Mooney, Green, Baker & Saindon, P.C.

1920 L Street, N.W.
Suite 400
Washington, DC  20036

Telephone: 202-783-0010
Telecopier: 202-783-6088

November 2000

    This has been a busy month for everyone, including both the Supreme Court and the Department of Labor. In a case successfully argued by our own John R. (Jack) Mooney, the Supreme Court unanimously agreed to uphold a collectively bargained arbitration award in the face of a strong public policy challenge. At the same time, the Department of Labor has issued a series of long-anticipated regulations that will require significant revisions to the claims and appeal procedures and Summary Plan Descriptions of most employee benefit plans, including all group health, pension and disability plans covered by ERISA.

I.    Supreme Court Upholds Arbitration Award

    In Eastern Associated Coal Corporation v. UMWA, No. 99-1038 (November 28, 2000), the Supreme Court was faced with the issue of whether to enforce an arbitration award requiring that an employee who had failed a drug test twice be returned to a safety-sensitive job. In that case, an employee who drove a 30-ton coal truck tested positive for marijuana. The employer sought to discharge the employee, and the union brought the case to arbitration. The arbitration award refused to permit the discharge, and instead, consistent with Department of Transportation ("DOT") regulations, ordered a 30-day suspension, required that the employee submit to a substance abuse program, and that he undergo ongoing drug tests. After passing four random drug tests, the employee failed the fifth. The employer once again sought his discharge, and the union again took the case to arbitration. Once again, the arbitrator refused to permit the discharge, this time ordering 1) that the employee be suspended without pay for more than three months; 2) that the employee reimburse both the employer and the union for the costs of the two arbitrations; 3) that the employee continue to participate in the substance abuse program; 4) that the employee continue to undergo random drug testing; and 5) that the employee accept discharge if he again tested positive within the next five years. As with his first decision, the arbitrator's award was designed to be consistent with DOT regulations.

    The employer refused to comply with the award, choosing instead to seek to overturn the award in U.S. District Court. The basis for the employer's action was its claim that public policy prohibited the return of drug users to safety-sensitive positions. The employer lost, and appealed to the Court of Appeals. This appeal was also unsuccessful. Finally, the Supreme Court agreed to hear the case.

    Initially, the Court concluded that the real issue was not the correctness under the contract of the arbitrator's award, but rather whether private parties are permitted to contract to return an employee to work under these circumstances, and whether a court would enforce such an agreement. The Court reviewed its existing precedent that states that a collective bargaining agreement is only unenforceable if it is contrary to an "explicit, well defined, and dominant public policy, as ascertained by reference to positive law and not from general considerations of supposed public interests."

    The Court then considered whether provisions of a collectively bargained agreement could be deemed unenforceable in a case where the terms do not violate "positive law" (i.e., where they do not conflict with applicable federal or state law). Without citing any precedent or explaining its reasoning, the Court opined in a single sentence that it was not necessary for the terms of an agreement to violate positive law for it to be considered unenforceable. The Court then went on to consider the applicability of the "public policy" exception to the facts of this case.

    The Court specifically noted the fact that both Congress and the DOT, representing two of the branches of government, had specifically acted to define the scope of governmental regulation regarding drug use in the field of transportation. In such a case, the Court cautioned that "courts should approach with particular caution pleas to divine further public policy in that area." The Court rejected the employer's argument that, through various enactments, Congress had established a strong public policy against drug use by drivers of heavy machinery, noting that congressional policy was far more complex, and embodied concepts of rehabilitation.

    Justice Scalia, joined by Justice Thomas, concurred in the result, but sharply criticized the Court's opinion. In particular, they accused the Court of "opening the door to flaccid public policy arguments," while failing to articulate a comprehensible standard.

II.    Department of Labor Issues Claims Regulations

    As you may recall, two years ago, the Department of Labor (DOL) issued extensive and comprehensive proposed regulations that, if adopted, would have dramatically shortened the time within which plans must respond to claims and decide appeals. (See, October 1998 Legal Report.) Last year, the DOL held a series of public hearings on its proposals, and solicited written comments. (See, February 1999 Legal Report.) In early November, apparently worried that the regulations might never be issued, President Clinton issued a proclamation instructing the DOL to hurry up and issue the final regulations. On November 21, those regulations were finally adopted.

    The new regulations are generally modeled on the earlier proposal. However, they have a number of significant differences. First, and most notably, the earlier regulations would have required fundamental changes in the terms of all employee benefit plans in the way that claims and appeals are handled. The final regulations, although comprehensive in their scope, generally only affect substantial changes for group health plans and disability benefit plans. The time frames applicable to pension benefits and welfare plans providing other than health benefits have not significantly changed.

    Unlike the earlier proposal, the final regulations distinguish between pre-service health claims and post-service health claims, imposing stricter time constraints on the former than on the latter. The strictest time constraints apply to urgent pre-service claims. In another substantial difference from the proposed regulations, the final regulations largely (although not entirely) abandon the special time constraints within which a plan must inform a claimant that his or her claim is incomplete. For a summary of the various time frames, see the chart, infra.

    A.    Scope of Regulations

    The new claims regulations apply to all employee benefit plans. They replace the regulations originally issued by the Department of Labor in 1977.

    B.    Notice of Procedures

    All claims procedures, including procedures for preauthorization and utilization review, along with an explanation of all time limits and other time frames, must be included in the Summary Plan Description (SPD) in a manner that complies with the new SPD regulations. (See, explanation of new SPD Regulations, below.)

    C.    Procedures Designed to Inhibit Appeals

    The regulations prohibit plans from setting up road blocks to impede participants from pursuing their appellate rights. For example, a plan may not charge any sort of fee or impose any costs as a condition of pursuing a claim or appeal. Along the same lines, a plan may not require preauthorization under circumstances in which it is impossible to obtain such preauthorization (such as where the claimant is unconscious) or where such a requirement would jeopardize the participant's life or health.

    A plan may require the filing of up to two appeals of an adverse determination prior to a claimant being permitted to bring a court action. A plan may offer additional levels of appeal, as long as they are voluntary. If a plan does offer such voluntary additional levels of review, it is not permitted to argue that a participant who fails to utilize such additional review levels has failed to exhaust his or her administrative remedies. To the extent a participant elects to utilize such additional levels of review, the plan is required to agree that any timeliness defense (including statute of limitations) is tolled while such additional review is pending. Moreover, such voluntary review may not be offered until any mandatory levels of review are exhausted. Finally, the plan must provide to any claimant who so requests it sufficient information to make an informed judgment about whether to take advantage of the additional review. Included in the information that must be provided is a statement that failure to submit to the additional review will not have any effect on the claimant's rights to any other benefits under the plan, the rules applicable to the additional review, the claimant's right to representation, the process for selecting the decisionmaker, and any circumstances that may affect the decisionmaker's impartiality (such as any financial interest the decisionmaker may have in the result or any past relationship with any party to the review process). Finally, the plan must not impose any fee or cost on any claimant for electing the voluntary review.

    There is one exception to the rule regarding binding arbitration. Single employer collectively bargained plans are allowed to utilize contractual grievance procedures as part of their appeal process. This exception does not apply to multiemployer plans.

    D.    Claims by Someone Other Than the Participant or Beneficiary

    The regulations permit an "authorized representative" to act on behalf of the participant or beneficiary. Additionally, the regulations specifically contemplate that the authorized representative may be the service provider to whom the charges are owed. Although a plan may generally adopt reasonable procedures for determining whether a purported representative is actually authorized to act for the claimant, if the claim involves urgent care, the plan cannot prohibit a health care professional with knowledge of the claimant's condition from acting as the claimant's authorized representative.

    E.    Protection Against Arbitrary Determinations

    A plan's claims and appeals procedures must contain administrative safeguards to ensure that determinations are made in accordance with governing plan documents, and that the plan provisions have been consistently applied with respect to similarly situated claimants.

    F.    Initial Claims

        1.    Timing

            a.    Claims for benefits other than Health or Disability

    Claims, other than those for health or disability benefits, must be resolved within 90 days after receipt of the claim by the plan. If the plan determines that there are "special circumstances," the plan may impose an extension for up to additional 90 days. Although not specifically defined, the DOL states that "special circumstances" refer to external circumstances beyond the plan's control. For example, a routine seasonal increase in claims volume would not constitute "special circumstances" warranting an extension of time. A plan that relies upon such an extension of time must provide written notice to the claimant within the original 90-day period, must state the "special circumstances," and must specify the date by which a determination is expected to be rendered.

    In the case of a claim involving "urgent care," the plan must respond within 72 hours of receipt of the claim. If the claim is insufficient, the plan administrator must so notify the claimant as soon as possible, but in any case within 24 hours, of the specific information necessary to complete the claim. The claimant must be afforded a reasonable time under the circumstances (at least 48 hours in any case) to provide the required information. Once any such additional information is provided, the plan must make its determination as soon as possible, but in no event more than 48 hours after the additional information is received (or, if the information is not provided, no more than 48 hours after the end of the period the claimant had to submit the information).

    The regulations differentiate between non-urgent "pre-service claims" (i.e., requests for preapproval or precertification) and "post-service claims." In the case of non-urgent pre-service claims, a plan must notify the claimant of its determination within a "reasonable" time, but in no event more than 15 days after it receives the claim. For post-service claims, the plan must provide the claimant with notice of its determination within a "reasonable" period, but in no event later than 30 days after receipt of the claim.

    In either case, the plan may extend the period for up to an additional 15 days, but only if the extension is necessary "due to matters beyond the control of the plan" and the plan provides the claimant with notice, within the initial 15 or 30-day period, of the extension, of the reason for the extension, and of its projected date of a determination. If an extension is necessary because the claimant has failed to submit all necessary information, the extension notice must specifically state what additional information is necessary, and must afford the claimant at least 45 days to provide the information.

    In the case of a claimant who fails to follow a plans's procedures for filing a pre-service claim (e.g., someone who seeks precertification but who fails to follow the appropriate procedures), the claimant must be notified as soon as possible, but no later than 5 days after the failure. In the case of a claim involving urgent care, the notice must be given within 24 hours. This notice need not be in writing, but may be oral (unless written notification is requested). The requirement that a plan give notice that a claimant has failed to follow the appropriate pre-service claim procedures is only triggered if the "claim" takes the form of a communication that is received by a person or office normally responsible for handling benefit matters and names a specific claimant, medical condition or symptom and a specific treatment, service or product for which approval is requested. In other words, a general informational call does not become a "claim" that triggers the specific notice requirements.

    Where a benefit determination involves "concurrent review," different limitations apply. Where a plan intends to terminate or reduce an ongoing course of treatment or care, it must provide the claimant with notice of its determination in time for the claimant to appeal (and to receive a determination on the appeal) before the termination or reduction takes effect. This is a significant change from the existing regulations, as well as from the proposed regulations (which only imposed the advance notice requirement on treatments involving urgent care.) If a claimant seeks to extend a course of treatment beyond what has been previously approved in a case involving urgent care, the plan must resolve the claim as soon as possible, but in any event the plan must notify the claimant of its determination within 24 hours.

    For disability benefit claims, a plan must notify the claimant of its adverse determination in a "reasonable" time, but in no event longer than 45 days after the claim was received. This period may be extended for an additional 30 days for "matters beyond the control of the plan." In order to take advantage of such an extension, the plan must provide the claimant with notice, within the initial 45-day period, of the extension, of the reason for the extension, and of its projected date of a determination. If an extension is necessary because the claimant has failed to submit all necessary information, the extension notice must specifically state what additional information is necessary, and must afford the claimant at least 45 days to provide the information.

        2.    Content

    All claim determinations must be in writing, and must be written in a manner designed to be understood. In the case of a claim involving urgent care, the determination may be given orally, as long as written notice is sent within three days. The written determination must state the specific reason for the determination; refer to the specific plan provision on which the determination was based; describe any additional information or material necessary to perfect the claim and explain why the additional information or material is necessary; and describe the plan's appeal procedures, including its time limits and the claimant's right to challenge the determination in court.

    If the claim involves health or disability benefits, the written determination must include additional information. First, the written determination must include any internal rule, guideline, protocol or other similar criterion upon which the determination was based, or it must include a statement that such rule, guideline, protocol or other criterion was used and that the rule, guideline, protocol or criterion will be provided upon request at no charge. Second, if the determination was based on a determination that the claim was for goods or services that were either not medically necessary or were experimental, the written determination must include an explanation of the scientific or clinical judgment upon which the determination was based as applied to the claimant's medical circumstances, or a statement that such an explanation will be provided upon request without charge. If the claim is for urgent care, the written determination must describe the expedited appeal process.

        1.    Benefits other than Health or Disability

    Claimants must have 60 days following receipt of an adverse determination to appeal. In addition, the plan must permit the claimant to submit written comments, documents and other information. Furthermore, the plan is required to provide, upon request and without charge, all documents, records and other information relevant to the claim for benefits. The review process must take all information submitted to it into account, and may not reject information simply because it was not provided for the initial determination.

    Notice of a determination of an appeal must be given within a reasonable period, but in no event longer than 60 days after the appeal was received. Under special circumstances (including the need to hold a hearing provided for under the plan's procedures), the plan administrator may take up to an additional 60 days. In order to take advantage of such an extension, the plan must provide written notice to the claimant within the original 60-day period, must state the special circumstances, and must specify the date that a decision is expected.

    In the case of a plan with a committee or a board of trustees that meets at least quarterly and that is named as the entity to decide appeals, the 60-day limit does not apply. Instead, such a plan has until the next meeting following the appeal to render a decision, provided the appeal is filed at least 30 days prior to the meeting. If the appeal is filed within 30 days prior to the meeting, the plan may wait until the second meeting following the submission of the appeal. Under "special circumstances," the decision may be held over until the third meeting of the board or committee following the submission of the appeal. If the plan wants to take such an extension, it must provide notice to the claimant. In any case, the claimant must be notified of the board's or committee's decision as soon as possible, but in no event more than five days after the determination is made.

    In all cases, claimants must be permitted at least 180 days in which to appeal, following receipt of an adverse determination. The appeal must not give any deference to the initial determination. Additionally, the appeal must be decided by a named fiduciary of the plan who did not make the initial determination and who is not a subordinate of the person who made that determination. Moreover, to the extent the appeal involves consideration of medical necessity or the experimental nature of a treatment, the named fiduciary must consult with a health care professional with appropriate training and experience in the field of medicine involved in the claim. Additionally, the health care professional must not have been involved in the original determination, nor may he or she be the subordinate of someone who was. Finally, the plan must disclose to the claimant the identity of any experts consulted in making an adverse determination, even if the expert's advice was not relied upon.

    For urgent care claims, the plan must provide for an expedited appeal process which permits appeals to be submitted orally as well as in writing. Moreover, all communications between the plan and the claimant must use an expeditious method, such as telephone or fax. A determination on an urgent care appeal must be made as soon as possible, but no more than 72 hours after receipt of the appeal.

    Appeals for non-urgent pre-service claims must be decided within a reasonable period appropriate to the medical circumstances, up to 30 days. If the plan has two levels of appeal, notice of the determination at each level of appeal must be provided within 15 days of submission.

    For post-service claims, the plan must also notify the claimant as soon as possible, but in no case longer than 60 days after the submission of the appeal. If the plan has two levels of appeal, notice of a determination at each level must be provided within 30 days of the submission of the appeal. In the case of a multiemployer health plan with a committee or board of trustees that meets at least quarterly and that is named as the entity that decides appeals, the plan has until the next meeting following the submission of the appeal to make a decision, as long as the appeal was filed at least 30 days prior to the meeting. If the appeal is filed within 30 days of the next meeting, the plan has until the second meeting following the submission of the appeal to make its determination. Under "special circumstances," the plan may extend its deadline for up to the third meeting of the committee or board following the submission of the appeal. Once a decision is made, notice must be provided to the claimant within five days.

    Like medical plans, plans providing disability benefit must permit claimants to submit appeals for at least 180 days after they receive their adverse benefit determinations. The time limits for deciding appeals for disability benefits are generally the same as for other non-health benefits, except that the 60-day limit is shortened to 45 days. With regard to the requirements applicable to disability benefit appeals not involving time limits, generally all of the appeal requirements applicable to claims for both health and non-health benefits are applicable.

        4.    Tolling

    In the event that the plan requests additional information from the claimant, its time limits for issuing a decision are tolled until the claimant responds.

        5.    Manner and Content of Notification of Appeal Determination

    Although most of the notices above are required to be in writing, under limited circumstances they may be provided electronically (e.g., by Email). (See, February 1999 Legal Report.) Denials must be written in a manner calculated to be understood, and must include the specific reasons for the denial and a reference to the specific plan provisions upon which the determination was made. In addition, the notice must state that the claimant is entitled to receive, upon request and without charge, all documents, records and other information relevant to the claim. The written notice must explain that the claimant has the right to bring a law suit to challenge the determination and, if there are additional voluntary review procedures, the written notice must describe those procedures.

    Finally, if the claim is for health benefits or disability benefits, there are a series of additional requirements with which the written notice must comply. First, if the plan relied upon an internal rule, guideline or other similar criterion, the plan must provide a copy of the rule, guideline or criterion or state that such a rule, guideline or criterion was relied upon and offer to provide a copy upon request at no cost. Second, if the denial was based upon a determination of medical necessity or that the treatment was experimental, either the basis for the scientific or clinical judgment must be explained, or the notice must offer to provide a copy of the explanation upon request without charge. Finally, the notice of an adverse determination on appeal must include the following statement:

    You and your plan may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.

    Although the Department of Labor does not have the authority to define the scope to which its regulations preempt state law, the DOL has issued guidance on the extent to which these new rules supplant state regulation. According to the DOL, state-mandated review procedures applicable to insured plans are not preempted simply because they require that reviews must be conducted by people or entities other than the insurer, plan, employer or other plan fiduciary. However, even if such procedures are mandated by state law, a claimant is not bound to utilize them in order to be considered to have exhausted his or her administrative remedies. In other words, a claimant can still go to court even if he or she has skipped the state-mandated procedures.

    I.    Effect of Plan's Failure to Comply With Regulations

    If a plan's claims and appeals procedures, either as written or in practice, fail to comply with these new regulations, a participant does not have to exhaust them in order to sue in court. Moreover, any determination by the plan is not entitled to judicial deference, and the court determination is de novo.

    J.    Effective Date

    The regulations have a long lead time, and only become effective for claims filed on or after January 1, 2002.

    K.    Chart of Revised Time Limits

    The following is a chart showing the new time deadlines:

III.    New SPD Regulations

    A.    Identification of Type of Plan

    B.    Participation and Eligibility Requirements

    The SPD must describe the plan's requirements for participation and eligibility for benefits. For pension plans, this means the SPD must spell out the plan's normal retirement age and any other conditions that must be met as a condition for eligibility for benefits. Furthermore, the benefits themselves must be described. Pension plans must also describe the plan's procedures governing qualified domestic relations orders (QDROs), or explain that participants are entitled to receive a copy of those procedures upon request without charge.

    Welfare plans must also specify the requirements for eligibility for benefits. Where the plan has extensive benefit schedules (such as a group health plan), the SPD must either include those schedules, or contain a general description of those schedules along with a statement that the detailed schedules are available upon request without charge. The SPD must also describe the plan's qualified medical child support order procedures, or state that the procedures are available upon request without charge.

    For all types of plans, the SPD must clearly identify any circumstances that may result in disqualification, ineligibility, denial, loss, forfeiture, suspension, offset, or reduction of benefits. Specifically included within the matters to be disclosed is the plan's subrogation policy.

    Health plans are subject to additional requirements. The SPD must describe any cost-sharing provisions, including premiums, deductibles, copays, etc., as well as any lifetime caps or other limits. The SPD must also state the extent to which preventative services are covered and under what circumstances new and/or existing drugs are covered. Similarly, the SPD must explain under what circumstances medical tests, devices and procedures are covered. Plan provisions governing the use of network providers, the composition of provider networks and whether, and under what circumstances, out-of-network providers are covered, must also be explained. If the plan limits or otherwise regulates the choice of primary care providers, those conditions and limitations must be stated. Moreover, if the plan regulates access to specialists, those conditions and limitations must be spelled out. Similarly, conditions or limitations applicable to emergency care must be stated. Any preauthorization or precertification procedures must also be stated.

    Where a health plan has provider networks, the listing of providers must either be included in the SPD or the SPD must generally describe the network and state that a list of providers is automatically furnished at no charge. Furthermore, if there are any circumstances that can result in the imposition of a fee, the SPD must so state.

    The final regulations also require that a health plan's SPD include information regarding the period of hospitalization covered for births. The SPD must also state whether the plan is governed by state regulations that may be more generous than the federal requirements. (See, October 1998 Legal Report.) The regulations include model language that complies with this requirement.

    The SPD of a group health plan is required to include information regarding continuation coverage, including COBRA continuation. In particular, the SPD is required to include information concerning qualifying events and qualified beneficiaries, premiums, notice, and election requirements and procedures, and the duration of coverage.

    For all plans, the SPD is required to explain the plan's claims and appeals procedures. This includes any procedures a health plan may have for precertification or utilization review. Moreover, any applicable time limits must be spelled out, along with any remedies available to an aggrieved participant. (See, discussion of new regulations governing claims procedures, above.) In lieu of including the plan's claims procedures in the SPD, the plan may furnish the procedures as a separate document that accompanies the plan's SPD at no charge. In such case, the SPD must also state that a copy of the procedures are provided automatically at no charge.

    The old regulations included sample language to be included by defined benefit pension plans describing the guarantee of benefits by the Pension Benefit Guaranty Corporation. Although this language was required to be included in the SPDs of all such pension plans, it really only applied to single employer plans and provided misleading information to participants in multiemployer plans. For the first time, the regulations include model language for publication in SPDs of multiemployer defined benefit pension plans.

    Additionally, an SPD must indicate whether, by whom, and under what circumstances, plan benefits can be reduced, amended or eliminated. The SPD must also summarize any plan provisions dealing with the benefits, rights and obligations of participants upon termination of the plan.

    Since the publication of the original regulations in 1976, SPDs have included model language under the heading "Additional Information" that nobody ever reads. The new regulations include even more model language. In addition to the modified versions of the existing language, new model language has been designed explaining COBRA coverage and HIPPA rights.

    E.    HMO Exception

    The old regulations included a limited exception from the normal SPD requirements for Health Maintenance Organizations (HMOs). This exception has been eliminated, so that plans covering participants through HMOs must include the same information in their SPDs about the HMO as any other benefits.

    F.    Targeted SPDs

    In an effort to ameliorate the burden and confusion of providing mountains of irrelevant information to each and every participant, the DOL has stressed that it is not necessary that every plan participant get the same SPD. It is permissible to prepare different SPDs for different groups of participants.

    G.    SMMs for Benefit Reductions

    The regulations restate the statutory requirement that a plan must provide written notice of any material reductions in benefits. Generally, the notice must be provided within 60 days of the date the reduction is adopted. However, in the event that the plan provides a regular communication at least every 90 days (such as a quarterly newsletter), the plan will be given up to 90 days to put the notice in that communication. The regulations also incorporate an expansive interpretation of "material reduction." A reduction in benefits is considered to have occurred in the case of any plan change that eliminates benefits, reduces payments as the result of a change in payment formulas or methodologies, increases premiums, deductibles, coinsurance, copayments or any other amounts that must be paid by a participant, that reduces the area covered by an HMO, or that establishes any new conditions or requirements for payment of benefits (including new precertification or preauthorization requirements).

    H.    Effective Date

To return to the top, press here.

To return to the Mooney, Green, Baker & Saindon, P.C. Home Page, press here.

This page has been visited 4713 times.

This Newsletter provides an update on current legal developments, and is not intended as legal advice.  Copyright © 2000 Mooney, Green, Baker & Saindon, P.C.