Employee Retirement Income Security Act of 1974; Rules and Regulations for Administration and Enforcement; Claims Procedure
Federal RegisterSep 9, 1998
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SUMMARY: This document contains a proposed regulation revising the
minimum requirements for benefit claims procedures of employee benefit
plans covered by Title I of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act). This proposed regulation would establish
new standards for the processing of group health disability, pension,
and other employee benefit plan claims filed by participants and
beneficiaries. In the case of group health plans, as well as certain
plans providing disability benefits, the new standards are intended to
ensure more timely benefit determinations, improved access to
information on which a benefit determination is made, and greater
assurance that participants and beneficiaries will be afforded a full
and fair review of denied claims. If adopted as final, the proposed
regulation would affect participants and beneficiaries of employee
benefit plans, plan fiduciaries, and others who assist in the provision
of plan benefits, such as third-party benefits administrators and
health service providers or health maintenance organizations that
provide benefits to participants and beneficiaries of employee benefit
plans.
DATES: Written comments (preferably at least three copies) concerning
the proposed regulation must be received by the Department of Labor on
or before November 9, 1998.
ADDRESSES: Interested persons are invited to submit written comments
(preferably at least three copies) concerning the proposed rule to:
Pension and Welfare Benefits Administration, Office of Regulations and
Interpretations, Room N-5669, 200 Constitution Ave., N.W., Washington,
DC 20210. Attention: ``Benefit Claims Regulation.''
All submissions to the Department of Labor will be open to public
inspection and copying in the Public Documents Room, Pension and
Welfare Benefits Administration, U.S. Department of Labor, Room N-5638,
200 Constitution Avenue, NW, Washington, DC from 8:30 a.m. to 5:30 p.m.
FOR FURTHER INFORMATION CONTACT: Jeffrey J. Turner or Susan G. Lahne,
Office of Regulations and Interpretations, Pension and Welfare Benefits
Administration, Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210, telephone (202) 219-7461. This is not a toll-
free number.
SUPPLEMENTARY INFORMATION:
A. Background
Section 503 of Employee Retirement Income Security Act of 1974
(ERISA or the Act), 29 U.S.C. 1133, provides that every employee
benefit plan shall, in accordance with regulations of the Department of
Labor (the Department) ``provide adequate notice in writing to every
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 shall also ``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,
establishing minimum requirements for benefit claims procedures for
employee benefit plans. That regulation, 29 CFR 2560.503-1 (the current
regulation) sets procedural standards that apply without distinction to
all employee benefit plans covered under Title I of ERISA, including
employee pension benefit plans and employee welfare benefit plans. The
current regulation was drafted in response to concerns that predated
enactment of ERISA, in particular the lack of any uniform procedural
standards for benefit claims resolution and participants' lack of
information about claims procedures generally. In order to establish
procedural safeguards for individuals promised benefits under ERISA,
the current regulation set minimum requirements for the procedures that
plans must provide regarding the treatment of benefit claims. The
standards applicable under the current regulation are described below.
On September 8, 1997, the Department published in the Federal
Register (62 FR 47262) a Request for Information (RFI), seeking the
views of the public on the advisability of amending the current
regulation. The reasons prompting issuance of the RFI were set forth in
that document. The RFI articulated a series of questions focusing
principally on standards and practices for benefit claim procedures
utilized with respect to group health plans, although the RFI also
requested information and views on claims procedures more generally.
The Department received over 90 comment letters in response to the RFI.
The comment letters came from several distinct groups of interested
parties: (1) Plan sponsors (employers) and law firms or interest groups
representing plan sponsors; (2) plan administrators and benefit
provider networks (including insurance companies, ``managed care''
(health benefit provider) networks, third-party administrators, and
claim processors) and interest groups representing those parties; (3)
benefit claimants and law firms or interest groups representing benefit
claimants; and (4) health services providers and interest groups
representing them. The National Association of Insurance Commissioners
(NAIC) also submitted a comment referring to the model acts that the
NAIC has developed for use by states in setting procedural standards
for claims and grievances under ``managed care'' arrangements. These
comments presented a broad spectrum of opinion on the diverse questions
posed in the RFI. The majority of commenters representing employers and
benefit administrators argued that no change in the current regulation
is needed, especially as the procedural practices currently in use
provide substantial protections to claimants in excess of what the
current regulation requires. The majority of commenters representing
claimants, however, strongly supported procedural reforms that would
bring the current regulation more in line with the standards set by the
NAIC model acts and by the Health Care Financing Administration (HCFA)
with respect to Medicare beneficiaries who receive managed care
benefits. The Department believes that the responses represent a fair
cross-section of public opinion on the issues of whether and in what
fashion the current regulation should be amended. The Department has
carefully considered these comments in formulating the proposal. The
substance of the comments is summarized below as relevant to specific
changes contained in the proposed regulation.
The Department's review of the comments received in response to the
RFI has led the Department to conclude that the procedural standards
set in the current regulation are no longer adequate to protect
participants and
[[Page 48391]]
beneficiaries of employee benefit plans. As the Department noted in the
RFI, dramatic changes in the more than 20 years since adoption of the
current regulation have altered the systems by which employee benefits
are delivered and the nature of the benefits themselves. Technological
advances have revolutionized systems of communications. Business
relationships, including those involving pension and welfare benefits,
have become more complex and sophisticated.
The most dramatic changes have occurred in the health industry. The
current regulation was adopted at a time when access to health services
was controlled principally by the independent judgments of physicians
and other health care professionals. Disputes over health benefits
almost always took place after the health care services had been
provided and concerned whether the group health plan or the individual
patient would pay retrospectively for the care, not whether the plan
would prospectively authorize coverage for the patient's care. Since
that time, the growth of managed care delivery systems 1 has
largely transformed the relationship between patient and health care
provider. Employee benefit plans that provide health benefits are no
longer predominantly indemnity-based, and even those that are
indemnity-based generally require preapproval for expensive procedures
or hospital admissions. While managed care delivery systems have been
instrumental in controlling the rapid rise of health care costs and
may, in many instances, provide valuable services in monitoring the
quality of health care services provided within a managed care delivery
system, they also heighten concern about the fair and expeditious
resolution of benefit disputes. Within managed care delivery systems,
the separation between medical decision making and decisions on
coverage under health benefit plans has been substantially eroded,
particularly since a decision to deny coverage for an expensive medical
procedure in effect denies that procedure to a participant who cannot
afford to pay for the procedure on their own. Access to health care
services may be directly ``managed'' (and thereby controlled) by those
in charge of coverage under a health benefit plan, rather than by the
health care professional with whom an individual consults.
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\1\ The term ``managed care delivery systems,'' as used here, is
intended to include any measures taken by medical practitioners,
groups of which medical practitioners are part, insurers, or group
health plans to control costs by limiting access to medical
services.
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In addition to considering the comments received in response to the
RFI, the Department also took into account, in developing this
proposal, the recommendations of the President's Advisory Commission on
Consumer Protection and Quality in the Health Care Industry (the
Commission), as set forth in its November 20, 1997, report entitled
``Consumer Bill of Rights and Responsibilities'' (the Consumer Bill of
Rights). Among other things, the Consumer Bill of Rights articulates
the right of all ``health care consumers'' (including participants and
beneficiaries in group health plans covered by ERISA) ``to a fair and
efficient process for resolving differences with their health plans,
health care providers, and the institutions that serve them, including
a rigorous system of internal review and an independent system of
external review.'' In its Report to the President on February 19, 1998
(the February 19 Report), the Department set forth specific steps that
it had determined it could take towards implementation of the
Commission's recommendations. The following describes the specific
commitments with regard to health benefits that the Department made in
the February 19 Report, together with references to the specific
provisions in the proposal that carry out those commitments:
The Report indicated that the Department could make clear
that a denial includes adverse determinations under a utilization
review program; denials of access to (or reimbursement for) medical
services; denials of access to (or reimbursement for) specialists; and
any decision that a service, treatment, drug, or other benefit is not
medically necessary. The proposal provides at paragraph (j)(2) for a
definition of ``adverse benefit determination'' that specifically
includes these denials.2
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\2\ The proposal adopts the concept of ``adverse benefit
determination'' as a substitute for the less precise concept of
``denial'' under the current regulation. This term is defined to
include not only refusals to provide or make payment (in whole or in
part) for a benefit, but also any terminations or reductions in
providing or paying benefits. The term also expressly includes any
such refusal that results from the application of a utilization
review directed at cost containment, such as the common current
requirement in ``managed care'' and many fee-for-service health
arrangements for ``pre-certification'' or ``pre-authorization'' of
coverage, and any failure to cover an item of service for which
benefits are otherwise available on the basis that the item is
``experimental,'' ``investigational,'' or ``not medically necessary
or appropriate.'' Prop. Reg. Sec. 2560.503-1(j)(2). The Department
solicits comments on this definition.
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The Report indicated that the Department could require
that benefit claims and appeals involving urgent care be processed
within a time frame appropriate to the medical emergency, but not to
exceed 72 hours. The proposal creates expedited time frames for
``claims involving urgent care'' at paragraphs (d)(2)(i) and
(g)(2)(ii).
With respect to non-urgent benefit claims, the Report
indicated that the Department could require that the plan either decide
the claim or notify the claimant that the claim is incomplete within 15
days of receipt of the claim; claimants would then be afforded not less
than 45 days to provide any information that the plan has indicated is
necessary to complete the claim; once the claim was complete, it would
have to be decided within 15 days. The proposal so provides at
paragraph (d)(2)(iii).
The Report indicated that the Department could make clear
that benefit denials must be accompanied by a clear statement of the
claimant's right to appeal and of the appeal process. The proposal
mandates this specific disclosure at paragraph (e)(1)(iv).
The Report indicated that the Department could require
that, if a non-urgent claim is denied in whole or in part, the claimant
must be afforded at least 180 days to appeal the claim and a decision
on the appealed claim must be made within 30 days of receipt of the
appeal by the plan. The proposal establishes these requirements at
paragraphs (f)(2)(i)(A) and (g)(2)(i).
The Report indicated that the Department could require
consultation with qualified medical professionals in deciding appeals
involving medical judgments. The proposal imposes this obligation at
paragraph (f)(2)(ii)(A).
The Report indicated that the Department could require
that appealed claims be reviewed de novo (that is, review may not be
limited to information and documents considered in the initial claims
denial) and be decided by a party other than the party who made the
original claims determination. The proposal incorporates these
requirements in paragraphs (f)(2)(i)(D) and (E).
Following the Department's submission of its February 19 Report,
the President issued a memorandum dated February 20, 1998, directing
the Secretary of Labor to ``propose regulations to strengthen the
internal appeals process for all Employee Retirement Income Security
Act (ERISA) health plans to ensure that decisions regarding urgent care
are resolved within not more than 72 hours and generally resolved
within 15 days for
[[Page 48392]]
non-urgent care.'' 3 The proposal incorporates the
ameliorative steps outlined in the Department's February 19 Report to
the President and takes into account the President's directive.
Consistent with the Department's commitment, the adoption of the
amendments contained in the proposal will strengthen the internal
claims and appeals process for all ERISA plans.
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\3\ The President further directed the Department to ``propose
regulations that require ERISA health plans to ensure the
information they provide to plan participants is consistent with the
Patient Bill of Rights.'' The Department is publishing today in the
Federal Register a proposal that would revise the Department's
regulation at 29 CFR 2520.102-3 to accomplish, inter alia, this
goal.
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The proposal also builds upon the commitments made to the
President, addressing several additional issues not dealt with in the
February 19 Report. In particular, the proposal clarifies who is a
``claimant'' and when the time limits begin to apply to a claim. With
respect to the concept of a ``claimant,'' the proposal explicitly
provides that a claimant is the participant or beneficiary to whom the
benefit may be due. The proposal also clarifies the right of claimants
to have individuals act on their behalf by eliminating the requirement
in the current regulation that claimant representatives be ``duly
authorized.'' Prop. Reg. Secs. 2560.503-1(a), (b)(5). In this respect,
it is the Department's view that an individual's attending physician
would generally be treated as a representative of the claimant. The
proposal further clarifies that, whether or not a representative is
acting for a claimant, notices must, at a minimum, be provided to the
claimant. This clarification is provided to reduce any confusion that
may result from providing notice only to a representative.
Because the proposal would replace the current regulation in its
entirety, much of the proposed regulation is not limited to group
health plans. Much of it changes the claim and appeal procedures of
employee benefit plans generally, including pension plans, disability
plans, and other benefit plans. (Apprenticeship plans are excluded from
the proposed regulation, however.) The Department believes that the
proposed changes that apply to non-health plans will be beneficial and
that it is desirable, as appropriate, to have uniform claim and appeal
procedures for different types of employee benefits. The Department
solicits comments on the application of the changed claim and appeal
procedures to non-health benefit plans.
It is the Department's view that the administrator of a plan has
the responsibility to ensure that procedures consistent with section
503 and the Department's regulation are established and maintained. The
plan can only act through its trustees, administrators, or others to
whom specific responsibilities have been assigned by those trustees and
administrators. The proposal therefore clarifies the plan
administrator's responsibility with respect to each of the procedural
steps delineated in the proposal. The Department understands, however,
that plan administrators may contract with third-party administrators
or others to carry out aspects of the plan administrator's
responsibilities, and this proposal is not intended to preclude such
contracts. While the plan administrator may designate another
individual or entity to carry out the responsibilities assigned to it
under the proposal, the plan administrator would remain responsible for
ensuring the required responsibility is discharged in a manner
consistent with the Act and regulations.
With respect to the application of time limits, the proposal
clarifies that those limits begin to run at such time as a claim is
first filed 4 with the plan or a party (including an
insurance company or claims adjudicator) acting on behalf of the plan
who has the authority to decide the claim. This clarification responds
to comments suggesting that there is considerable uncertainty in the
public view of the current regulation concerning the standards that
should apply to third-party administrators and claims adjudicators
hired by a plan to make benefit claims decisions. Many comments
suggested that there is a prevalent view that the time limits do not
apply to claims reviews conducted by a third party, such as an
insurance company or claims adjudicator, that is hired by the plan to
conduct an initial claims processing. The proposal articulates the
Department's view of the current regulation on this issue and clarifies
its application by eliminating the provisions in the current regulation
that provide specific treatment for insured welfare or pension plans.
See Reg. Sec. 2560.503-1(c), (g)(2). It is the view of the Department
that these provisions were included in the current regulation to make
clear that plans could employ the services of insurance companies and
other similar organizations as third-party administrators to make
claims decisions, but not to imply that such plans are subject to
different standards than other plans that do not employ the services of
third-party administrators with respect to the obligations and duties
of their administrators.5 The Department considers that
these provisions have become confusing in light of current practices
and are no longer necessary to clarify what is permissible procedure.
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\4\ Reference should be made to paragraph (d) of the current
regulation for guidance on when a claim is deemed to have been
filed.
\5\ Whether a party with authority to make claims decisions is
acting as a fiduciary depends on the extent to which the party
``exercises any discretionary authority or discretionary control
respecting management of such plan or exercises any authority or
control respecting management or disposition of it assets, * * * or
* * * has any discretionary authority or discretionary
responsibility in the administration of such plan.'' ERISA
Sec. 3(21)(A).
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The proposal also amplifies the provision in the current regulation
prohibiting the use of procedures that unduly inhibit or hamper the
initiation or processing of plan claims by adding specific examples of
prohibited practices. See Reg. Sec. 2560.503-1(b)(1)(iii); Prop. Reg.
Secs. 2560.503-1(b)(3), (b)(4). In this regard, the proposal retains
the principle that any provision or practice that requires claimants to
pay a fee or costs in order to make or appeal a claim would be
considered unduly inhibiting. The proposal also makes clear that
practices like the use of ``preauthorization'' requirements as a basis
for denying a claim under circumstances in which obtaining the
preauthorization is impossible, such as where the claimant is
unconscious and in need of immediate medical care, but unable to secure
the plan's authorization to obtain the necessary emergency services,
are prohibited.
The proposal also clarifies the methods and means that are deemed
appropriate for the plan administrator's delivery of the required
notifications. The proposal provides that ``notice'' or
``notification'' under the proposal generally should be provided in a
manner that satisfies the standards of 29 CFR 2520.104b-1(b) with
reference to materials furnished or made available to individuals.
Prop. Reg. Sec. 2560.503-1(j)(3).6 The proposal further
specifies that the notices may be provided through electronic means
that satisfy the standards of 29 CFR 2520.104b-1(c)(1)(i), (iii), and
(iv). Those standards provide assurance that the claimant will know in
advance that electronic means will be used for notification, that the
[[Page 48393]]
claimant will actually receive the notification, and that a paper copy
of any electronically distributed notification will be provided upon
request free of charge.
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\6\ That regulation provides that plan administrators should use
means ``reasonably calculated to ensure actual receipt,'' which
include mailing to an address provided by the participant or
beneficiary, personal delivery, and disclosure through electronic
media provided certain specific standards for electronic
distribution are met.
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The changes to the minimum procedural standards applicable to
claims decisions currently being proposed are intended to update the
procedural standards generally applicable to all employee benefit plans
and to provide specific, more tailored rules applicable to health care
claims and disability claims.7 It is the view of the
Department that the proposed changes in minimum procedural standards
for employee benefit plans would substantially improve the
administration of employee benefit plans, provide benefit claimants
with better understanding of their procedural rights, and ensure that
benefit claims are expeditiously and fairly resolved.
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\7\ The current regulation and this proposal pertain to
procedures governing claims for benefits. The Department notes that
section 206(d)(3) of the Act mandates certain plan procedures for
determining the qualified status of domestic relations orders and
administering qualified domestic relations orders. It is the view of
the Department that issues pertaining to such domestic relations
orders must be resolved pursuant to the procedures described in
section 206(d)(3) of the Act and not the claims procedures governed
by section 503 of the Act and the current regulation.
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This regulation is proposed to be effective 180 days after the date
of adoption of a final rule. The Department proposes that the
regulation would not be applicable to plans until the later of the
effective date or the first day of the first plan year beginning after
the effective date. A special applicability date for collectively
bargained plans not subject to section 302(c)(5) of the Labor-
Management Relations Act (29 U.S.C. 186(c)(5)) is also proposed.
The following discussion addresses other major procedural reforms
adopted in the proposal.
1. New Time Frames for Decision-Making
The current regulation provides that all benefit claimants must be
informed in writing ``within a reasonable period of time'' if a claim
is partially or wholly denied. 29 CFR 2560.503-1(e)(1). The regulation
defines any period in excess of 90 days as unreasonable for this
purpose, unless ``special circumstances'' require an extension of time
for processing, in which case an extension of an additional 90 days is
available, provided the claimant is given notice describing the special
circumstances prior to expiration of the original 90-day period.
The current regulation also provides that a plan may establish a
limited period within which a claimant may seek review of a denial, but
such period must be ``reasonable and related to the nature of the
benefit which is the subject of the claim and to other attendant
circumstances'' and may not be less than 60 days. 29 CFR 2560.503-
1(g)(3). A decision on review must be made ``promptly,'' ``ordinarily''
not later than 60 days after request, unless ``special circumstances''
require an extension of time, in which case the decision must be made
``as soon as possible, but not later than 120 days after receipt.''
Special rules are provided for plans operated by committees or boards
of trustees that regularly hold meetings at least quarterly. Such plans
generally may decide reviews of denials by the date of the next
scheduled meeting, unless the request is filed within 30 days preceding
the next meeting, in which case the decision may be delayed until the
next scheduled meeting. If ``special circumstances'' warrant further
delay, the review decision may be delayed until the third scheduled
meeting of the committee or board.
The proposed regulation retains the current time frames, with minor
modifications, for claims under most pension plans and many welfare
plans.8 Prop. Reg. Sec. 2560.503-1(d)(1), (g)(1). Claims
involving group health benefits 9 would be governed by new,
shorter time frames that are more appropriate to health care decisions.
Id. at (d)(2), (g)(2). Disability benefit claims would also be subject
to new, shorter time frames that, while not as short as the time limits
imposed on health care decisions, would ensure more expeditious
resolution of these types of claims. Id. at (d)(3), (g)(3). The
Department solicits comments on the proposed shorter time frames
pertinent to disability plans. For group health plans and for
disability plans, the proposal also increases to 180 days the period of
time during which plans must permit claimants under any plan to appeal
an adverse benefit determination.10 Id. at (f)(2)(i)(A). The
Department solicits comments on the additional time for claimants to
appeal disability determinations. For plans other than group health
plans and disability plans, the proposal does not change the current 60
day period during which plans must permit claimants to appeal. The
Department however is considering making the proposed 180-day period
applicable to all plans. The Department solicits comments on whether
the final regulation should provide that all plans must allow claimants
at least 180 days to file an appeal from an adverse benefit
determination.
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\8\ Under the proposal, the current time frames would continue
to apply to benefit determinations on pension benefit claims and
welfare benefit claims other than those for group health and
disability benefits. The proposal would modify those time frames,
however, to require that plan administrators notify claimants,
within 45 days of receipt, of any claim that is incomplete when
filed and of the information necessary to complete the claim. A plan
that provided notice that a claim was incomplete would be required
to provide claimants a period of not less than 180 days within which
to supplement the claim and would be required to resolve the claim
within 45 days of the earlier of the date on which the claimant
supplied the requested information or the end of the 180-day period.
Prop. Reg. Sec. 2560.503-1(d)(1).
\9\ For purposes of the proposal, a ``group health plan'' is a
plan within the meaning of section 733(a) of the Act. Prop. Reg.
Sec. 2560.503-1(j)(4).
\10\ In this regard, the proposal responds to the numerous
comments from claimants and their representatives that asserted that
the current regulation's minimum standard of 60 days within which a
claimant must be permitted to appeal a denial is inadequate. The
Department believes, in light of these comments, that providing a
longer minimum period of 180 days would ensure that claimants have
an adequate period within which to consider whether appeal is
warranted and to gather additional evidence to support their claims.
The longer period would be unlikely, in the Department's view, to
cause plans any additional costs or burdens. Comments are solicited
on whether any additional costs or burdens would be imposed by this
regulatory change.
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With respect to group health claims, the proposal provides a time
frame for deciding non-urgent health care benefit claims and a special
expedited time frame for deciding health care claims involving urgent
care. The proposal requires that notification of initial decisions on
non-urgent health care benefit claims generally be provided by the plan
administrator within a reasonable period, appropriate to the
circumstances, taking into account any medical circumstances, but not
later than 15 days after filing. If a claim that is filed is determined
to be incomplete, however, for example because it does not contain
sufficient factual information, the proposal requires the plan
administrator to notify the claimant, within 5 days of receipt, of that
fact and of the information necessary to complete the claim. The plan
is then required to provide the claimant a period of not less than 45
days within which to provide the missing information. Notification of
the decision on that claim would have to be provided within 15 days of
the earlier of the date the claimant provides the additional
information or the end of the additional period. With respect to
decisions on review, the proposal requires plans to provide
notifications of decisions on non-urgent health care claims not later
than 30 days after receipt of the request for review. The
[[Page 48394]]
Department solicits comment on this aspect of the proposed regulation.
The proposal does not provide for any extension of the time period
for deciding non-urgent group health claims. The Department is
concerned that providing for such an extension of time would create an
opportunity for delay in resolving health care claims and could be
subject to substantial abuse that could nullify the intended reform.
The Department notes that nothing in the proposed regulation would
preclude a claimant from agreeing to an extension of time sought by the
plan, inasmuch as the claimant would be entitled, under the proposal,
to decide whether to proceed to court in the event that the plan did
not comply with the time limits mandated by the proposal.
In the case of group health plans and plans providing disability
benefits, the Department is proposing to eliminate the special timing
rules for appealed decisions by plans operated by committees or boards
of trustees that regularly hold meetings on a quarterly basis. Under
the current regulation, such plans are permitted to defer a decision on
review until the meeting of the committee or board that immediately
follows the plan's receipt of the request for review, unless the
request for review is filed within 30 days preceding the date of such
meeting, in which case the plan's review may be deferred until the
second meeting following receipt of the claim. While elimination of the
special rule may require changes in the operation of some group health
and disability benefit plans, the Department believes that such changes
are necessary and appropriate to ensure timely benefit determinations
for participants and beneficiaries covered by such plans.
The proposal requires quicker resolution of health care claims
involving urgent care. For purposes of the proposal, a ``claim
involving urgent care'' is defined as any claim with respect to which
the application of the non-urgent care time frames could seriously
jeopardize the life or health of the claimant or the ability of the
claimant to regain maximum function, or, in the judgment of a physician
with knowledge of the claimant's condition, would subject the claimant
to severe pain that cannot be adequately managed without the care or
treatment that is the subject of the claim. Prop. Reg. Sec. 2560.503-
1(j)(1). The decision whether a claim involves urgent care would
generally be made by an individual acting on behalf of the plan and
applying the standard of a reasonable individual who is not a trained
health professional; however, any claim that a physician with knowledge
of a claimant's medical condition determines to be a claim involving
urgent care would be treated as such for purposes of the proposal.
Under the proposal, thus, only those claims for which the delay
resulting from application of the non-urgent 15-day schedule would
carry a risk to the claimant are required to be resolved under the
expedited time frame.11 The Department solicits comment on
the proposed definition of a ``claim involving urgent care.''
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\11\ It is anticipated that ``claims involving urgent care''
would largely involve claims for access to care, rather than claims
respecting payment for care because, under the proposed definition,
a claim would not involve urgent care unless failure to decide the
claim on an expedited basis would create a risk to the claimant's
health or cause unmanageable pain. This would not ordinarily be the
case with claims where services have already been provided and only
the question of payment remains unresolved.
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Under the proposal, claims involving urgent care must be decided as
soon as possible after receipt of the claim, taking into account the
medical exigencies of the case, but not later than 72 hours after
receipt.12 Prop. Reg. Sec. 2560.503-1(d)(2)(i). Appeals of
adverse determinations on urgent care claims also would be required to
be decided, and communicated to the claimant, as soon as possible,
taking into account the medical exigencies of the case, but not later
than 72 hours after receipt of the request for review. Id. at
(g)(2)(ii).
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\12\ If the plan determines that an urgent care claim is
incomplete, the plan administrator would be required under the
proposal to notify the claimant of that fact, and of the missing
information, within 24 hours of receipt of the claim, and the
claimant would be permitted not less than 48 hours to provide the
specified information. The decision on the claim would then be
required to be provided to the claimant not later than 48 hours
after the earlier of the plan's receipt of the specified information
or the end of the additional period of time.
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The Department's view that these shorter time limits are necessary
to ensure the timely resolution of group health claims is based in part
on the comments received from interested parties in response to the
RFI. The majority of commenters who spoke for health plan
administrators and health plan sponsors asserted that their routine
claims administration practices provide resolution of claims within
periods far shorter than the 60 or 90 days referred to in the current
regulation. The Department notes that several commenters representing
plans indicated that health benefit claims are normally resolved within
5 to 7 days. The consensus of the comments appeared to be that health
care claimants need prompt response to their benefit claims and that
the health care delivery systems in place today are well-equipped to
provide that response. The Department therefore believes that the
proposed standards for determining when expedited handling of urgent
care claims is necessary and for the timeliness of resolving such
claims are both appropriate and feasible.
The proposal also adopts shorter, specific time limits for
resolving disability claims. Prop. Reg. Sec. 2560.503-1(d)(3), (g)(3).
Under the proposal, those claims must be resolved initially within 30
days (with a further requirement that notification as to incomplete
claims be made within 15 days), and appeals of adverse determinations
on disability claims must be resolved within 45 days. This proposal is
made in response to issues raised by commenters to questions in the RFI
on timeliness of resolution of long-term disability claims. Most
commenters representing claimants asserted that many disability plans
take the maximum amount of time available under the current regulation
to resolve disability claims, unnecessarily delaying decisions on
benefit payments. Because many claimants are dependent upon these
payments for general support, the Department believes that shorter
periods for benefit determination are appropriate for these claims. The
Department solicits comment on the shorter time limits to resolve
disability claims.
2. New Disclosure Requirements
The proposal contains several new disclosure-type requirements that
would be applicable to all plans. The Department solicits comment on
the burden to plans of the new requirements for disclosure, including
the effects on group health, pension, disability, and other benefit
plans. First, the proposal reinforces the current requirement that a
claims procedure will be considered ``reasonable'' only if it is
described in the summary plan description (SPD) of the plan as required
by 29 CFR 2520.102-3. Prop. Reg. Sec. 2560.503-1(b)(2). The proposal
clarifies that descriptions of all benefit claims procedures of the
plan and the time limits applicable to the procedures must be disclosed
as part of the SPD. The proposed regulation further clarifies that the
plan's benefit claims procedures include all procedures for filing
claim forms, providing notification of benefit determinations,
reviewing denied claims, and, for group health plans, for obtaining
preauthorizations, approvals, or utilization review decisions. It is
the Department's intention in proposing this clarification to remove
any uncertainty regarding whether
[[Page 48395]]
``managed care'' arrangements that involve pre-approval or pre-
certification of eligibility for benefits are considered part of the
plan's benefit claims procedures and therefore subject to disclosure.
The Department considers this enhanced description of the mandated
disclosure an important reform because of the apparent confusion about
the treatment of such procedures demonstrated by the comments received
in response to the RFI and because of the emphasis placed by the
Commission on the need for increasing health consumers' awareness of
the limits placed on benefit eligibility through such ``managed care''
measures.
The proposal also clarifies the current regulation's requirement
that the written notification of an initial adverse benefit
determination must include a reference to the plan provisions on which
the determination is based. Prop. Reg. Sec. 2560.503-1(e)(1)(ii). The
proposal states that this reference must identify specifically any
internal rules, guidelines, protocols, etc. that have been used by the
initial decision-maker as a basis for denying the claim. The Department
intends by this clarification to emphasize that such internal rules are
``instruments under which the plan is established or operated'' and, as
such, cannot be concealed from claimants, who have a legitimate right
to understand the rules that govern benefit claims
decisions.13
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\13\ In Advisory Opinion 96-14A (July 31, 1996), the Department
stated its opinion that ``usual and customary'' fee schedules used
as a basis for determining the dollar amount that would be paid for
health claims are ``instruments under which the plan is established
or operated'' within the meaning of section 104(b) of the Act and
therefore must be furnished to participants and beneficiaries upon
written request. The Department emphasized that under ERISA
participants and beneficiaries should have access to documents that
directly affect their benefit entitlements. This principle takes on
an enhanced importance when such documents are directly relevant to
the denial of a specific benefit claim.
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Under the proposal, the notification is required to include a full
description of the plan's review processes, including a statement of
the claimant's right to bring a civil action under section 502(a) of
the Act following an adverse determination on review. Prop. Reg.
Sec. 2560.503-1(e)(1)(iv). Many of the comments received from
employers, plan representatives, and claimants alike requested that the
disclosure be amplified to include fuller descriptions of the
administrative review process and the possibility of court review. The
comments indicate widespread misunderstanding among benefit claimants
of their rights to appeal adverse benefit determinations, and this
problem is confirmed by the Commission's findings. The Department
agrees that claimants whose benefit claims are denied need to
understand fully the basis for the denial and their avenues of appeal.
While inclusion of a description of the benefit claims procedures in
the SPD provides some basic level of information, claimants whose
claims are denied have a more immediate need and will be provided more
helpful guidance if this information is included directly in the
notification of an adverse benefit determination. Better understanding
by claimants of the plan's terms and the claimants' rights will, in the
Department's view, serve to both expedite reviews and reduce
unwarranted appeals.
Thirdly, the proposal clarifies the current regulation's
requirement that claimants must be provided, upon receiving an adverse
benefit determination, with access to ``pertinent documents.'' The
comments received in response to the RFI support a need to clarify this
requirement because they demonstrate substantial confusion about its
scope. The proposal makes clear that claimants are entitled to review
all documents, records, and information relevant to their claims for
benefits, whether or not such documents, records, and information were
in fact relied upon by the plan in making the adverse benefit
determination. Prop. Reg. Sec. 2560.503-1(f)(2)(i)(C). Such information
would include internal rules, guidelines, protocols, and criteria under
which the plan is operated and any documents or records that may be
favorable to the claimant's position. In the Department's view,
permitting the claimant access to relevant documents, records, and
information would generally satisfy the claimant's need to understand
the evidentiary basis for the decision and therefore to determine
whether an appeal is justified and how such an appeal might best be
pursued.
The proposal further provides claimants whose appeals on review are
denied with access, upon request, to relevant documents, records, and
information, to the extent not previously provided to the claimant.
Prop. Reg. Sec. 2560.503-1(h)(3). In particular, the proposal requires
disclosure of any documents that were created or received during the
review process, including, specifically, the reports and identities of
any experts consulted by the plan during the review. In the view of the
Department, allowing this further access would advance the same goals
articulated above with respect to the request for review. In
particular, claimants would be better equipped to determine whether to
pursue their claims further by filing a civil action under section
502(a) of the Act.
The Department is concerned that claimants who have filed a civil
action following an adverse benefit determination on review do not have
sufficient access to information that will aid them in determining
whether the plan and insurance issuer have acted fairly and
consistently in denying their claims, in light of the plan's practices
in deciding other claims that involve the same plan or contract
language, the same diagnosis, and the same treatment. Such information
may be important to claimants who file suit to recover benefits because
courts have frequently held that, where plan fiduciaries have
discretionary authority to determine eligibility for benefits, benefit
claims decisions may be overturned only if the claimant demonstrates
that the decision was unreasonable or arbitrary and capricious. See,
e.g., Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989).
Although evidence regarding plan decisions on other, similar claims may
be necessary to support a case of unreasonable or arbitrary and
capricious treatment, it is not clear that courts would allow a
claimant access to such evidence as part of the discovery process. See,
e.g., Chambers v. Family Health Plan Corp., 100 F. 3d 818, 821 (10th
Cir. 1996) (review of benefit denial limited to evidence before plan at
time of denial, although court of appeals noted that ``magistrate judge
stated that if she had been able to conduct a de novo review of all the
evidence, she would have found that [plan's] denial of coverage was
erroneous''). As a result, the Department is considering adding to the
final regulation a requirement that the plan administrator provide each
claimant who receives an adverse benefit determination on review with
respect to a health benefit claim with a statement that, in the event
of litigation challenging the benefit determination, he or she will be
entitled to receive, upon request, reasonable access to and copies of
all documents and records relating to previous claims involving the
same diagnosis and treatment that were decided by the plan within the
five years prior to the adverse benefit determination. If the claim
involved benefits that were provided through insurance, the health
insurance issuer would also be subject to this disclosure requirement
with respect to previous claims involving the same diagnosis and
proposed treatment and the same plan or insurance contract language.
The plan and issuer would be required to provide information on claims
decided in the previous five years, up to a
[[Page 48396]]
maximum of 50 of the most recent such claims, and the claims records
would have to be redacted or otherwise screened as necessary to protect
the privacy of the claimants involved in the previous claims.
The Department solicits comments on the advisability of the
proposed policy. Furthermore, the Department recognizes that there may
be other ways to address the problem described above, and is open to
consideration of whether such additional disclosure is necessary or
sufficiently beneficial to justify any burdens or cost it may impose on
plans. The Department solicits comment on the contemplated requirement
and, in particular, about the burden on group health plans of this
provision, including whether there should be a charge for redacting the
records or providing such copies, as well as how the charge should be
determined.
3. New Notice Requirements
The proposal contains new notice requirements that are intended to
ensure that participants and beneficiaries are afforded fair and timely
consideration of their claims and appeals of those claims as mandated
by section 503 of the Act. In every instance, the plan administrator is
responsible for providing claimants with the required notification at
each level of the claims process. While the plan administrator may
designate another individual or entity to generate and deliver the
notices to claimants, in the Department's view, it is the plan
administrator's responsibility to ensure that the required notification
is provided.
First, the proposal requires notification to participants and
beneficiaries where the participant or beneficiary makes a request for
benefits, but fails to follow the plan's claim filing procedures. Prop.
Reg. Sec. 2560.503-1(b)(6). In such circumstances, the plan would have
to provide the participant or beneficiary, within 5 days (24 hours in
the case of an urgent care request), with a notice explaining that the
participant's or beneficiary's request does not constitute a claim
because it fails to satisfy the plan's filing procedures. The notice
would also have to describe those filing procedures. This requirement
would ensure that no reasonable attempt to file a claim could be
ignored by a plan for failure to meet some aspect of the filing process
set up by the plan, but would also preserve the integrity of those
procedures.14
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\14\ In this regard, the proposal eliminates the provision in
the current regulation that deems a claim to be filed, with respect
to a plan that does not have reasonable filing procedures, when it
is brought to the attention of an appropriate person responsible for
benefit claims decisions. This ``deeming'' provision is unnecessary
and would be counterproductive in the context of the proposal
because the proposal provides that, in any case in which a plan
fails to provide reasonable procedures, a claimant is entitled to
treat the procedures as having been exhausted and to immediately
pursue the claim in court pursuant to section 502(a) of the Act. See
Prop. Reg. Sec. 2560.503-1(i).
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Second, as mentioned above in connection with the proposed new time
frames, the proposal imposes an obligation on plan administrators to
inform claimants promptly of any claims that, while properly filed, are
found to be incomplete. Prop. Reg. Sec. 2560.503-1(d)(1), (2). For each
type of plan subject to a specific time frame, the proposal establishes
an earlier time at which notification of an incomplete claim must be
given. The notice would include a description of the information
necessary to complete the claim. The comments submitted in response to
the RFI suggested that in many instances plans delay in informing
claimants of obvious deficiencies in their claim filings until the end
of the maximum time period for making a decision, resulting in
successive periods of delay. It is the view of the Department therefore
that specification of this additional procedural step would
significantly reduce unnecessary delay in resolving claims by focusing
early attention on the completeness of any filing. Moreover, because,
as discussed below, appealed claims must be reviewed by a party
different from the initial claims reviewer, the Department believes
that a mechanism is necessary to enable and encourage initial claims
reviewers to compile complete files on a claim prior to a
determination. This will reduce the number of claims denials that are
likely to be reversed on appeal and increase the number of correct
initial decisions.
Third, the proposal requires notice to claimants in some instances
in which health care benefits that are being provided over a period of
time are subsequently terminated or reduced. The proposal provides that
if a plan has granted a health care benefit that is to be provided over
a period of time, whether for a specific time period or an unlimited
period, and the plan later determines to reduce or terminate the
benefit (before the end of a specified period for benefits of specific
duration), the reduction or termination is deemed to be an adverse
determination of a benefit claim.15 Moreover, if the
termination or reduction would create a situation meeting the
proposal's definition of a ``claim involving urgent care,'' the plan
administrator would be required to give notice of that decision at a
time sufficiently in advance of the termination or reduction to provide
the claimant with the opportunity to appeal before the termination or
reduction takes effect.16 Prop. Reg. Sec. 2560.503-
1(d)(2)(ii). The Department believes that, in circumstances where the
denial of continuation of a benefit may create a health risk to the
claimant, advance notice of the denial is necessary in order to ensure
a timely full and fair review. Requiring advance resolution of any
dispute over the denial of health benefits of a continuing nature,
where serious harm to the claimant may be involved, will also reduce
the possibility of unintended harm to the claimant.
---------------------------------------------------------------------------
\15\ The proposal is not intended, however, to require settlor
decisions to amend or terminate a plan to be treated as adverse
benefit determinations, even if such decisions result in the
termination or reduction of a benefit being provided over a period
of time.
\16\ The termination or reduction would have to cause a risk to
the claimant's health of sufficient degree to make application of
the standard time frames for deciding health care claims
inappropriate. See Prop. Reg. Sec. 2560.503-1(j)(1).
---------------------------------------------------------------------------
4. New Standards of Review on Appeal
The proposal adopts new standards for what constitutes a full and
fair appeal of an adverse benefit determination. In this respect, the
proposal responds to comments that allege bias on the part of claims
reviewers and a need for more independent decision-making. Under the
current regulation, claimants whose claims have been denied must be
provided an opportunity to request review and to submit issues and
comments in writing. The proposal supplements these minimums by
requiring that the review of an adverse benefit determination be
conducted by an appropriate named fiduciary who is neither the party
who made the initial adverse determination, nor the subordinate of such
party; that the review not afford deference to the initial adverse
benefit determination; and that the review take into account all
comments, documents, records, and other information submitted by the
claimant, without regard to whether such information was previously
submitted or relied upon in the initial determination. Prop. Reg.
Sec. 2560.503-1(f)(2)(i)(D), (E). It is the Department's intention in
making this proposal that a claimant be permitted upon appeal to raise,
and have considered, additional issues and evidence beyond those
presented at the initial determination.
With respect to adverse benefit determinations involving health
care
[[Page 48397]]
claims, the proposal requires that the review of any determination
based on a medical judgment be conducted through consultation with a
health care professional who is independent of any health care
professional involved in the initial decision and who has appropriate
training and experience in the field of medicine involved in the
medical judgment.17 Prop. Reg. Sec. 2560.503-1(f)(2)(ii)(A).
In addition, the proposal provides that any appeal of a claim involving
urgent care must be conducted on an expedited basis in which the review
may be requested orally or in writing and necessary information,
including the decision on review, may be transmitted by telephone,
facsimile, or other similarly expeditious means. Prop. Reg.
Sec. 2560.503-1(f)(ii)(C).
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\17\ Nothing in this proposal is intended to limit the extent to
which a plan fiduciary may consult with others as appropriate under
the circumstances in reaching a decision on appeal.
---------------------------------------------------------------------------
The Department believes that these minimum requirements are
essential to affording participants and beneficiaries a full and fair
review of their benefit claims. In the case of group health plans, the
Department believes that the requirement to consult with an
appropriately qualified health professional is consistent with the
obligation of plan fiduciaries to discharge their duties ``with the
care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like
character and with like aims.'' ERISA Sec. 404(a)(1)(B). To the extent
that the review of group health claims implicates medical judgments, a
fiduciary would be constrained to consult an appropriate medical
advisor to ensure that any such decisions comport with the standards of
section 404(a)(1)(B) of the Act.
The comments indicate that, at least in some percentage of claims
reviews, the same decision-maker (or a subordinate of such decision-
maker) conducts both the initial processing of a claim and the review
of a denial. The comments also assert instances in which decision-
makers have refused to permit expansion of the evidentiary record on
review or have ignored additional submissions in making decisions on
review. The Department believes that the proposal would prevent these
practices, consistent with the recommendations of the Commission, and
would ensure full and fair review of adverse benefit determinations.
In proposing this regulation, one of the Department's primary
concerns is to prevent unnecessary delays in resolving claims disputes,
especially in situations where the dispute must be resolved before the
plan will provide the requested benefit. The Department considers it
essential that claimants be free to decide, after having completed the
minimum number of administrative appeals necessary to allow for a full
and fair review of the claim, whether to continue to pursue a claim
through a plan's additional procedures, if any, or to file suit under
section 502(a) of the Act. Thus, the proposed regulation provides that
benefit claim procedures may not include more than one level of
mandatory appeal and that plans are precluded from requiring claimants
to submit to binding arbitration either subsequently or as part of that
single level of appeal. In making this proposal, it is not the
Department's intention to require plans to dismantle effective and fair
claims procedures that they have already put in place. As a result, the
Department is willing to consider whether procedures that require more
than one appeal would be reasonable. The Department also notes that
there is nothing in the proposal that would preclude a plan from
establishing a second level review or appeal process following a
determination on review in accordance with this regulation, or from
offering to submit a determination to arbitration, provided that such
review or arbitration is voluntary on the part of the claimant and does
not otherwise serve to foreclose a claimant from pursuing his or her
claim in court. The Department is particularly interested in receiving
comments on whether limiting the number of appeals or precluding
mandatory arbitration before filing suit is necessary or sufficiently
beneficial to prevent delays or unfairness in making and reviewing
benefit claims. The Department also solicits comments on the
appropriate number of appeals at which such limit should be set.
5. Consequences of Failure to Establish and Follow Reasonable Claims
Procedures
Many of the comments that the Department received in response to
the RFI asserted that plans often fail to follow the minimum standards
for procedural fairness set by the current regulation. The Department
believes it is important to make clear that the claims procedure
regulation prescribes the minimum standards for an administrative
claims review process consistent with ERISA. Accordingly, a failure to
provide the procedures mandated by the regulations effectively denies
participants and beneficiaries access to the administrative review
process mandated by the Act. It is the view of the Department that
claimants should not be required to continue to pursue claims through
an administrative process that fails to meet the minimum standards of
the regulation. At a minimum, claimants denied access to the statutory
administrative review process should be entitled to pursue claims under
section 502(a) of the Act. In addition, such claimants should be
entitled to a full and fair review of their claims in the forum in
which they are first provided adequate procedural safeguards. The
proposal therefore incorporates a new paragraph (i) that would specify
more clearly the consequences that the Department believes flow from a
failure to provide procedures that meet the minimum regulatory
standards. Under the proposed paragraph (i), a claimant who attempts to
pursue a claim is deemed to have exhausted the administrative remedies
available to him or her if the plan fails to provide or to abide by
procedures that meet the regulatory minimum standards required under
the proposal. Such a claimant is entitled to pursue any remedies he or
she may have 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
full and fair decision on the merits of the claim. Prop. Reg.
Sec. 2560.503-1(i). It is the Department's view that, in such a case,
any decision that may have been made by the plan with respect to the
claim is not entitled to the deference that would be accorded to a
decision based upon a full and fair review that comports with the
requirements of section 503 of the Act.
In addition to the above, the failure to establish or maintain
claims procedures in accordance with regulations issued by the
Secretary pursuant to section 503 of ERISA, would be a violation of
section 503 which could give rise to a cause of action under sections
502(a)(3) or (a)(5) of ERISA for appropriate equitable relief. It is
also possible, depending on the circumstances, that an action or
omission by a plan fiduciary which does not comply with the
requirements of such regulations would also constitute a fiduciary
breach in violation of ERISA sections 404(a)(1)(A), (B), or (D). Such
potential consequences are beyond the scope of this rulemaking.
6. Other Changes
The Department is proposing to eliminate two provisions in the
current regulation that provide special treatment for two classes of
plans. First, the proposal eliminates the special
[[Page 48398]]
treatment afforded by paragraph (b)(2) of the current regulation for
plans established and maintained pursuant to a collective bargaining
agreement (other than plans subject to section 302(c)(5) of the Labor
Management Relations Act of 1947, 29 U.S.C. 186 (c)(5)) (non-Taft-
Hartley plans). The current regulation provides that such a
collectively-bargained plan is deemed to satisfy the standards for
claims filing procedures, procedures for initial decisions, and
procedures for review if the collective bargaining agreement
incorporates (by reference or directly) provisions for the filing and
initial disposition of claims and for a grievance and arbitration
procedure to which denied claims are subject.18 Second, the
Department is proposing to eliminate the special treatment afforded
under paragraph (j) of the current regulation to certain plans that
provide benefits through membership in a qualified health maintenance
organization (HMO), as defined in section 1310(d) of the Public Health
Service Act, 42 U.S.C. 300(e)-9(d) (the PHSA). The current regulation
provides that such plans are deemed to satisfy the standards of the
regulation with respect to such benefits if the claims procedures
provided by the qualified health maintenance organization meet the
requirements of section 1301 of the PHSA. Under the proposal, both of
these types of plan would be fully subject to the new procedural
standards applicable based on the type of benefit provided.
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\18\ Alternatively, a non-Taft-Hartley collectively-bargained
plan may comply with the initial filing and decision standards of
the current regulation and be exempted from complying with its
review standards if its collective bargaining agreement incorporates
the grievance and arbitration procedure as the avenue for denied
claims.
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This approach is in accord with the majority of the comments
received in response to the RFI. Several of the questions posed by the
RFI focused on whether there is a perceived need for greater uniformity
in the procedural standards applicable to employee benefit plans. A
majority of the comments asserted that such a need exists and argued
that the lack of uniformity, and specifically the special rules
applicable to group health plans offering HMO-type benefits, has led to
confusion among benefit claimants as their rights and their avenues of
appeal. On this basis, the Department has determined to propose
eliminating the special treatments provided under the current
regulation. Elimination of these special provisions will help ensure
that participants and beneficiaries will be provided timely benefit
determinations and full and fair reviews of denied claims without
regard to whether they participate in an HMO-type or collectively
bargained plan. The Department solicits comment on these changes for
greater uniformity in the standards for benefit plans.
B. Economic Analysis Under Executive Order 12866
Under Executive Order 12866, the Department must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this action is consistent with the President's
priorities as articulated in the President's February 20, 1998,
directive to the Secretary of Labor to issue proposed rules
implementing the recommendations of the President's Advisory Commission
on Consumer Protection and Quality in the Health Care Industry. In
addition, the Department estimates that this regulatory action will
have an economic effect exceeding $100 million in the year 2000.
Therefore, this notice is ``significant'' and subject to OMB review
under sections 3(f)(1) and 3(f)(4) of the Executive Order.
Therefore, consistent with the Executive Order, the Department has
undertaken to assess the costs and benefits of this regulatory action.
The Department's assessment, and the analysis underlying that
assessment, is detailed below.
The Department projects that the proposed regulation will prompt
all ERISA-covered employee benefit plans to revise their claims and
appeals procedures by the end of calendar year 2000. The new procedures
will better ensure the timeliness, fairness, and accuracy of claims and
appeals determinations, but will also be somewhat more costly to
administer. Therefore, the proposed regulation is expected both to
yield benefits and to impose costs. Expected improvements in the
timeliness, accuracy, and fairness of determinations will be of benefit
to plan participants and beneficiaries. Costs will be incurred in
connection with the implementation and administration of improved
claims and appeals procedures.
The Department estimates the proposed regulation will add $30
million to annual claims and appeals processing costs in 2000,
reflecting the processing of 806 million claims. This amounts to $0.04
per claim or $0.09 per participant. This ongoing cost will change each
year as claims volume increases or decreases or as the actual
proportions of claims by type (e.g., pension, health, long-term
disability) differ from the proportions assumed for purposes of this
analysis. The proposed regulation will also impose a one-time start-up
cost of $125 million in 2000 to design and implement the new
procedures. This amounts to $0.35 per participant.
The data, assumptions, and analysis underlying this assessment of
costs are summarized following the discussions of the Regulatory
Flexibility Act and the Paperwork Reduction Act.
These estimates are for administrative costs associated with
processing claims and appeals. A separate question involves how many
claims determinations might be changed as a result of this proposed
regulation, and what the costs and benefits of those changed
determinations might be.
The Department was unable to develop quantitative estimates of
changes in determinations or of the associated costs and benefits, and
solicits comments on the expected nature and magnitude of these
changes, costs, and benefits. What follows is a qualitative discussion
of these issues.
The Department expects that the proposed regulation will reduce the
number of inaccurate claims determinations, especially following
appeal. It will also accelerate any health and disability claims
determinations that would otherwise have been delayed longer than
permitted under the proposed regulation. The regulation is further
likely to influence some claimants' decisions as to whether and how to
appeal denied claims. Finally, if the proposed regulation increases the
likelihood that some accurate and previously undisputed claim denials
will now be appealed, and if the
[[Page 48399]]
expected cost of such appeals exceeds the cost of paying these claims,
plans might elect to pay rather than deny them. The costs and benefits
of each of these effects is considered below.
The proposed regulation's provisions requiring fuller review of
denied claims aim to reduce the number of inaccurate claims
determinations. In particular, the Department expects that some claims
which otherwise would have been denied on appeal, but which in fact
should have been paid under plans' terms, will now be paid. The
Department has no data on how many denied appeals should have been
approved. Economic theory suggests, however, that all else equal,
improving adherence to private voluntary agreements such as plans'
terms tends to increase economic efficiency by reducing losses of
social welfare. Therefore, the Department believes that the benefits
associated with this effect of the proposed regulation are likely to
outweigh the costs. The Department also notes that plans' obligations
to pay covered benefits arise from plans' terms and from ERISA's
statutory provisions and are not modified by this proposed regulation.
Accelerating the processing of some claims and appeals may also
change some claims determinations. For example, delays in processing
health benefit claims can result in delays in medical treatment. Those
delays in turn can result in the deterioration of claimants' medical
condition to the point that the treatment is no longer medically safe
or effective. Thus, accelerating the processing of medical claims may
result in payment for some treatments that otherwise would not have
been provided. On the other hand, deterioration in claimants' medical
condition may result in additional claims for additional treatment.
Thus, accelerating health benefit claims processing may eliminate some
claims. The Department is uncertain of the magnitude of these two
offsetting effects, but notes that both are associated with the
potential for better medical outcomes and are therefore are likely to
be of substantial economic benefit.
The Department also expects that the proposed regulation may
influence denied claimants' decisions about whether to appeal.
Providing claimants with fuller information on their appeal rights,
with an opportunity for fuller and more timely review of their denied
claims, and with a longer period of time in which to prepare and submit
an appeal might prompt more claimants to appeal more denied claims.
Providing claimants with fuller information on the reasons for claims
denials might facilitate and prompt some appeals, but might discourage
others. To the extent that additional appeals result in the reversal of
inaccurate claims denials that would otherwise have been sustained,
this would represent an improvement in the accuracy of claims
determinations, as discussed above. Additional appeals that are denied
would increase administrative cost, and reductions in appeals that
would have been denied would reduce administrative cost. Discouraging
appeals of inaccurate claims determinations, which would have been
reversed on appeal, could reduce social welfare, but the Department
believes providing fuller information to denied claimants will rarely
discourage them from appealing inaccurate determinations. In summary,
the main effects of any change in denied claimants' appeals decisions
are likely to be some improvement in the accuracy of determinations and
an increase or decrease in administrative costs.
Finally, the Department considered whether the proposed regulation
might prompt plans to approve some claims that are not truly covered
under plans' terms in order to avoid the higher expected cost of
processing associated appeals. ERISA obligates plan fiduciaries to
administer plans in accordance with the plans' terms. Nonetheless, it
is possible that plans may engage in at least some such inaccurate
claims approvals under the current regulation. Such inaccurate claims
approvals might increase if the proposed regulation increases the
likelihood that some accurate and previously undisputed claim denials
will be appealed, and/or if it increases the expected cost of some
appeals of accurate claims denials to an amount greater than the cost
of paying these claims. Increasing inaccurate claims approvals could
reduce overall social welfare. However, such losses might sometimes be
accompanied by improved medical outcomes and associated economic
benefits, and might be offset by potential welfare gains from
discouraging appeals of accurate claims denials, which are noted above.
The Department lacks data to estimate the potential increase in
inaccurate claims approvals and associated costs and benefits, and
solicits comments on this question.
The Department also considered potential indirect effects of the
proposed regulation on plans sponsors' decisions regarding plan
sponsorship, design, and benefit levels. Provisions that increase
plans' administrative costs or that result in net increases in plans'
claims payments might prompt plan sponsors to reduce benefits, to alter
plan designs so as to offset or eliminate additional claims payments
(for example by clarifying or expanding exclusions from coverage in a
health benefit plan document), to fail to adopt or enrich benefit
plans, or even to drop benefit plans entirely. Because the estimated
cost of this proposed regulation is exceptionally small relative to the
total cost of benefit plans, the Department expects that these effects
will be equally small. However, the Department lacks the data to
validate this expectation, and solicits comments on whether such
effects might be more substantial.
1. Benefits of the Proposed Regulation
The Department believes that the benefits of this proposed
regulation, although unquantified, will outweigh its potential costs.
In particular, updating the regulation to address recent, dramatic
changes in the delivery and financing of health care services can
improve health care quality by preventing harmful, inappropriate delays
and denials of health benefits, thereby yielding substantial social
benefits. This conclusion is supported by the findings of the
Commission, The Lewin Group,19 and the U.S. General
Accounting Office (GAO), and by responses to the Department's RFI.
---------------------------------------------------------------------------
\19\ Two different reports prepared by The Lewin Group serve as
sources of information for this analysis. In 1997, the Commission
contracted with The Lewin Group to analyze the benefits and costs of
the information disclosure and external appeals provisions of the
Consumer Bill of Rights. The resulting report, dated November 15,
1997, is entitled ``Consumer Bill of Rights and Responsibilities:
Information Disclosure and External Appeals.'' The Lewin Group also
prepared a report dated May 21, 1998, for the Kaiser Family
Foundation, Sierra Health Foundation, and California Wellness
Foundation, entitled Analysis of the Survey of Consumer Experiences
in Managed Care, Summary of the Findings.
---------------------------------------------------------------------------
The evidence of changes in the health care system is compelling. In
a 1995 survey of 2,000 physicians, 59 percent said their decisions
regarding hospital length of stay were subject to review. Forty-five
percent were subject to review in connection with site-of-care
decisions, as were 39 percent in connection with treatment
appropriateness. On average for various types of treatment, plans
initially denied between 1.8 percent (for cardiac catheterizations) and
5.8 percent (for mental health referrals) of physician-recommended
actions. Average denial rates following appeal ranged from 0.7 percent
(for cardiac catheterizations) to 3.0 percent (for mental health
referrals). (Dahlia K. Remler et al., ``What do Managed Care Plans Do
to Affect Care?
[[Page 48400]]
Results from a Survey of Physicians,'' Inquiry 34: 196-204 (Fall
1997).)
The Department believes that excessive delays and inappropriate
denials of health benefits are relatively rare. Most claims are
approved in a timely fashion. Many claim denials and delays are
appropriate given the plan's terms and the circumstances at hand.
Nonetheless, a substantial number of excessive delays and inappropriate
denials do occur. When they do, participants and beneficiaries can
suffer grievous, avoidable harm.
The proposed regulation's new standards for processing health
benefit claims will reduce the incidence of excessive delays and
inappropriate denials, preventing serious, avoidable lapses in health
care quality and resultant injuries and losses to participants and
beneficiaries. It will raise participants' and beneficiaries' level of
confidence in and satisfaction with their health care benefits, thereby
enhancing the value of those benefits. It will improve plans' awareness
of participant, beneficiary, and provider concerns, prompting plan
responses that improve health care quality. Finally, by helping assure
prompt and precise adherence to contract terms and by improving the
flow of information between plans and enrollees, the proposed
regulation will bolster the efficiency of health care insurance
markets.
2. Preventing Harmful Errors
The 1997 survey of Sacramento-area managed care enrollees conducted
by the The Lewin Group identified delay or denial of coverage as the
single most prevalent difficulty, reported by 42 percent of enrollees
with difficulty. Among those experiencing delays or denials, 41 percent
suffered resultant financial losses, while 8 percent lost more than
$1,000. Twenty-seven percent lost time from school or work, and 9
percent lost more than 10 days. Eleven percent reported worsened
health; 3 percent were permanently disabled. It is likely that many of
the reported coverage delays and denials were appropriate, but it is
also likely that at least some were not. The proposed regulation will
help reduce the number of managed care enrollees harmed by delay or
denial of health coverage.
The report prepared for the Commission by the The Lewin Group
documents the potential benefits of improved health benefits appeals
processes. The report focuses on external appeals, but the Department
believes that, by improving plans' internal appeals processes, the
proposed regulation will yield at least some of these same benefits.
According to Lewin, both consumers and plans can benefit from improved
appeals processes. Effective appeals procedures can prevent claims
disputes from escalating into costly litigation, thereby saving money
for both plans and consumers. Such procedures can also improve consumer
confidence and may elevate health care quality, Lewin says.
The Commission's Consumer Bill of Rights notes that improved claims
and appeals procedures serve many purposes. It notes that ``first and
foremost, enhanced internal and external review processes will assist
consumers in obtaining access to appropriate services in a timely
fashion, thus maximizing the likelihood of positive health outcomes.''
The Commission's final report to the President, entitled ``Quality
First: Better Health Care for All Americans,'' also documents the
expected benefits of improving claims and appeals procedures. Chapter
10, ``Reducing Errors and Increasing Safety in Health Care,'' points
out that some patients suffer harm when ``inappropriate benefit
coverage decisions * * * impinge on or limit the delivery of necessary
care.'' A wrongful denial of coverage ``can lead to a delay in care or
to a decision to forego care entirely.'' The report points out that
``even a small number of mistakes * * * can have serious, costly, or
fatal consequences,'' such as ``additional health expenses, increased
disability, lost wages, and lost productivity.''
3. Improving Consumer Confidence
With respect to consumer confidence, the Consumer Bill of Rights
concludes that shorter time frames for claims and appeals handling will
improve participants' and beneficiaries' confidence in their health
plans. It states that ``the opportunity for consumers to be heard by
people whose decisions significantly touch their lives evidences
respect for the dignity of consumers as individuals and engenders their
respect for the integrity of the institutions that serve them.''
The proposed regulation will do much to improve the public's
general perception of managed care. In various surveys, consumers have
expressed concern that plans sometimes withhold care or benefits. The
ability to get a promised benefit, particularly when sick or disabled,
is at the heart of these consumer concerns. A Kaiser Family Foundation/
Harvard University survey 20 found that a majority of
Americans say managed care plans have made it harder for people who are
sick to see medical specialists and have decreased the quality of
health care for the sick. A majority of those in managed care plans are
very or somewhat worried that their health plan would be more concerned
about saving money than about what is the best treatment for them if
they are sick. Improved confidence may in itself represent derivation
of greater value from health care coverage.
---------------------------------------------------------------------------
\20\ ``Kaiser/Harvard National Survey of Americans' Views on
Consumer Protection in Managed Care,'' Kaiser Family Foundation,
January 1998.
---------------------------------------------------------------------------
4. Signaling Consumer and Provider Concerns
Effective claims procedures can also improve health care and health
plan quality by serving as a communication channel, providing feedback
from participants, beneficiaries, and providers to plans about quality
issues.
The Consumer Bill of Rights asserts that enhanced appeals
procedures ``can be used to bridge communication gaps between consumers
and their health plans and providers, and to provide useful information
to all parties regarding effective treatment.''
GAO 21 points out that plan participants and
beneficiaries who have a choice of coverage options and who experience
difficulty with their health plan may respond by simply moving to a
different coverage option. This response is especially likely if
participants and beneficiaries believe that their plans' claims and
appeals procedures will not effectively resolve their difficulty.
Unlike initiating an appeal, however, this response may fail to alert
plans to the difficulty that prompted it if plans do not inquire into
their loss of members. More effective appeals procedures can give
participants and beneficiaries an alternative way to respond to
difficulties with their plans. Plans in turn can use the information
gleaned from the appeals process to improve services.
---------------------------------------------------------------------------
\21\ HMO Complaints and Appeals: Most Key Procedures in Place,
but Others Valued by Consumers Largely Absent (GAO/HEHS-98-119, May
12, 1998)
---------------------------------------------------------------------------
By providing an alternative to disenrollment, improved claims and
appeals procedures may also reduce disenrollment rates. Although such
disenrollments may serve to lower expenses for managed care
organizations (MCOs) in the short term, lowering disenrollment rates
may offer MCOs additional incentives to keep enrollees healthy over the
long term, prompting efforts to promote preventive
[[Page 48401]]
care and healthy lifestyles. In contrast, the high disenrollment rates
associated with ineffective claims and appeals procedures discourage
MCOs from investing in such efforts. Such efforts by MCOs may yield
long term improvements in population health and reductions in national
health care costs.
5. Improving Health Market Efficiency
Finally, clarification of existing requirements for information
disclosure with respect to claims and appeals procedures may have
significant benefits for participants and beneficiaries, according to
GAO and others. Several studies have found that participants and
beneficiaries generally do not understand procedures or their rights
with respect to claims and appeals. GAO contends that effective
communication with plan participants is one of the most important
elements of a claims and appeals procedure, and that improved
understanding of these procedures is likely to result in expedited
claims and a reduction of unwarranted appeals.
6. Beneficial Improvements
The proposed regulation includes elements of effective claims and
appeals procedures that are highly likely to yield substantial
benefits. These elements have been identified and endorsed by several
respondents to the Department's RFI, GAO, and/or the Commission.
The Department's RFI elicited a number of responses highlighting
serious weak points in current health benefits claims and appeals
procedure standards. Several respondents cited instances of delays of
120 days or even 6 or 7 months in deciding claims and appeals, and a
lack of objectivity in some decisions. They characterized as inadequate
the information plans provide to participants and beneficiaries when
denying claims and appeals. (Some similar responses were received in
connection with non-health welfare and pension benefit claims.) Several
respondents specifically recommended requiring fuller disclosure of
information on claims and appeal procedures and decisions, and faster
and fuller reviews of disputed claims, including review by medical
professionals where appropriate.
GAO interviewed organizations representing a range of interests,
including private accreditation agencies, consumer advocates,
regulators, and the health industry. Through these interviews, GAO
heard consistently that there are three essential elements to any
complaint and appeal system. These elements are timeliness, integrity
in the decision making process, and effective communications. The
Department supports the view that improved requirements regarding these
features of a claims and appeals process will be beneficial to
participants and beneficiaries and has addressed each of these areas in
the proposed regulation.
Based on its interviews, GAO further found that timeliness
generally consists of two key elements--explicit time periods and
expedited review. Although the organizations varied as to the exact
length of time that they considered appropriate, all agreed that
expedited procedures are critical. The Department supports the view
that procedures that are responsive to the clinical urgency of a
situation can prevent harm to a patient's health or life and thus have
a positive impact on health outcomes.
All the organizations interviewed by GAO agreed that integrity of
the decision making process is a critical component of an appeals
procedure. GAO concluded that procedures consisting of certain key
elements can empower participants and enhance the perception of
fairness regarding a plan's procedures. The proposed regulation
incorporates many of these factors, including requiring that certain
decisions be made with the assistance of a medical professional with
appropriate expertise, and that certain decisions be made by
individuals not involved in previous denials.
The Commission's final report placed ``highest priority'' on
``creating systems that minimize errors and correct them in a timely
fashion,'' concluding that ``one way to reduce the number of injuries
related to inappropriate decisions to deny insurance coverage for
services that ultimately are determined to be medically necessary and
covered by the plan is to establish more timely systems to allow
consumers to appeal plan decisions. Establishment of such systems can
go a long way toward reducing the number of injuries caused by
inappropriate decisions to deny coverage.'' The proposed regulation
will help ensure the establishment of such systems.
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 likely to have
a significant economic impact on a substantial number of small
entities. If an agency determines that a proposed rule is likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires that the agency present an
initial regulatory flexibility analysis at the time of the publication
of the notice of proposed rulemaking describing the impact of the rule
on small entities and seeking public comment on such impact. Small
entities include small businesses, organizations, and governmental
jurisdictions.
For purposes of analysis under the RFA, the Pension and Welfare
Benefits Administration (PWBA) proposes to continue to consider a small
entity to be an employee benefit plan with fewer than 100 participants.
The basis of this definition is found in section 104(a)(2) of ERISA,
which permits the Secretary of Labor to prescribe simplified annual
reports for pension plans which cover fewer than 100 participants.
Under section 104(a)(3), the Secretary may also provide for simplified
annual reporting and disclosure if the statutory requirements of part 1
of Title I of ERISA would otherwise be inappropriate for welfare
benefit plans. Pursuant to the authority of section 104(a)(3), the
Department has previously issued at 29 CFR 2520.104-20, 2520.104-21,
2520.104-41, 2520.104-46 and 2520.104b-10 certain simplified reporting
provisions and limited exemptions from reporting and disclosure
requirements for small plans, including unfunded or insured welfare
plans covering fewer than 100 participants and which satisfy certain
other requirements.
Further, while some large employers may have small plans, in
general most small plans are maintained by small employers. Thus, PWBA
believes that assessing the impact of this proposed rule on small plans
is an appropriate substitute for evaluating the effect on small
entities. The definition of small entity considered appropriate for
this purpose differs, however, from a definition of small business
based on size standards promulgated by the Small Business
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business
Act (5 U.S.C. 631 et seq.). PWBA therefore requests comments on the
appropriateness of the size standard used in evaluating the impact of
this proposed rule on small entities.
On this basis, however, PWBA has preliminarily determined that this
rule will not have a significant economic impact on a substantial
number of small entities. In support of this determination, and in an
effort to provide a sound basis for this conclusion, PWBA has
considered the elements of an initial regulatory flexibility analysis
in the discussion that follows.
[[Page 48402]]
This regulation applies to all small employee benefit plans covered
by ERISA. Employee benefit plans with fewer than 100 participants
include 629,000 pension plans, 2.6 million health plans, and 3.4
million non-health welfare plans (mainly life and disability insurance
plans).
The proposed regulation amends the Department's current benefit
claims regulation, which implements ERISA's statutory claims and
appeals requirements. Both the Act and the current regulation require
plans to maintain procedures to determine claims and to review disputed
claims determinations. The compliance requirements of this proposed
regulation consist of new standards for claims and appeals procedures.
The Department believes that revising claims and appeals procedures
to meet the new standards and administering those revised procedures
requires a combination of professional and clerical skills. Some claims
determinations involve unique circumstances or issues and therefore
demand professional attention, while others are straightforward or
formulaic and can be carried out by clerical personnel. Professional
skills pertaining to employee benefits law and plan design and
administration are needed to design new procedures, to weigh facts and
circumstances against plan provisions in order to reach decisions on
unique claims, and to prepare forms to be used in providing notice of
claims and appeals determinations. Clerical skills are needed to make
formulaic determinations and to fill in and distribute notice forms.
The Department estimates that the ongoing, annual cost to small
plans of complying with the proposed regulation will amount to $6
million on aggregate, which amounts to $0.04 per claim or $0.13 per
participant, in 2000. This ongoing cost will change each year as claims
volume increases or decreases or as the types, or ``mix,'' of claims
that are filed change. The proposed regulation will also impose a one-
time start-up cost of $102 million, or $2.16 per participant, in the
year 2000 to design and implement the new procedures.
Most of the one-time start-up cost is attributable to small pension
plans. The start-up costs for health plans and other welfare plans are
modest primarily because the features of a majority of small welfare
plans are chosen from a finite menu of products offered by insurers and
HMOs. The insurers and HMOs process claims and appeals the same way or
in only a few different ways for all of their small plan customers.
Thus, the cost of revising and implementing a relatively small number
of claims and appeal procedures is spread thinly over a far larger
number of small plans.
The basis of these estimates is explained below, following the
discussion of the Paperwork Reduction Act.
D. Paperwork Reduction Act
The Department, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, PWBA is soliciting comments concerning the proposed
revision of the information collection request (ICR) included in this
Notice of Proposed Rulemaking with respect to Rules and Regulations for
Administration and Enforcement; Claims Procedure. A copy of the ICR may
be obtained by contacting the office listed in the addressee section of
this notice.
The Department has submitted a copy of the proposed information
collection to OMB in accordance with 44 U.S.C. 3507(d) for review of
its information collections. The Department and OMB are particularly
interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Pension and Welfare Benefits Administration. Although comments may be
submitted through November 9, 1998, OMB requests that comments be
received within 30 days of publication of the Notice of Proposed
Rulemaking to ensure their consideration.
ADDRESSES (PRA 95): Gerald B. Lindrew, Office of Policy and
Research, U.S. Department of Labor, Pension and Welfare Benefits
Administration, 200 Constitution Avenue, NW, Room N-5647, Washington,
D.C. 20210. Telephone: (202) 219-4782; Fax: (202) 219-4745. These are
not toll-free numbers.
Appendix
I. Background
Section 503 of ERISA provides that, pursuant to regulations
promulgated by the Secretary of Labor, each employee benefit plan must
provide adequate notice in writing to any participant or beneficiary
whose claim for benefits under the plan has been denied. This notice
must set forth the specific reasons for the denial and must be written
in a manner calculated to be understood by the claimant. Each plan must
also afford a reasonable opportunity for any participant or beneficiary
whose claim has been denied to obtain a full and fair review of the
denial by the appropriate named fiduciary of the plan.
The Department previously issued a regulation pursuant to section
503 that establishes certain minimum requirements for employee benefit
plan procedures pertaining to claims. The ICR included in the benefit
claims regulation generally requires timely written disclosures to
participants and beneficiaries of employee benefit plans of information
concerning the plan's claims procedures, the basis for the denial of a
claim, and time limits for addressing or appealing the denial of a
claim. These requirements are intended to ensure that plan
administrators provide a full and fair review of claims and that plan
participants and beneficiaries have information that is sufficient to
allow them to exercise their rights under the plan.
II. Current Actions
As described in detail in this preamble, the Department proposes a
number of modifications to the current regulation pursuant to ERISA
section
[[Page 48403]]
503, which establishes minimum requirements for benefit claims
procedures for employee benefit plans. Generally, modifications are
proposed for provisions affecting time frames for decision making,
disclosure and notice requirements, standards of review on appeal, and
consequences of failure to establish and follow reasonable claims
procedures. The methodology and assumptions used in estimating the
burden hours and costs associated with employee benefit plan claims
procedure rules as proposed are described in the analysis of cost,
which follows.
Agency: Department of Labor, Pension and Welfare Benefits
Administration.
Title: Benefit Claims Procedure Regulation pursuant to 29 CFR
2560.503-1.
Type of Review: Revision of a currently approved collection.
OMB Numbers: 1210-0053.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
Total Respondents: 6,690,345.
Total Responses: 63,317,000.
Frequency of Response: On occasion.
Total Annual Burden: 496,000 (1998); 504,000 (1999); 730,000
(2000).
Estimated Annual Cost (Operating and Maintenance): $53,710,000
(1998); $54,520,000 (1999); $89,520,000 (2000).
Comments submitted in response to this notice will be summarized
and/or included in the request for OMB approval of the information
collection request; they will also become a matter of public record.
Analysis of Cost
The Department performed a comprehensive, unified analysis to
estimate the costs of the proposed regulation for purposes of
compliance with Executive Order 12866, the Regulatory Flexibility Act,
and the Paperwork Reduction Act. The methods and results of that
analysis are summarized below.
To estimate the cost of the proposed regulation, it was necessary
to estimate the number of claims procedures and the volume of claims by
type in the ERISA-covered employee benefit plan universe and to make
certain assumptions about the cost of bringing those procedures and
claims and appeals transactions into compliance with the proposed
regulation's provisions.
The Department estimated the number of claims procedures based on
Form 5500 Series data and other sources. With respect to pension plans,
the Department assumes that each plan designs and implements its own
procedure. With respect to welfare plans, the number of claims
procedures is estimated to be smaller than the number of plans. While
large welfare plans are assumed to design and implement their own
procedures, small plans are assumed typically to buy a limited number
of standard products from vendors.
Number of Claims and Appeals Procedures
------------------------------------------------------------------------
Non-health
Pension Health welfare
------------------------------------------------------------------------
Small Plans...................... 629,000 11,000 14,000
Large Plans...................... 62,000 40,000 41,000
Total........................ 690,000 51,000 55,000
--------------------------------------
------------------------------------------------------------------------
The Department estimated claims and appeals volume based on plan
participation and various sources of data indicative of the number of
claims and appeals per participant. The number of claims per
participant is estimated to be far higher for plans with ongoing claim
activity, such as health and dental plans, than for plans with one-time
or highly contingent claim activity, such as pension and disability
plans. Volume was adjusted to account for expected growth in
participation.
Where appropriate, the estimated number of claiming events affected
by the proposed regulation was reduced to reflect the generally high
levels of compliance with the proposed regulation's provisions
represented by plans' current, normal business practices. (Responses to
the Department's RFI and numerous other sources indicate that many
plans are already largely in compliance with many of the proposed
regulation's provisions, either as a result of state law or other
requirements, or in response to plan sponsor and participant demands.)
For purposes of the Paperwork Reduction Act, the Department assumes
that 100 percent of small, fully insured welfare plans and 75 percent
of all other plans use service providers to carry out information
collection and disclosure tasks. Based on these assumptions, plan
participation and numbers of procedures are distributed as shown in the
chart below.
Participation and Procedures by Plan Type and Use of Service Providers
----------------------------------------------------------------------------------------------------------------
Service providers In-house
----------------------------------------------------------------------------------------------------------------
Pension Plans:
Participation........................ 65 MM................................. 22 MM
Procedures........................... 518,000............................... 173,000
Health Plans:
Participation........................ 56 MM................................. 14 MM
Procedures........................... 39,000................................ 12,000
Other Welfare Plans:
Participation........................ 131 MM................................ 37 MM
Procedures........................... 44,000................................ 11,000
----------------------------------------------------------------------------------------------------------------
The Department classified as preparation burden the resources
expended on a one-time, start-up basis to revise the forms used for
notices required by the proposed regulation and attributed this burden
to the year 2000. These costs were estimated as a function of the
number of claims and appeals procedures affected. The Department
[[Page 48404]]
classified as distribution burden the resources expended to process
claims and appeals, including the resources used to fill in and
distribute notice forms and provide for any associated disclosures.
These costs were estimated as a function of the number of claims and
appeals affected.
The Department developed assumptions regarding the burden of
complying with the proposed regulation's provisions, attributing for
the purpose of this analysis a $11 hourly cost to purely clerical tasks
and a $50 hourly rate to combined professional and clerical tasks,
along with a $0.50 to $1.00 unit cost for materials and distribution of
each claim or appeal decision notice. These assumptions yield the
following estimates of the burden of the proposed regulation's notice
and disclosure requirements for the year 2000. Recall that the
preparation burden is a one-time cost and will be zero in other years,
while the distribution burden will vary with claims volume and mix.
Summary of Notice and Disclosure Burdens, 2000
----------------------------------------------------------------------------------------------------------------
Hours Dollars
----------------------------------------------------------------------------------------------------------------
All Plans................................ 3.5 MM................................ 90 MM
Distribution......................... 2.6 MM................................ 55 MM
Preparation.......................... 0.9 MM................................ 34 MM
Using Service Providers.................. 2.7 MM................................ 83 MM
Distribution......................... 2.1 MM................................ 49 MM
Preparation.......................... 0.7 MM................................ 34 MM
Not Using Service Providers.............. 0.7 MM................................ 6 MM
Distribution......................... 0.5 MM................................ 6 MM
Preparation.......................... 0.2 MM .............................
----------------------------------------------------------------------------------------------------------------
For purposes of Executive Order 12866 and the Regulatory
Flexibility Act, the Department estimated the incremental economic
impact of the proposed regulation `` that is, the added cost of the
proposed regulation relative to a baseline reflecting no proposed
regulation.
Many of the provisions of the proposed regulation represent
clarifications rather than changes of the existing regulation. Such
provisions will have no economic impact. The Department estimated the
impact of changes and additions embodied in the proposed regulation.
The Department separately assessed ongoing costs, which will vary over
time with claims volume and mix, and one-time, start-up costs, which
are assumed to be incurred in 2000.
The Department's estimates of the proposed regulation's ongoing
costs reflect provisions requiring notification following the
submission of benefit requests that do not follow plan filing rules,
limiting to one the appeals required before seeking legal redress,
requiring fuller and fairer review of denied claims on appeal,
requiring disclosure on request following denied appeals, and
establishing longer minimum time allowances for denied health plan
claimants to appeal. They also reflect certain provisions directed
solely at health plans, including those requiring plans to notify
participants in advance of certain terminations of services,
consultation with medical professionals in deciding appeals that
involve medical issues, and shorter deadlines for making standard and
urgent claims and appeals determinations.
The Department developed assumptions regarding the cost of
complying with the proposed regulation's provisions, attributing (as
was done with respect to the burden analysis) an $11 hourly cost to
purely clerical tasks and a $50 hourly rate to combined professional
and clerical tasks. The Department further attributed a cost of $350 to
professional medical reviews. Using these assumptions, the Department
estimates the ongoing cost of the proposed regulation at $30 million in
2000, including $6 million for small plans and $24 million for large
plans. This amounts to $0.04 per claim and $0.09 per participant. The
aggregate amount will vary over time with claims volume and mix.
The proposed regulation will also prompt all plans to design and
implement changes to their claims and appeals procedures, imposing a
one-time, start-up cost. Whether changes will be required, and the
extent of any required changes, depend not on the difference between
the current and proposed regulations' standards, but on the difference
between baseline plan practices and the proposed regulation's
standards. As noted above, there is reason to believe that many plans
are already in compliance or nearly in compliance with the proposed
regulation. Health plan practices in particular often exceed the
proposed regulation's new, higher standards. Nonetheless, it seems
likely that many plans will need to revise at least some aspect of
their formal procedures, even if this means little or no change to
their actual practices.
The Department assumes an average cost to revise procedures of
$100. This yields an estimated $80 million in start-up costs for all
plans in 2000, including $65 million for small plans. Most of the small
plan costs are attributable to small pension rather than health or
other welfare plans, reflecting the Department's understanding that
small welfare plans using service providers share a limited menu of
common claims procedures and therefore share the cost of revising those
relatively few procedures.
The Department also estimated the one-time cost of preparing claims
and appeals determination forms as part of its estimates of the
proposed regulation's notice and disclosure burdens in connection with
the Paperwork Reduction Act, as discussed above. The total cost
(including both the dollar burden and the dollar value of the hour
burden) amounts to $45 million, including $37 million for small plans
and $8 million for large plans. As with the cost to revise procedures,
the small plan cost is attributable mostly to small pension plans.
Summing these, the Department estimates the total start-up cost
associated with the proposed regulation at $125 million, including $102
million for small plans (most of this being for pension plans) and $22
million for large plans. Given the large volume of claims and number of
participants involved, the costs per claim or per participant are
small. These costs respectively amount to $0.15 and $0.35 for all
plans, $0.65 and $2.16 for small plans, and $0.03 and
[[Page 48405]]
$0.07 for large plans. The Department solicits comments on these
estimates.
Combining ongoing and start-up costs, the Department's estimates of
the total cost of the proposed regulation in 2000 are reported in the
table below. The Department solicits comments on these estimates.
Recall that the one-time, start-up costs occur only in 2000 and not in
other years, and that the ongoing costs will vary over time with claims
volume and mix.
Estimated Total Cost of Proposed Regulation, 2000
----------------------------------------------------------------------------------------------------------------
All plans Small plans Large plans
----------------------------------------------------------------------------------------------------------------
Total Cost....................... $155 MM.................. $108 MM................. $46 MM
Per claim.................... 0.19..................... 0.69.................... 0.07
Per participant.............. 0.44..................... 2.29.................... 0.15
Ongoing Cost..................... 30 MM.................... 6 MM.................... 24 MM
Per claim.................... 0.04..................... 0.04.................... 0.04
Per participant.............. 0.09..................... 0.13.................... 0.08
Start-Up Cost.................... 125 MM................... 102 MM.................. 22 MM
Per claim.................... 0.15..................... 0.65.................... 0.03
Per participant.............. 0.35..................... 2.16.................... 0.07
----------------------------------------------------------------------------------------------------------------
E. Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this proposed rule does not
include any Federal mandate that may result in expenditures by State,
local, or tribal governments, but does include mandates which may
impose an annual burden of $100 million or more on the private sector.
The basis for this statement is described in the analysis of costs for
purposes of Executive Order 12866 and the Regulatory Flexibility Act.
F. Small Business Regulatory Enforcement Fairness Act
The rule proposed in this action is subject to the provisions of
the Small Business Regulatory Enforcement Fairness Act of 1996 (5
U.S.C. 801 et seq.) (SBREFA) and is a major rule under SBREFA. The
rule, if finalized, will be transmitted to Congress and the Comptroller
General for review.
Statutory Authority
This proposed regulation would be adopted pursuant to the authority
contained in sections 503 and 505 of ERISA (Pub. L. 93-406, 88 Stat.
893, 894; 29 U.S.C. 1133, 1135) and under the Secretary of Labor's
Order No. 1-87, 52 FR 13139 (April 21, 1987).
List of Subjects in 29 CFR Part 2560
Employee benefit plans, Employee Retirement Income Security Act,
Benefit Claims Procedures.
For the reasons set out in the preamble, 29 CFR part 2560 is
proposed to be amended as follows:
PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT
1. The authority citation for part 2560 continues to read as
follows:
Authority: Secs. 502, 505 of ERISA, 29 U.S.C. 1132, 1135, and
Secretary's Order 1-87, 52 FR 13139 (April 21, 1987).
Section 2560-502-1 also issued under sec. 502(b)(1), 29 U.S.C.
1132(b)(1).
Section 2560-502i-1 also issued under sec. 502(i), 29 U.S.C.
1132(i).
Section 2560-503-1 also issued under sec. 503, 29 U.S.C. 1133.
2. Section 2560.503-1, is proposed to be revised to read as
follows:
Sec. 2560.503-1 Claims procedure.
(a) Scope and purpose. In accordance with the authority of sections
503 and 505 of the Employee Retirement Income Security Act of 1974
(ERISA or the Act), 29 U.S.C. 1133, 1135, this section sets forth
minimum requirements for employee benefit plan procedures pertaining to
claims for benefits by participants and beneficiaries (hereinafter
referred to as claimants) or their representatives. Except as otherwise
specifically provided herein, these requirements apply to every
employee benefit plan described in section 4(a) and not exempted under
section 4(b) of the Act.
(b) Obligation to establish and maintain reasonable claims
procedures. Every employee benefit plan shall establish and maintain
reasonable procedures governing the filing of benefit claims,
notification of benefit determinations, and appeal of adverse benefit
determinations (hereinafter collectively referred to as claims
procedures). The claims procedures for a plan will be deemed to be
reasonable only if:
(1) The claims procedures comply with the requirements of
paragraphs (c), (d), (e), (f), (g), and (h) of this section, as
appropriate;
(2) A description of all claims procedures (including, in the case
of group health plan services or benefits, procedures for obtaining
preauthorizations, approvals, or utilization review decisions) and the
applicable time frames is included as part of a summary plan
description meeting the requirements of 29 CFR 2520.102-3;
(3) The claims procedures do not contain any provision, and are not
administered in a way, that requires a claimant to submit an adverse
benefit determination to arbitration or to file more than one appeal of
an adverse benefit determination prior to bringing a civil action under
section 502(a) of the Act;
(4) The claims procedures do not contain any provision, and are not
administered in a way, that unduly inhibits or hampers the initiation
or processing of claims for benefits. For example, a provision or
practice that requires payment of a fee or costs as a condition to
making a claim or to appealing an adverse benefit determination would
unduly inhibit the initiation and processing of claims for benefits.
Also, the denial of a claim for failure to obtain a preauthorization
under circumstances that would make obtaining such preauthorization
impossible or where application of the preauthorization process could
seriously jeopardize the life or health of the claimant (e.g., the
claimant is unconscious and has no representative or is in extremely
serious need of immediate care at the time medical treatment is
required) would constitute a practice that unduly inhibits the
initiation and processing of a claim;
(5) The claims procedures do not foreclose or limit the ability of
a representative to act on behalf of the claimant; and
(6) The claims procedures provide that, in the event that a
claimant or a representative of a claimant makes a benefit request that
fails to comply with the requirements of the plan's procedures for
making a claim, the plan administrator shall notify the claimant
[[Page 48406]]
of such failure and of the plan's procedures governing the making of a
claim. The plan administrator shall provide this notification within a
reasonable period of time appropriate to the circumstances, taking into
account any pertinent medical exigencies, not to exceed 5 days (24
hours in the case of a benefit request involving urgent care) following
receipt of the benefit request by the plan. The benefit request shall
be deemed to have been received by the plan when the claimant or
representative makes a communication reasonably calculated to bring the
request to the attention of persons responsible for benefit claim
decisions. Communication with any of the following shall be deemed a
communication reasonably calculated to bring the claim to the attention
of persons responsible for benefit claim decisions:
(i) In the case of a single employer plan, either the
organizational unit customarily in charge of employee benefits matters
for the employer or any officer of the employer;
(ii) In the case of a plan to which more than one employer
contributes or which is established or maintained by an employee
organization, the joint board, association, committee, or similar group
(or any member of any such board, association, committee or group)
responsible for establishing or maintaining the plan or the person or
the organizational unit customarily in charge of employee benefit
matters;
(iii) In the case of a plan the benefits of which are provided or
administered by an insurance company, insurance service, third-party
contract administrator, health maintenance organization, or similar
entity, the person or organizational unit with the authority to pre-
approve, approve, or deny benefits under the plan or any officer of the
insurance company, insurance service, third-party contract
administrator, health maintenance organization, or similar entity.
(iv) For purposes of paragraph (b)(6) of this section, a
communication shall be deemed to have been brought to the attention of
an organizational unit if it is received by any person employed in such
unit.
(7) The claims procedures provide that, in the case of a claim
involving urgent care within the meaning of paragraph (j)(1), for an
expedited process pursuant to which--
(i) A request for an expedited determination may be submitted
orally or in writing by the claimant or the claimant's representative;
and
(ii) All necessary information, including the plan's benefit
determination, shall be transmitted between the plan and the claimant
by telephone, facsimile or other similarly expeditious method.
(c) Claim for benefits. For purposes of this section, a claim for
benefits is a request for a plan benefit or benefits, made by a
claimant or by a representative of a claimant, that complies with a
plan's reasonable procedure for making benefit claims. In the case of a
group health plan, a claim for benefits includes a request for a
coverage determination, for preauthorization or approval of a plan
benefit or for a utilization review determination in accordance with
the terms of the plan.
(d) Notification of benefit determination. (1) Except as provided
in paragraphs (d)(2) and (d)(3) of this section, the plan administrator
shall notify a claimant, in accordance with paragraph (e) of this
section, of the plan's benefit determination within a reasonable period
of time after receipt of the claim, but not later than 90 days after
receipt of the claim by the plan, unless the claimant (or the
claimant's representative) has failed to submit sufficient information
to determine whether, or to what extent, benefits are covered or
payable under the plan. In the case of such a failure, the plan
administrator shall notify the claimant as soon as possible, but not
later than 45 days after receipt of the claim by the plan, of the
specific information necessary to complete the claim. The claimant
shall then be afforded not less than 180 days after receipt of such
notice to furnish the specified information to the plan. The plan
administrator shall notify the claimant of the plan's benefit
determination within a reasonable period of time, but not later than 45
days after the earlier of: The plan's receipt of the specified
additional information, or the end of the period afforded the claimant
to submit the specified additional information. If special
circumstances require an additional extension of time for processing
the claim, the plan administrator shall provide the claimant with
notice of the extension prior to the termination of the initial 90-day
period. In no event shall such extension exceed a period of 90 days
from the end of such initial period. The extension notice shall
indicate the special circumstances requiring an extension of time and
the date by which the plan expects to make the benefit determination.
(2) In the case of a group health plan, the plan administrator
shall notify a claimant of the plan's benefit determination in
accordance with paragraph (d)(2)(i), (d)(2)(ii), or (d)(2)(iii) of this
section, as appropriate.
(i) In the case of a claim involving urgent care, within the
meaning of paragraph (j)(1) of this section, the plan administrator
shall notify the claimant, in accordance with paragraph (e) of this
section, of the plan's benefit determination as soon as possible,
taking into account the medical exigencies of the case, after receipt
of the claim by the plan, but not later than 72 hours after receipt of
the claim by the plan, unless the claimant (or the representative of
the claimant) fails to provide sufficient information to determine
whether, or to what extent, benefits are covered or payable under the
plan. In the case of such a failure, the plan administrator shall
notify the claimant as soon as possible, but not later than 24 hours
after receipt of the claim by the plan of the specific information
necessary to complete the claim. The claimant shall be afforded a
reasonable amount of time, taking into account the circumstances, but
not less than 48 hours, to provide the specified information. The plan
administrator shall notify the claimant of the plan's benefit
determination as soon as possible , but in no case later than 48 hours
after the earlier of: The plan's receipt of the specified information,
or the end of the period afforded the claimant to provide the specified
additional information.
(ii) If a group health plan has approved a benefit or service to be
provided for a specified or indefinite period of time, any reduction or
termination of such benefit or service (other than by plan amendment or
termination) before the end of such period shall constitute an adverse
benefit determination within the meaning of paragraph (j)(2) of this
section. To the extent that such an adverse benefit determination
denies a claim involving urgent care, as defined in paragraph (j)(1) of
this section, the plan administrator shall provide notice of the
adverse benefit determination, in accordance with paragraph (e) of this
section, at a time sufficiently in advance of the reduction or
termination to allow the claimant (or a representative of the claimant)
to appeal and obtain a determination on review of that adverse benefit
determination before the benefit is reduced or terminated.
(iii) In the case of a claim that does not involve urgent care, the
plan administrator shall notify the claimant, in accordance with
paragraph (e) of this section, of the plan's benefit determination
within a reasonable period of time appropriate to the circumstances,
taking into account any
[[Page 48407]]
pertinent medical circumstances, but not later than 15 days after
receipt of the claim by the plan, unless the claimant (or the
claimant's representative) has failed to submit sufficient information
to determine whether, or to what extent, benefits are covered or
payable under the plan. In the case of such a failure, the plan
administrator shall notify the claimant of the specific information
necessary to complete the claim within a reasonable period of time
appropriate to the circumstances, taking into account any pertinent
medical circumstances, but not later than 5 days after receipt of the
claim by the plan. The claimant shall then be afforded not less than 45
days after receipt of such notice to furnish the specified information
to the plan. The plan administrator shall notify the claimant of the
plan's benefit determination within a reasonable period of time after
the earlier of: The plan's receipt of the specified additional
information, or the end of the period afforded the claimant to submit
the specified additional information, but in no event later than 15
days after the earlier of those two dates.
(3) In the case of a plan that provides disability benefits,
paragraph (d)(1) of this section shall apply to claims involving
disability benefits, except that ``30 days'' shall be substituted
therein for ``90 days'' and ``15 days'' shall be substituted therein
for ``45 days,'' wherever such terms appear in that paragraph.
(e) Manner and content of notification of benefit determination.
(1) Except as provided in paragraph (e)(2) of this section, the plan
administrator shall provide a claimant with written or electronic
notification of the plan's benefit determination. Any electronic
notification shall comply with the standards imposed by 29 CFR
2520.104b-1(c)(1)(i), (iii), and (iv). In the case of an adverse
benefit determination, within the meaning of paragraph (j)(2) of this
section, the notification shall set forth, in a manner calculated to be
understood by the claimant:
(i) The specific reasons for the adverse determination;
(ii) Reference to the specific plan provisions (including any
internal rules, guidelines, protocols, criteria, etc.) on which the
determination is based;
(iii) A description of any additional material or information
necessary for the claimant to complete the claim and an explanation of
why such material or information is necessary;
(iv) 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 the
Act following an adverse benefit determination on review; and
(v) In the case of an adverse benefit determination by a group
health plan involving a claim for urgent care, a description of the
expedited review process applicable to such claims.
(2) In the case of an adverse benefit determination by a group
health plan involving a claim for urgent care, the information
described in paragraph (e)(1) of this section, may be provided to the
claimant orally within the time frame prescribed in paragraph (d)(2)(i)
of this section, provided that a written or electronic notification in
accordance with paragraph (e)(1) of this section, is furnished to the
claimant not later than 3 days after the oral notification.
(f) Appeal of adverse benefit determinations. (1) In general. Every
employee benefit plan shall establish and maintain a procedure by which
a claimant shall have a reasonable opportunity to appeal an adverse
benefit determination, within the meaning of paragraph (j)(2) of this
section, to an appropriate named fiduciary of the plan, and under which
there will be a full and fair review of the claim and the adverse
benefit determination.
(2) Full and fair review. A claims procedure will not be deemed to
provide a claimant with a reasonable opportunity for a full and fair
review of a claim and adverse benefit determination unless:
(i) In the case of all plans, the claims procedure--
(A) Provides claimants a reasonable period of time, related to the
nature of the benefit which is the subject of the claim and the
attendant circumstances within which to appeal the determination. In
the case of a group health plan or a disability plan, such period shall
not be less than 180 days following receipt by the claimant of a
written notification of the adverse benefit determination. In the case
of a plan, other than a group health plan or a disability plan, such
period of time shall not be less than 60 days following receipt by the
claimant of a written notification of the adverse benefit
determination;
(B) Provides claimants the opportunity to submit written comments,
documents, records, and other information relating to the claim for
benefits;
(C) Provides that a claimant shall be provided, upon request,
reasonable access to, and copies of, all documents, records, and other
information relevant to the claimant's claim for benefits, without
regard to whether such documents, records, and information were
considered or relied upon in making the adverse benefit determination
that is the subject of the appeal.
(D) Provides for a review that:
(1) Does not afford deference to the initial adverse benefit
determination, and
(2) Takes into account all comments, documents, records, and other
information submitted by the claimant (or the claimant's
representative) relating to the claim, without regard to whether such
information was submitted or considered in the initial benefit
determination; and
(E) Provides for review by an appropriate named fiduciary of the
plan who is neither:
(1) The party who made the adverse benefit determination that is
the subject of the appeal, nor
(2) The subordinate of such party.
(ii) In the case of a group health plan, the claims procedure--
(A) Provides that, in deciding appeals of any adverse benefit
determination involving a medical judgment, including determinations
with regard to whether a particular treatment, drug, or other item is
experimental, investigational, or not medically necessary or
appropriate, the appropriate named fiduciary shall consult with a
health care professional, as defined in paragraph (j)(5) of this
section, who has appropriate training and experience in the field of
medicine involved in the medical judgment;
(B) Provides that the health care professional engaged for purposes
of a consultation under paragraph (f)(2)(ii)(A) of this section shall
be independent of any health care professional who participated in the
initial adverse benefit determination; and
(C) Provides in the case of a claim involving urgent care, within
the meaning of paragraph (j)(1) of this section, for an expedited
review process pursuant to which--
(1) A request for an expedited appeal of an adverse benefit
determination may be submitted orally or in writing by the claimant or
the claimant's representative; and
(2) All necessary information, including the plan's benefit
determination on review, shall be transmitted between the plan and the
claimant by telephone, facsimile, or other available similarly
expeditious method.
(g) Notification of benefit determination on review. (1) Except as
[[Page 48408]]
provided in paragraphs (g)(2) and (g)(3) of this section--
(i) The plan administrator shall notify a claimant, in accordance
with paragraph (h) of this section, of the plan's benefit determination
on review within a reasonable period of time, but not later than 60
days after the plan's receipt of the claimant's request for review of
an adverse benefit determination, unless special circumstances (such as
the need to hold a hearing, if the plan procedure provides for a
hearing) require an extension of time for processing, in which case the
claimant shall be notified of the plan's benefit determination on
review as soon as possible, but not later than 120 days after receipt
of a request for review.
(ii) In the case of a plan with a committee or board of trustees
designated as the appropriate named fiduciary that holds regularly
scheduled meetings at least quarterly, the appropriate named fiduciary
shall make a benefit determination no later than the date of the
meeting of the committee or board that immediately follows the plan's
receipt of a request for review, unless the request for review is filed
within 30 days preceding the date of such meeting. In such case, a
benefit determination may be made by no later than the date of the
second meeting following the plan's receipt of the request for review.
If special circumstances (such as the need to hold a hearing, if the
plan procedure provides for a hearing) require a further extension of
time for processing, a benefit determination shall be rendered not
later than the third meeting of the committee or board following the
plan's receipt of the request for review. If such an extension of time
for review is required because of special circumstances, the plan
administrator shall provide the claimant with written notice of the
extension, describing the special circumstances and the date as of
which the benefit determination will be made, prior to the commencement
of the extension. The plan administrator shall provide the claimant
with notification of the benefit determination in accordance with
paragraph (h) of this section as soon as possible, but not later than 5
days after the benefit determination is made.
(2) In the case of a group health plan--
(i) The plan administrator shall notify the claimant, in accordance
with paragraph (h) of this section, of the plan's benefit determination
on review within a reasonable period of time appropriate to the
circumstances, taking into account any pertinent medical circumstances,
but not later than 30 days after receipt by the plan of the claimant's
request for review of an adverse benefit determination, unless the
claim involves urgent care.
(ii) If a claim involves urgent care, the plan administrator shall
notify the claimant of the plan's benefit determination on review as
soon as possible, taking into account the medical exigencies of the
case, after receipt by the plan of the request for review, but not
later than 72 hours after receipt of the claimant's request for review
of an adverse benefit determination.
(3) Claims involving disability benefits shall be governed by
paragraph (g)(1)(i) of this section, except that ``45 days'' shall be
substituted therein for ``60 days,'' and ``90 days'' shall be
substituted therein for ``120 days,'' wherever such terms appear in
that paragraph.
(4) The plan administrator shall, in accordance with the statements
required by paragraphs (h)(3) and (h)(4) of this section, provide
claimants with copies of, or reasonable access to, the documents and
records described in paragraph (h)(3) or paragraph (h)(4) of this
section, or both, as appropriate.
(h) Manner and content of notification of benefit determination on
review. The plan administrator shall provide a claimant with written or
electronic notification of a plan's benefit determination on review.
Any electronic notification shall comply with the standards imposed by
29 CFR 2520.104b-1(c)(1)(i), (iii), and (iv). In the case of an adverse
benefit determination, within the meaning of paragraph (j)(2) of this
section, the notification must set forth, in a manner calculated to be
understood by the claimant:
(1) The specific reasons for the adverse determination;
(2) Reference to the specific plan provisions (including any
internal rules, guidelines, protocols, criteria, etc.) on which the
benefit determination is based;
(3) A statement that the claimant is entitled to receive, upon
request, reasonable access to, and copies of, all documents and records
relevant to the claimant's claim for benefits, without regard to
whether such records were considered or relied upon in making the
adverse benefit determination on review, including any reports, and the
identities, of any experts whose advice was obtained; and
(4) A statement of the claimant's right to bring a civil action
under section 502(a) of the Act following an adverse benefit
determination on review.
(i) Failure to establish and follow reasonable claims procedures.
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.
(j) Definitions. For purposes of this section--
(1) (i) A claim involving urgent care is any claim for medical care
or treatment with respect to which the application of the time periods
for making non-urgent care determinations--
(A) Could seriously jeopardize the life or health of the claimant
or the ability of the claimant to regain maximum function, or,
(B) In the opinion of a physician with knowledge of the claimant's
medical condition, would subject the claimant to severe pain that
cannot be adequately managed without the care or treatment that is
subject of the claim.
(ii) Except as provided in paragraph (j)(1)(iii) of this section,
whether a claim is a ``claim involving urgent care'' within the meaning
of paragraph (j)(1)(i)(A) of this section is to be determined by an
individual acting on behalf of the plan applying the judgment of a
reasonable individual who is not a trained health professional.
(iii) Any claim that a physician with knowledge of the claimant's
medical condition determines is a ``claim involving urgent care''
within the meaning of paragraph (j)(1)(i) of this section shall be
treated as a ``claim involving urgent care'' for purposes of this
section.
(2) The term adverse benefit determination means 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
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 directed at cost containment, as
well as a failure to cover an item of service for which benefits are
otherwise provided because it is determined to be experimental or
investigational or not medically necessary or appropriate.
(3) The term notice or notification means the delivery or
furnishing of information to an individual in a manner that satisfies
the standards of 29
[[Page 48409]]
CFR 2520.104b-1(b) as appropriate with respect to material required to
be furnished or made available to an individual.
(4) The term group health plan has the meaning given that term by
section 733(a) of the Act.
(5) The term health care professional means a physician or other
health care professional licensed, accredited, or certified to perform
specified health services consistent with State law.
(k) Apprenticeship plans. This section does not apply to employee
benefit plans that provide solely apprenticeship training benefits.
(l) Effective date. This section is effective [180 days after
publication of the final regulation].
(m) Applicability Dates. (1) Except as provided in paragraph (m)(2)
of this section, this section shall be applicable to plans on the later
of the effective date or the first day of the first plan year beginning
on or after the effective date.
(2) In the case of a collectively bargained plan that is not
subject to section 302(c)(5) of the Labor Management Relations Act,
1947, 29 U.S.C. 186(c)(5), this section is effective as of the first
day of the plan year beginning on or after the later of: July 1, 1999,
or the date on which the last of the collective bargaining agreements
relating to the plan terminates (determined without regard to any
extension thereof agreed to after July 1, 1999).
Signed at Washington, D.C., this 28th day of August, 1998.
Meredith Miller,
Deputy Assistant Secretary for Policy, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 98-23730 Filed 9-4-98; 8:45 am]
BILLING CODE 4510-29-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.