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October 1998
This is one of a continuing series of updates on recent developments in the law affecting employee benefit plans.
OMNIBUS CONSOLIDATED APPROPRIATIONS ACT
DRIVE-THROUGH BABY REGULATIONS
PROPOSED REGULATIONS ON CLAIMS PROCEDURES
PROPOSED SPD REGULATIONS
Y2K COMPLIANCE
OMNIBUS CONSOLIDATED APPROPRIATIONS ACT
Perhaps the biggest surprise in the massive (2285 page) Omnibus Appropriations bill recently passed by Congress is how few changes were made affecting employee benefit plans. In fact, the only significant amendment to ERISA is the new Women's Health and Cancer Rights Act of 1998, which was included as Title IX of the appropriations bill. This new legislation requires all employee benefit plans that cover mastectomies to also cover breast reconstruction, including reconstruction of the affected breast, prostheses, and surgery on the other breast to produce a symmetrical appearance.
This new coverage requirement is effective with the first plan year beginning after October 1998. Notice of the new coverage must be provided in each plan's next informational mailing to participants, but in no event later than the first of the year (January 1, 1999).
DRIVE-THROUGH BABY REGULATIONS
The Department of Labor ("DOL") has issued interim regulations implementing the Newborns' and Mothers' Health Protection Act of 1996 ("NMHPA"). As you may recall, in an earlier set of regulations issued last year, plans were required to notify participants that benefits for hospital stays in connection with childbirth must be provided for no less than 48 hours in the case of a normal birth, or 96 hours following a caesarean birth. The interim regulations come in two parts. One part includes the substantive provisions that, among other things, clarify that an attending physician, in consultation with the mother, may authorize a discharge prior to the expiration of the minimum time period. The second part of the regulations requires that this change be communicated in both the plan's Summary Plan Description ("SPD") and in the next required Summary of Material Modifications.
In an era of managed care and provider networks, it is often hard to distinguish between physician/service providers and instrumentalities of the managed care network. If the decision to discharge a mother from the hospital remains with the physician, how do you distinguish between financially motivated decisions and those based upon a genuine concern for the patient's well-being? The regulations attempt to answer this question by prohibiting incentives or disincentives of any kind to either the mother or the attending physician to promote early discharge.
Along the same lines, the regulations prohibit plans from requiring preauthorization of hospital stays following births that do not exceed the statutory minimums. The regulations also clarify that the 48 and 96 hour periods begin the later of the time of delivery or the time of admission. Finally, the regulations make the statutory requirements inapplicable to insurance policies (or insured plans) that are subject to state insurance laws imposing comparable requirements.
The substantive regulations are effective January 1, 1999, while the notice rules are effective November 9, 1998. Because these are still interim rules, the comment period generally closes on January 25, 1999, except that comments on the notice rules are due by November 9, 1998.
PROPOSED REGULATIONS ON CLAIMS PROCEDURES
Responding to the tremendous changes that have affected employee benefit plans in the more than twenty years since the passage of ERISA, particularly the rise of managed health care, the DOL has issued proposed regulations that would require all employee benefit plans to substantially revise their claims and appeals procedures. In particular, if these proposed rules are adopted, plans will need to be careful to mind the numerous new deadlines that the proposed regulations would impose.
The proposal makes it clear that claims and appeal procedures apply to all coverage and benefit determinations, including issues of precertification, preauthorization and utilization review that could result in the denial of benefits for particular treatments or the discontinuance of ongoing treatments. The proposed regulations further clarify that all adverse benefit determinations, not just outright denials, are subject to appeal.
Unlike the existing Regulations, the proposed rules distinguish between the type of claim at issue. Claims involving health plans, disability plans and pension plans would be treated differently, and would be subject to different time requirements. Moreover, health claims involving issues of "urgent care" (defined as a situation where failure to provide requested care or treatment could seriously jeopardize the life or health of the claimant, the claimant's ability to "regain maximum function," or, "in the opinion of a physician with knowledge of the claimant's medical condition" would subject the claimant to severe pain) have the shortest deadlines.
Practices Prohibited
Mandatory arbitration of claims or appeals is expressly prohibited by the proposed regulations, although nothing prevents a plan from offering arbitration as an optional means of resolving disputes. Similarly, a plan is prohibited from requiring more than one level of appeal of an adverse benefit determination. Thus, although a plan is not prohibited from permitting additional levels of review at the claimant's election, mandatory two or three-step appeal processes are forbidden.
Additionally, plans may not impose any cost for the filing of a claim or an appeal, or adopt any procedures that would "unduly inhibit or hamper" the pursuit of a claim or appeal. Also prohibited is any preauthorization process that jeopardizes the life or health of the participant. Specifically prohibited, for example, is any plan requirement that emergency medical treatment be preauthorized. Thus, a blanket rule requiring preapproval of medical care, even in cases of emergency, is forbidden. Finally, claims procedures may not limit the ability of participants to permit representatives to claim or appeal on their behalf.
Claims
General--For claims not involving medical or disability benefits, a plan must communicate its determination regarding a claim within a reasonable time, not to exceed 90 days. If a claim fails to conform to the plan's requirements, the plan must notify the claimant within five days. If the claim is otherwise incomplete, the plan must request whatever additional information is required within 45 days. A claimant must be given at least 180 days to provide such additional information. A plan making such a request for additional information must then rule within 45 days after the earlier of the receipt of the requested information and the deadline for submitting the additional information.
For purposes of these requirements, the plan's time limit begins to run when any member of the Board of Trustees, any employee of the plan, or any employee of the administrator or insurance company learns of the request. The decision to start the clock running upon receipt of any form of notice that a claim exists was motivated by DOL's desire to force plans to respond to all would-be claims, no matter how inadequate or incomplete.
In the event a plan requires more time to process the claim, it may extend the period for consideration by an additional 90 days. The extension notice must explain the reason the additional time was required, and the date upon which a determination is expected to be made.
Medical Claims Involving Urgent Care--Medical claims involving urgent care are subject to the shortest time limits. Rulings on claims (including requests for preauthorizations, etc.), must be communicated as soon as possible. The precise time limit depends upon the circumstances and degree of urgency of the claim, but in no event may the time from receipt of the claim to communication of the plan's determination take more than 72 hours. Notice that a claim is procedurally defective must be communicated within 24 hours. If resolution of the claim requires additional information, the plan must request that information as soon as possible, but in no event more than 24 hours after receipt of the claim. The claimant must be afforded at least 48 hours to submit the information.
If a plan intends to terminate previously-approved care that qualifies as urgent care (as may occur in the case of utilization review), it must do so sufficiently in advance of the termination of the care to permit completion of the appeal process. Because the deadlines involving urgent care are so short, a plan may provide notice orally, as long as it follows up with written notice within 3 days.
Medical Claims Involving Non-Urgent Care-If a claim for medical care does not involve urgent care, the plan must respond to the claim within 15 days. If the claim is incomplete, the plan must request the additional required information within 5 days, and allow at least 45 days for the information to be provided.
Disability Claims-Claims for disability benefits must be responded to within 30 days. Claimants submitting incomplete applications must be notified of the need to submit additional information within 15 days, and the claimant must be allowed 180 days to provide the information.
Contents of Benefit Notifications-The proposed regulations increase the amount of information that must be provided upon the denial of a claim for benefits. In addition to the requirement that the plan provide specific reasons for the adverse determination, reference to the plan provisions upon which the determination is based, and a description of the Plan's appeal procedures, the plan must also notify the claimant of any internal rules, guidelines, protocols, criteria, etc., that were used in reaching the decision. Moreover, the plan must notify the claimant of his or her right to sue if an appeal fails. Finally, in the case of a medical plan, the determination notice must describe the plan's procedures for expedited consideration of appeals involving urgent care.
Appeals
General Requirements--The rules surrounding the consideration of appeals have been modified as well. The appeal procedure must permit the claimant to submit any information, documents, records, etc., relating to the claim that he or she wants. More significantly, a plan must provide to a claimant, upon request, all documents, records and other information relevant to the claim, regardless of whether the plan actually relied upon those documents in reaching its determination. Not only does this requirement apply to any written plan policies, it also includes any consultants' reports relating to the claim, and even plan minutes (appropriately redacted) regarding similar, prior claims.
The person who decides appeals cannot be the same person who decided the initial claim, nor may the decision-maker on appeal be a subordinate of such person. Moreover, the original determination must not be accorded any deference, and the plan must consider all submissions by the claimant, even if those submissions were not considered in the original benefit determination.
In the case of claims involving medical plans, there are still more requirements. If the decision on appeal requires a medical judgment, including a determination about whether a treatment is experimental or not medically necessary or appropriate, the plan must consult with a health care professional with the appropriate expertise in the field of medicine involved in the medical judgment. Moreover, such health care professionals must be independent of any health care professionals who participated in the original benefit determination.
In the case of a claim involving urgent care, the plan must permit that requests for expedited appeal be made orally, as well as in writing. The plan must also permit the transmission of information by facsimile, telephone or other similarly expeditious method.
Time for Filing--For a disability or medical plan, the minimum required period within which an appeal may be filed has been increased to 180 days from the date of the denial. For all other plans, the minimum period remains at 60 days.
Time for Responding--General--In the case of a plan other than a medical or disability plan, a claimant must be notified of the plan's determination of the appeal within 60 days from the date the appeal is filed. A plan may extend this period for up to an additional 60 days (up to a total of 120 days), under special circumstances. Special rules apply in plans where appeals are decided by a board of trustees, or by a committee, which meets at least quarterly. There, the plan need only decide appeals at the next scheduled meeting, if the appeal is submitted at least 30 days prior to the meeting date. Otherwise, the appeal must be considered at the next succeeding meeting. If special circumstances warrant, the plan may extend the period for deciding the appeal to the next succeeding meeting.
Time for Responding--Health Plans--The time for considering appeals is much shorter for health claims. Such claims must be determined within 30 days, unless the claim involves urgent care. If the claim involves urgent care, the appeal must be resolved as soon as possible, but no later than 72 hours after submission. Moreover, there are no special rules applicable to medical appeals decided by a board of trustees.
Time for Responding--Disability Claims--The time limit for appeals involving disability plans falls in between: 45 days to resolve the appeal (subject to an extension for up to 90 days). The time frame for disability appeals decided by a board of trustees is the same as for other non-medical claims.
Other Procedural Requirements--If an appeal is denied, the notice must include the specific reasons for the determination, references to the specific plan provisions, internal rules, guidelines, protocols, criteria, etc., on which the determination was based, a statement that the claimant is entitled to receive, upon request, access to (and copies of) all relevant documents and records, and notice of the claimant's right to sue.
If a plan fails to establish and follow the required procedures, a claimant is absolved from the requirement that he or she exhaust administrative remedies prior to recourse to court. In addition, it is the position of the DOL that a court should not accord deference to a plan determination, where the plan fails to follow these procedures. On the other hand, DOL also states that a plan that simply needs more than the allowed time to process a claim or an appeal may do so, but it runs the risk that the claimant may run into court before a final determination is reached.
All of these new time limits and procedures would have to be spelled out in each plan's SPD. In particular, the SPD would have to spell out how the procedures apply to medical precertification, preauthorization and utilization review.
In Taft-Hartley plans in particular, the effect of these rules will be to remove certain decisions from the board of trustees. The time limit for urgent medical appeals, 72 hours, would be impossible to meet if it depended upon the schedule of the board of trustees. Even the 30 day requirement for non-urgent medical appeals would be impossible in most cases. Plans will have to either set up special telephonic meetings, either for the full board or to a committee, or will have to delegate the authority to decide appeals to someone else. To the extent the administrator is empowered to decide medical appeals, plans must be careful to make sure that the individual deciding the appeal is neither the same person as, nor a subordinate of, the person who decided the claim in the first place. Moreover, these new rules will be a boon to medical consultants, because plans will have to have consultants in all likely medical fields available on short notice to assist in deciding appeals.
Finally, although the entire set of proposed regulations is open for comment, the DOL has specifically requested comment on a number of issues related to disclosure to participants of the bases for decisions. As written, the proposed rules would require plans to, among other things, search their records, including minutes of the boards of trustees, for prior, similar rulings, which they would have to redact and provide to claimants. DOL asked whether a plan should be permitted to charge for this work. The period for public comment on the proposed regulations closes November 9. However, despite DOL's expressed intention to implement these regulations as soon as possible, because of the intense interest in these proposals and the large volume of written comments, DOL has indicated it may extend the comment period for an additional 30 days.
More in the way of clarification, rather than any real change, DOL has issued new proposed regulations regarding the required contents of a plan's SPD. For pension plans, the SPD must inform participants whether the plan is defined contribution or defined benefit, whether it is intended to comply with ERISA Section 404(c) (relating to participant-directed investment accounts), the plan's normal retirement age, and any other conditions that must be satisfied prior to receipt of benefits; and the benefits available under the plan. In addition, the SPD must either contain an explanation of the plan's procedure for evaluating Qualified Domestic Relations Orders ("QDROs"), or a statement that a copy of those procedures is available at no charge.
Welfare plan SPDs must also include an explanation of the plan's eligibility requirements and a summary or description of the benefits. If a plan includes detailed schedules of benefits, the SPD need only include a general description of the benefits and a statement that the schedules are available without cost. The SPD is also required to either include the plan's procedures for evaluating Qualified Medical Child Support Orders ("QMCSOs"), or a statement that a copy of the procedures is available at no cost.
Additionally, health plans are required to include descriptions of all cost-sharing provisions, including premiums, deductibles, coinsurance and copayment amounts; any annual or lifetime caps, any other limits on benefits; an explanation of the extent to which the plan covers preventative care; plan requirements regarding coverage of existing and new drugs; a description of whether and under what circumstances the plan covers tests, devices and procedures; conditions or limits on use of emergency medical care; and any provisions regarding precertification or other utilization review.
If the plan utilizes a provider network, the SPD must include an explanation of the plan provisions governing the use of the network, including the composition of the network, conditions and amount of coverage for out-of-network care; and conditions or limits on the selection of primary care providers or specialists. The actual provider list need not be contained in the SPD, as long as the SPD indicates that such a list is available at no charge to any participant who requests it.
For all plans, SPDs must clearly explain circumstances that will result in disqualification, ineligibility, or denial, loss, forfeiture or suspension of any benefits. The SPD must also include a summary of plan provisions regarding the ability to terminate or amend the plan, or to eliminate benefits under the plan. The SPD must also provide a statement of a participant's rights on termination of the plan, or amendment or elimination of benefits. To this end, the proposed regulations include newly revised sample language regarding the pension benefit guarantees provided by the Pension Benefit Guaranty Corporation. Finally, the proposed regulations also include revised sample language regarding participants' rights under ERISA and under the plan. The period for comment on the proposed regulations closes November 9.
Anyone who has been on Mars for the past year may not be aware that the year 2000 will soon be upon us. Besides all of the biblical issues this raises, the coming millennium may also wreak havoc with plan computer systems. The problem arises because, in the early days of computers, in order to save precious computer memory and processing power, software was written to only look at each year's last two digits. Thus, a computer would see 1958 as simply 58. As computers grew more powerful and capable, computer programmers grew more lazy and stupid. Thus, they chose to continue representing years with only the last two digits, even though the original reason for doing so had disappeared, and the net result would be that much software would either malfunction or would have to be carefully reviewed and corrected.
Not wanting to be accused of missing out on the trendiest issue around, the DOL has issued guidance to plan fiduciaries on how to deal with the coming millennium. DOL has proclaimed that plan fiduciaries must implement a strategy for ensuring year 2000 compliance. DOL has indicated that it will come after fiduciaries who fail to respond adequately to this enormous threat. DOL has also advised plan fiduciaries to notify participants how they are responding to the threat of computer Armageddon. What should you do if your plan does not avoid all Y2K problems? Blame it on el Niño.
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This Newsletter provides an update on current legal developments, and is not intended as legal advice. Copyright © 1998 Mooney, Green, Baker & Saindon, P.C.