Effective April 1, 2018 the Department of Labor’s (DOL) revised ERISA claims regulations governing employee benefits plans took effect. The DOL regulations focus on disability benefits and are found at in 29 C.F.R. § 2560.503-1 (the implementing regulations that pertain to ERISA § 503, 29 U.S.C. § 1133). The amended regulations clarify existing regulations and impose new standards on ERISA fiduciaries to assure fairness when evaluating disability claims.
DOL, revising § 2560, provides greater protections for claimants (employees) under ERISA-covered disability plans to assure “full and fair review” promised by the ERISA § 503, 29 U.S.C. § 1133 and prior version of DOL regulations. This is the first time the regulations had been materially updated since 2003. After an exhaustive study and input from employers, plans, insurance companies, individuals and various advocacy groups for both employees, and employers and insurance companies, DOL concluded that the 2003 regulations were not sufficient to protect participants’ rights, particularly given the conflicts of interest created by insurers’ and plans desire “to contain disability benefit costs,” sometimes at the expense of claimants.
The revised regulations provide “basic safeguards” for participants “by giving claimants ready access to the relevant evidence and standards; ensuring the impartiality of persons involved in benefit determinations; giving claimants notice and a fair opportunity to respond to the evidence, rationales, and guidelines for decision; and making sure that the bases for decisions are fully and fairly communicated to the claimant.” The impartiality requirement is aimed at assuring that physicians, psychologists, vocational specialists and other professionals hired by plans or insurance companies or their vendors are not biased.
In a Nutshell, Here Are 5 Key Revisions
1. Increased Disclosure Requirements
Under the new rules, disability benefit denial notices “must contain a more complete discussion” of the plan’s rationale for denying benefits, and the standards used in reaching the decision. In particular, if the denial is at odds with the views provided to the plan by experts – such as the claimant’s health care professionals, vocational professionals, medical or vocational experts retained by the plan, or the Social Security Administration – the notice must explain, in understandable language, the plan’s reason for disagreeing with those views. This requirement has the potential to reshape denial notices, creating a strong incentive for plans to articulate individualized, specific rationales for decisions, and to avoid boiler-plate statements regarding the reasons for not paying a claim. For example, currently many disability adverse benefit decisions simply itemize the plan terms and selective facts, then conclude that the evidence is insufficient to support a finding of disability under the plan’s definition of disability. The letters often do little to explain the reasoning behind the rejection of some or all evidence proffered by the claimant, amounting to nothing more than a “because I said so” rationale, or in fancy legal language, ipse dixit. Now, those decision letters will need to explain the connection between the evidence and the decision to deny benefits, explaining why the evidence presented by the claimant is insufficient or unreliable before rejecting it.
2. Access to Claim File and Internal Protocols
Benefits denial notices – both with respect to denials of applications, and to denials on appeal – must include a statement that the claimant is entitled to receive, free of charge, a copy of their entire claim file and of “all documents, records, and other information” relevant to their claim. In addition, the notice must provide “the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination.” This latter provision is a notable change from the prior regulations, which did not require affirmative inclusion of such information and documents (rather, they required only that the notices state that such rules exist, and that a copy would be provided on the claimant’s request). This change has the potential to shed more light on – and bring more scrutiny to – plans’ internal procedures and protocols.
3. Opportunity to Review and Respond to New Information
As of April 1, 2018, a plan will be deemed to have failed to provide the “full and fair review” required by ERISA if it denies a benefits appeal based on new or additional evidence or rationales, without first giving the claimant a timely chance to review said evidence or rationale, as well as a “reasonable opportunity” to respond to it prior to the deadline for making the benefits determination. This is a significant change in disability benefits claims procedure, and this change has the potential to put real teeth in the phrase “full and fair review,” and protect claimants from sand-bagging by plans. Currently, it is not uncommon for plans to deny benefits appeals based on new evidence or rationales without first notifying the claimant of these new issues, and certainly without giving the claimant an opportunity to respond. A plan may hire a bevy of file reviewing physicians who help the plan shape a new rational to deny an appeal. To comply with the new regulations, plans will have to revise their appeals procedures to increase communication with claimants and make the decision-making process more transparent. To ensure timely and consistent disclosure of such evidence, it would make sense for plan administrators to immediately forward to the claimant or her authorized representative a copy of any medical reviews, vocational reviews, and surveillance as soon as they become available to the administrator. The interest groups advocating for plans, insurance companies and others fought DOL to include this provision. Their efforts did not convince DOL to remove this provision from the final regulations.
4. Notice Regarding Contractual Limitations Periods
The new rules require that any statement of the claimant’s right to bring suit under ERISA must also “describe any applicable contractual limitations period that applies to the claimant’s right to bring such an action.” The statement must include “the calendar date on which the contractual limitations period expires for the claim.” In other words, when advising a claimant of his or her right to bring suit, it is no longer sufficient to simply refer the claimant to the policy’s provisions regarding contractual limitations, or to rely on language such as “three years from the date that proof of claim is due.” This is very important, because determining limitation dates in ERISA cases was too often cloudy. Insurers fought this provision arguing it was hard for an insurance company to determine the limitations date. If it is difficult for insurance companies to figure-out the date, then lay people should not be expected to make a determination that even an insurance company cannot ordain with ease.
5. Conflicts of Interest
In an effort to reduce the impact of conflicts of interest in the disability claims process, the new rules require that the plan adjudicate claims “in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.” To meet this requirement, persons involved in the decision-making process – such as claims adjudicators or medical experts – may not be compensated, terminated, promoted, or similarly treated differentially “based upon the likelihood that the individual will support the denial of benefits.”
6. Plan’s Failure to Comply with Requirements Triggers Participant’s Right to File Suit
One of the most significant changes in this revision providing that if a plan fails to establish or comply with procedures consistent with § 2560.503-1, the claimant “shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available “remedies” under ERISA § 502. Furthermore, in a claim for disability benefits, if a plan fails to “strictly adhere to all the requirements of this section,” the claimant will be deemed to have exhausted administrative remedies. In other words, if a plan fails to strictly comply with the requirements of § 2560.503-1 in handling a participant’s claim, the participant may file suit, 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.” However, a participant may not bring suit based on “de minimis violations that do not cause, and are not likely to cause, prejudice or harm to the claimant,” provided that the plan demonstrates that “the violation was for good cause or due to matters beyond the control of the plan and that the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.” Importantly, a careful reading of this provision makes clear that even de minimis violations may be grounds for filing suit if the violations are not for good cause or due to matters outside the plan’s control, or if they do not occur in the context of an ongoing, good-faith exchange of information. Indeed, the regulations state that “This exception is not available if the violation is part of a pattern or practice of violations by the plan.” The regulation further provides that in the event of a violation, the claimant may request a written explanation from the plan, which the plan must provide within 10 days, “including a specific description of its bases, if any, for asserting that the violation should not cause the administrative remedies available under the plan to be deemed exhausted.” This provision provides significant incentive for plans to be vigilant in complying with the new regulatory requirements – and for claimant-side attorneys to carefully monitor and document plans’ compliance (or lack thereof).
Communication in Non-English Languages
Last but certainly not least in terms of potential impact, the revisions require that benefit denial notices must “be provided in non-English languages in certain situations,” a requirement triggered if a claimant’s address is in a county “where 10 percent or more of the population is literate only in the same non-English language.”