidence or rationale. Plans are required to provide a claimant with any new or additional evidence considered, relied on, or generated by the plan in connection with the claim. Plans must also provide the rationale behind an adverse determination based on the new evidence. This information must be provided automatically, free of charge, and sufficiently in advance of the date on which the plan must provide notice of its decision on appeal.
  • Conflicts of interest. To ensure the integrity of decisions and avoid conflicts of interest, decisions on hiring, compensation, termination, and promotion cannot be based on the likelihood that an individual will support a claim denial. For example, a plan cannot provide bonuses based on how many denials are made by a claims administrator.
  • Denial notice requirements.

A.  Plans must provide notices to enrollees in a “culturally and linguistically appropriate” manner.  For plans covering fewer than 100 participants, non-English language notices must be provided upon request if 25% or more of the plan participants are literate only in the same non-English language.  For plans covering 100 or more participants, the threshold is the lesser of 500 plan participants or 10% of participants.  Plans that meet these thresholds must also include a statement in the English versions of all notices offering to provide the notice in the non-English language.  Once a request has been made by a claimant to receive a notice in the non-English language, all subsequent notices provided to that claimant must be provided in that language.  If the plan maintains a customer assistance service (such as a telephone hotline) that answers questions about or assists with claims and appeals, this service must provide assistance in the non-English language.

2011 Regulations Update:  A plan must comply with the requirement to provide non-English language notices only if 10% or more of the population in the claimant’s county of residence (as determined by Federal census) is literate in the same non-English language.  The affected counties are listed in the preamble to the 2011 Regulations, and the list will be updated periodically on agency websites.  The English version of claims denial notices to claimants in those counties must include a statement regarding the availability of language services and State consumer insurance assistance in the same non-English language.  And a plan or insurer must provide a customer assistance process (such as a telephone hotline) with oral services in the non-English language to answer questions about and assist with filing claims, appeals, and requests for external review.

The revised model notices for initial and final determinations that were released with the 2011 Regulations include sample statements in the four relevant languages.

B. Any notice of an adverse determination must include information sufficient to identify the claim involved, including the date of service, health care provider, claim amount (if applicable), diagnosis code and its corresponding meaning, and treatment code and its corresponding meaning.

2011 Regulations Update:  Diagnostic and treatment codes do not need to be included in the initial or final notice of adverse determination.  However, claimants must be notified of their right to request the codes and their meanings.

C.  A notice of adverse determination must include not only the reason for the adverse determination, but also the denial code and its corresponding meaning, as well as a description of the plan’s standard (if any) used in denying the claim.  The notice of denial on a final appeal must include a discussion of the decision.

D. A plan must provide a description of available internal appeals procedures and external review processes, including information on how to initiate an appeal.

E. A plan must provide information on how to contact any consumer assistance program established under the Public Health Service Act to assist individuals with the claims process.

  • Deemed exhaustion of internal ERISA claims procedures.  If a plan fails to strictly adhere to all of the requirements of the internal claims procedures, the claimant will be deemed to have exhausted the internal claims process, regardless of whether the plan asserts that it substantially complied with the requirements or that any error committed was de minimis.  Once the internal claims process is deemed to be exhausted, the claim or appeal will be deemed denied and the claimant may immediately initiate an external review or seek judicial review.  In this situation, a court hearing the case should review the plan’s or insurer’s decision on a de novo basis – that is, without deference to the plan’s or insurer’s determination.

2011 Regulations Update:  The “strict adherence” standard has been relaxed.  The following types of minor compliance errors will not result in a “deemed exhaustion”: (1) de minimis, (2) non-prejudicial, (3) beyond the plan’s or insurer’s control or connected to a good cause, (4) made in connection with an ongoing, good-faith exchange of information, and (5) not reflective of a pattern or practice of noncompliance.

II. External Review Process

PPACA requires group health plans to make available a State or Federal external review process.  This requirement applies to all non-grandfathered plans, whether fully insured or self-insured, and involves a review of an adverse determination by an independent third party, who then makes a final and binding decision on the denied claim.

“Binding” has been clarified to mean that the plan or insurer must provide benefits pursuant to the final decision of the external reviewer, regardless of whether the plan or insurer intends to seek judicial review of the decision.

A plan or insurer may voluntarily pay a claim at any time during or after the external review process.

Fully Insured Plans

Insurers of fully insured group health plans are required to comply with a State’s external review process where that process includes at least 16 consumer protections set forth in the National Association of Insurance Commissioners (“NAIC”) Uniform Model Act.  A transition rule permits insurers to use any existing State external review process for plan years or policy years beginning before July 1, 2011.

The 2011 Regulations slightly revise the 16 NAIC minimum consumer protections that must be part of a State external review process.  In addition, the July 1, 2011 deadline for States to comply with the minimum standards is pushed back to December 31, 2011.

The 2011 Regulations introduce temporary “NAIC-similar” standards that may be followed in States that do not yet have a compliant external review process.  These temporary standards can be relied on until January 1, 2014.

If no NAIC-compliant or “NAIC-similar” review process is available in a given State, an insurer in that State may choose between the review process currently administered by the U.S. Department of Health and Human Services (“HHS”) and a Federal external review process supervised by the U.S. Departments of Labor and Treasury.

Self-Insured Plans

Under earlier guidance, self-insured plans were to use the Labor/Treasury Federal external review process.  However, the 2011 Regulations generally treat self-insured private plans the same as insurers.  Thus, such plans may use a State external review process or, if none is available, may choose between the Federal external review process and the HHS-administered process.

After 2013

Starting on January 1, 2014, if a State external review process does not meet the NAIC minimum standards, a plan or insurer in that State may participate in either the Federal external review process or the HHS-administered process.

Scope of Federal External Review

Previously, where a plan or insurer was not subject to a State external review process, all adverse determinations (except eligibility decisions) were subject to review under a Federal review process.  The 2011 Regulations temporarily suspend this rule for claims for which an external review has not been initiated before September 20, 2011.

The temporary rule limits Federal external review to (1) claims involving medical judgment and (2) rescission of coverage claims.  Thus, under the temporary rule, a denial of a claim that involves only a contractual or legal interpretation is not subject to external review.

The temporary rule is expected to remain in place until January 1, 2014.

Safe Harbor for Self-Funded ERISA Plans

Initial guidance provided that self-funded ERISA plans could comply with the external review requirement by means of a safe harbor.  Such a plan would be in compliance if it contracted with at least three independent review organizations (“IROs”) and rotated claims among them (or used some other random method for selecting the applicable IRO for a given claim).

The safe harbor has been extended and modified as a result of difficulties plans and insurers encountered in contracting with IROs.  The safe harbor is now extended for self-funded ERISA plans that contract with at least two IROs by January 1, 2012 and at least three IROs by July 1, 2012.
III. Action Steps for Group Health Plans

1. Review your plan’s ERISA internal claims procedures for compliance with the updated claims procedures.  (A fully insured plan should also confirm that its insurer is in full compliance.)  For example:

  • A plan that defines “adverse determination” (in its plan document or SPD, or in both) must be updated to include rescissions.
  • A plan should consider adding language notifying participants of their right to know of any new evidence that may have been used in reviewing a claim and their right to know of the rationale behind any adverse determination.
  • A plan should make it clear that there will be no conflict of interest caused by any reward provided to a claims reviewer for the denial of claims.
  • A plan should ensure that its notices of adverse determination are updated to (1) include denial codes and their meanings, plus any standard used in denying the claim; (2) inform claimants of their right to request diagnostic and treatment codes and their meanings; (3) include information sufficient to identify the claim involved (e.g., date of service); and (4) tell claimants how to contact any applicable consumer assistance program for help with the claims process.  (Note:  Model notices for adverse benefit determinations are available.)
  • A plan should also add to its denial notices language notifying claimants of their right to an external review.
  • A plan should be prepared, where necessary, to comply with the new “culturally and linguistically appropriate” requirements.  (Note:  Model notices in various languages are available for this purpose.)

2. Self-funded ERISA plans should either engage at least two IROs by January 1, 2012, so that they may take advantage of the safe-harbor extension, or ensure that the current external review process is truly independent such that any government auditors would agree.  (For example, if a self-funded ERISA plan engages an insurance company to administer claims, its process would presumably be “truly independent” if the insurance company used either a compliant State or a Federal external review process.)