Shortly before the new year began, the Employee Benefits Security Administration of the U.S. Department of Labor (DOL) published final regulations on December 19, 2016, relating to disability benefit claims governed by ERISA: “Claims Procedure for Plans Providing Disability Benefits.” The regulations are effective January 18, 2017, and generally applicable to claims for disability benefits filed on or after January 1, 2018,1 although there is uncertainty as to whether the regulations will be impacted by executive orders issued by the new administration.2
The regulations modify many of the claim procedures currently in place. The DOL articulated the goals of the new regulations as an effort to avoid bias and conflicts of interest. In addition, the new regulations are intended to assure greater fairness, accuracy and transparency in the claim process and to mitigate procedural hurdles that have hindered claims processing and complicated subsequent litigation.
Initial Notice And Issuance Of final Rules
The DOL initially gave notice and sought comment on revisions to the ERISA claim regulations in November 2015;3 and after considering over 100 comments submitted by interested parties,4 final regulations were issued in December 2016 to:
- promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans by ensuring they receive benefits that otherwise might have been denied by plan administrators in the absence of the fuller protections provided by this final regulation. The final rule also will help alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.5
The DOL reasoned that it was necessary to issue new regulations due to its experience with the existing ERISA §503 regulations and related changes in the governing law for group health benefits since the last major revision of the claim processing regulations in 2000.6 The DOL also recognized that disability benefit claims account for 64.5% of ERISA employee benefits litigation7 and there were potential regulatory modifications that could address ongoing concerns about the objectivity and fairness of claim adjudications. The DOL also sought to harmonize the rules regarding disability claims with regulations issued in conjunction with the Affordable Care Act.8
Changes Brought About By new Rules
The Federal Register notice summarized the changes reflected in the final regulations.
- Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination;
- Benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision, including the basis for disagreeing with the views of health care professionals, vocational professionals, or with disability benefit determinations by the Social Security Administration (SSA);
- Claimants must be given timely notice of their right to access their entire claim file and other relevant documents and be guaranteed the right to present evidence and testimony in support of their claim during the review process;
- Claimants must be given notice and a fair opportunity to respond before denials at the appeals stage are based on new or additional evidence or rationales;
- Plans cannot prohibit a claimant from seeking court review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements unless the violation was the result of a minor error;
- Certain rescissions of coverage are to be treated as adverse benefit determinations that trigger the plan’s appeals procedures; and
- Required notices and disclosures issued under the claims procedure regulation must be written in a culturally and linguistically appropriate manner.9
Minimize Conflicts, Promote Impartiality
The new rules are designed to minimize conflicts of interest and promote objectivity and impartiality in decision-making
To better promote independence and impartiality of decision-makers, the DOL pointed out that the regulations are designed to require “that decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual must not be made based upon the likelihood that the individual will support the denial of disability benefits.”10 Thus, for example, the regulations make it clear that bonuses may not be offered for increased denials, and medical experts may not be selected based on a reputation for denying claims. The regulations also incorporate vocational experts into the list of parties involved in adjudicating claims who must also be insulated from bias and conflicts of interest. Further, in situations where benefit plans and insurers contract with outside vendors for medical or vocational support, the service providers must also take steps to avoid conflicts.11
More Detailed Rationales Required
Further, under the regulations it is no longer sufficient for a benefit plan denial to simply indicate a disagreement with the claimant’s evidence. The regulations require inclusion of “a discussion of the basis for disagreeing with the health care professional’s views” as well as any vocational expert’s views.12 It is now also required that benefit plans disclose the opinions received from all experts with whom the plan has consulted regardless of whether the expert’s opinion was relied upon. The purpose of such a rule promotes “fiduciary accountability” by expanding the obligation of benefit plans to explain the basis for disagreeing with opinions in conflict with the result reached.13
Impact of Social Security Disability Determinations
While the regulations do not impose a requirement that benefit plans defer to “a favorable SSA [Social Security Administration disability benefits] determination, a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan.”14 The regulations also explicitly point out that it is insufficient to use boilerplate language on the differences between the Social Security Disability Insurance program and the ERISA benefit to justify reaching a different outcome.15
Treating Doctor Opinions Not Entitled to Special Deference
Several commenters also sought a rule strengthening deference to opinions by treating doctors in the wake of the Supreme Court’s opinion inBlack & Decker Disability Plan v. Nord,16 which negated such a requirement in the absence of any such rule from the DOL. However, the DOL found no need to impose a rule requiring deference to a treating doctor’s opinion comparable to the Social Security treating physician rule contained in 20 C.F.R. §404.1527.17
Disclosure of Internal Rules and Standards Required
Despite industry opposition, the DOL chose to require “that internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making an adverse benefit determination must be provided with the adverse benefit determination.”18 The DOL added that such information may not be withheld on grounds of confidentiality or that such information is proprietary.19
Claimants Are Entitled to the “Last Word” in Claim Appeals
The most critical aspect of the new regulations is the requirement contained in 29 C.F.R. §2560.503- 1(h)(4) granting claimants the right to both receive and respond to adverse information developed during the claim appeal process.20 The DOL explained that the same requirements exist under the Affordable Care Act, and added, “It was and continues to be the view of the Department that claimants are deprived of a full and fair review, as required by 503 of ERISA, when they are prevented from responding, at the administrative stage level, to all evidence and rationales.”21 The importance of this provision, which is the keystone of the new rules, cannot be over-emphasized. It has been a recurring problem in claim appeals that after the submission of an appeal, the insurer or plan administrator obtains a report from a consulting physician or vocational consultant that buttresses the previously advanced denial. Currently, claimants are left with no means to challenge those opinions, which are accepted at face value by the claim administrators (and later, by courts), even if the reports are based on file reviews rather than examinations, and such reports directly contradict examination findings.
The DOL acknowledged that allowing the claimant to submit a rebuttal prior to the issuance of a final claim decision might hinder the speedy processing of claims and could result in several rounds of exchanges between the plan and claimants. However, the DOL deemed the benefits of such a rule critical to the nature of the “full and fair review” requirement set forth in ERISA.22 The DOL also found the rule necessary due to many courts’ restrictions on the admission of evidence beyond the claim file irrespective of the standard of judicial review. Indeed, most courts, especially those applying a deferential arbitrary and capricious standard of court review, would not only preclude the submission of a rebuttal, but courts generally also disallow any depositions or cross examination of the authors of those reports. In other words, the new rule is intended to prevent claim administrators from “sandbagging” claimants with evidence they know the claimants cannot challenge.
Deemed Exhaustion Standards
The new regulations also clarify the “deemed exhaustion” provisions of the existing regulations and provide that a violation of the claim regulations is sufficient to establish a deemed exhaustion unless the violation is de minimis, non-prejudicial or not attributable to the plan’s conduct.25 The regulations also suggest that when a deemed exhaustion occurs, the court must apply the de novo standard of judicial review “because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.”26
Decisions Must be Written in Culturally and Linguistically Appropriate Manner
The regulations also mandate in 29 C.F.R. §2560.503-1(o) that claim decisions be written in a culturally and linguistically appropriate manner in order to mirror the Affordable Care Act regulations.27
Determining Expiration of Statutes of Limitations
Finally, in the DOL’s November 2015 Federal Register posting, the DOL invited comments on limitations issues. Many comments were received due to the confusion engendered by Heimeshoff v. Hartford Life & Accident Ins. Co.,28 where the Supreme Court ruled that the claimant was barred from proceeding on her case because the contractual limitations period expired before suit was brought. The Heimeshoff case has caused a great deal of confusion about contractual limitations periods incorporated in disability insurance policies and benefit plans, especially in situations where benefits are terminated after being paid for a period of time and it is unclear whether the limitations period accrues when the benefits are terminated or following the conclusion of claim appeals.
The new regulations incorporate in 29 C.F.R. §2560.503-1(j)(4)(ii) a requirement that the time limit for filing suit may not expire before review is completed. Denial notices must now also describe the contractual limitations period and specify a date within which suit must be filed.29 The new rule creates a safe harbor advising claimants of a date within which to file suit without fear that the limitations period could expire before mandatory pre-litigation appeals are concluded.
What Plan Administrators Need to Do
The flurry of executive orders issued by the new administration raises questions as to whether the recently issued regulations will remain in effect. However, at least for the time being, insurers and plan administrators should assume the regulations will remain in effect and thus have their work cut out for them to prepare for the forthcoming changes. The easiest requirement to meet will be the inclusion of a statement as to when the limitations period will expire; and because most disability insurance policies utilize a 3-year contractual limitations period, the simplest way to meet the requirement is to include a statement in the initial denial letter advising claimants that the limitations period will expire no sooner than three years from the date of that letter. Writing decisions in a culturally and linguistically appropriate manner also should not present too much difficulty.
The other requirements will be more challenging, but still can be met. First, if any insurer has a program of rewarding personnel for claim denials, that must cease immediately. With respect to medical and vocational consultants used to help decide claims, insurers and claim administrators need to track the number of times a particular consultant is retained and whether the opinion rendered by the consultant favors the denial or approval of benefits. If a particular consultant has been utilized 100 times in a year and that consultant favors the denial of benefits 90% of the time, the benefit plan ought to know it has a problem meeting the conflict of interest requirements. In addition, claims personnel must be instructed that they are not permitted to select certain consultants based on having worked with that individual before and knowing the consultant has a predilection to support a claim denial.
Insurers and benefit plans will also need to instruct their claims personnel and any consultants they retain on how to address conflicting opinions and Social Security findings. It will no longer suffice to simply note disagreement or assert that Social Security utilizes different standards. There must be a detailed articulation of “why” there is disagreement. Presumably, there would be a basis for such a conclusion or the adverse benefit determination must be overturned.
Finally, the biggest change will be with respect to the rebuttal requirement. That requirement will necessitate an accelerated timetable and a quicker review of claim appeals so that the claimant is given adequate time to receive and respond to adverse evidence. That requirement may create a recurring loop of rebuttals and counter-rebuttals, but it will far more likely have the effect of producing more accurate claim decisions and less litigation. One thing is for certain- the requirement of pre-litigation claim appeals falls under the doctrine of administrative exhaustion. The new regulations are certain to be exhausting to the parties.
This article appeared in the March 3, 2017 edition of the Bloomberg Tax Management and is reprinted with permission of the publication.
* Mark D. DeBofsky is the principal member of the law firm DeBofsky Law in Chicago, which concentrates its practice in the representation of claimants and plaintiffs in employee benefit claim disputes involving disability insurance, life, health, retirement, long-term care and other employment and employee benefit-related matters.
11 RIN 1210-AB39, 81 Fed. Reg. 92,316 (Dec. 19, 2016).
2On January 20, 2017, President Trump’s Chief of Staff Reince Priebus issued a memorandum instructing governmental agencies to temporarily postpone (for at least 60 days) the effective date of any regulations that had already been published in the Federal Register but had not “taken effect.” Because the proposed regulations under ERISA ‘§503 had not “taken effect” as of that date, there is a chance that the DOL could withdraw them pursuant to the Priebus memo.
3Prop. 29 C.F.R. §2560.503-1, RIN 1210-AB39, 80 Fed. Reg. 72,014 (Nov. 18, 2015).
4Comments are available at https://www.dol.gov/agencies/ ebsa/laws-and-regulations/rules-and-regulations/publiccomments/1210-AB39. The author was one of the commenters.
55 81 Fed. Reg. at 92,317.
66 RIN 1210-AA61, 65 Fed. Reg. 70,246 (Nov. 21, 2000), amended by Executive Order 13187, 66 Fed. Reg. 35,887 (July 9,2001)
781 Fed. Reg. 92,316 (citing Sean M. Anderson, ERISA Benefits Litigation: An Empirical Picture, 28 ABA J. Lab. & Emp. L. 1 (2012)).
881 Fed. Reg. at 92,317.
981 Fed. Reg. at 92,319 (incorporated in 29 C.F.R. §2560.503- 1(b)(7)).
1281 Fed. Reg. at 92,321 (incorporated in 29 C.F.R. §2560.503- 1(g)(1)).
1481 Fed. Reg. at 92,322 (incorporated in 29 C.F.R. §2560.503- 1(g)(1)(vii)(A)(iii)).
16538 U.S. 822 (2003).
1781 Fed. Reg. at 92,322.
188 81 Fed. Reg. at 92,323 (incorporated in 29 C.F.R. §2560.503- 1(g)(1)(vii)(C)).
2081 Fed. Reg. at 92,324.
2381 Fed. Reg. at 92,325.
2581 Fed. Reg. at 92,327.
2681 Fed. Reg. at 92,328.
2781 Fed. Reg. at 92,329.
28134 S. Ct. 604 (2013).
2981 Fed. Reg. at 92,331.