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New ERISA Disability Claims Regulations Take Effect – Part 2

In the second installment of our three-part series on ERISA’s new disability claim-processing procedures, we will focus on what we believe are the five most significant changes to the regulations.

  1. Plans must explain disagreement with claimants’ treating physicians and vocational consultants.

As part of expanding plans’ disclosure requirements, the Final Rule requires that plans provide an explanation when they disagree with the views of a claimant’s treating physicians or vocational consultant. This change is critical because in our experience, plans simply took the position that they are not required to provide any special weight to treating providers’ opinions. While that arguably remains true under current Supreme Court precedent, plans seemed to interpret that to mean they had carte blanche to totally discount treating providers’ opinions by simply stating that they (or their reviewer) disagree with the finding. No more. This change also applies to vocational consultants.

  1. Plans must explain disagreement with the plan’s own reviewers and consultants.

Thanks to the new regulations, it is now abundantly clear that plans must explain any disagreement with their own reviewers and consultants. Having access to the reasoning utilized when a plan takes to undermining its own consultants’ opinions will not only give claimants better access to a full and fair review, but should also help show plan inconsistencies across multiple cases with respect to the same or similar opinions by its medical reviewers. Plans must do so regardless of whether the plan actually claims that it relied upon the information in reaching its adverse determination. This is important because in our experience, many plans engage in “expert shopping,” which means that the plan solicits opinions until it gets one that it likes. In other words, the plan hires a medical reviewer or vocational consultant, and if they find the claimant is disabled, the plan simply shelves that opinion and obtains another one (and another and another) until it finds an opinion that supports its denial.

  1. Plans must explain disagreement with Social Security decisions.

The Final Rule’s expanded disclosure requirements require the plan to discuss its basis for disagreeing with a disability determination made by the Social Security Administration (“SSA”). This change is consistent with what many courts have found, particularly where plans are operating under financial conflicts of interest, which is most of the time.

In our experience, most plans respond to a claimant’s disability finding by the SSA by concluding that the finding is irrelevant because the SSA applied different standards than those required in the policy. This was so, even when the plan’s disability standard was less demanding than the SSA’s standard, such as, for instance, when the plan requires a finding of disability from one’s “own occupation” versus the SSA’s required disability from “any occupation.” It was illogical to dismiss a more exacting disability definition as irrelevant, just as it was illogical to dismiss comparable disability definitions. Thanks to the new regulations, such illogical dismissals are not permissible.

This rule makes sense given that most disability plans provide a dollar for dollar offset for Social Security disability benefits. It was a sad state of affairs that plans, who stand to benefit financially from a claimant’s disability finding by the SSA, can also totally discount that same SSA disability finding in their own reviews. No longer may they have their cake and eat it too.

  1. Plans must allow claimants to review and respond to new information.

The Final Rule prohibits plans from denying benefits on appeal based upon new or additional evidence or rationales not included when the disability claim was initially denied without providing the claimant with notice and a fair opportunity to respond. This includes any evidence or rationale “considered, relied upon, or generated by” the plan (or at the direction of the plan). Moreover, the new evidence or rationale must be provided by the plan as soon as possible and sufficiently in advance of the applicable deadline.

Additionally, the commentary makes it clear that the plan must automatically provide the new evidence or rationale to the claimant – regardless of whether the claimant requests it. Failure to do so will bar the plan from relying upon that evidence or rationale in support of its denial. Once the claimant has had a chance to review and respond to the new evidence or rationale, the plan must then fully consider the claimant’s response. If that consideration generates new evidence or rationale, again, the claimant must be provided the chance to respond. The DOL did not change the timing requirements that govern consideration of these appeals to account for these possible additional steps in the consideration of disability claims, so it will be interesting to see how this plays out during the current regulatory timeframes.

  1. Statute of Limitations.

The Final Rule requires plans to provide claimants with the contractual limitations period applicable to their claims and its actual expiration date. Interestingly, the commentary to the Final Rule suggests that these requirements should apply to other benefits claims beyond disability: “Although the final rule provision is technically applicable only to disability benefit claims, as explained above, the Department believes that notices of adverse benefit determinations on review for other benefit types would be required to include some disclosure about any applicable contractual limitations period.”

In our view, this is a very important change. Following the U.S. Supreme Court’s decision in Heimeshoff v. Hartford Life & Accid. Ins. Co., 134 S. Ct. 604 (2013), ascertaining a claimant’s statute of limitations for judicially challenging a plan’s denial of benefits has become unnecessarily complicated and antithetical to ERISA’s stated purpose of accessibility to workers. Indeed, the Supreme Court’s reasoning in Heimeshoff is based largely upon esoteric, if technically correct, principles of trust law, but it fails to realistically consider the actual, real-world consequences these onerous interpretations can have upon ERISA claimants. Indeed, Heimeshoff permits an ERISA plan to prescribe not only the length of the limitations period (as opposed to applying the closest analogous state law contractual limitations period), but also when that period commences (as opposed to once mandatory administrative appeals were exhausted). The result is that a plan can actually start the statute of limitations running against a claimant long before the claimant ever has the right to file suit. How’s that for access to the courts? Such a result can and has had drastic consequences on claimants’ ability to pursue their disability benefit claims in spite of the otherwise substantive viability of the claims. Now, the DOL has made it clear that the time for filing suit cannot expire prior to concluding the mandatory administrative appeal process.

Moreover, many plans are set up as sadistic choose-your-own-adventures with the applicable limitations period waiting at the end, just beyond the swinging ax. For example, a plan may start its contractual limitations period from the earlier of when the plan receives or is “required to be given” Notice of Claim or Proof of Claim or Proof of Loss or Satisfactory Proof or Proof or Continuous Proof, all defined terms, or some combination thereof. So, the claimant must be able to determine both dates and what each the terms mean and when they’re each due. Sometimes the plan terms trigger off other defined plan terms such as the end of the Elimination Period, the length of which is also set in the plan, and may begin on the first day of Disability, another defined term (which the plan is charged with determining, so figure that out), and be satisfied by a set number of days, or upon the conclusion of short-term disability payments, or when the required number of days is accumulated within a period which does not exceed x times the Elimination Period, with the exception of any statutory disability benefits, accumulated sick time, salary continuation program sponsored by the employer, or any number of other moving targets. Dizzy yet? Moreover, these hurdles to ascertaining when it will be too late for a claimant to file suit must also take into account the fact that if a claimant files suit too early, their claim is subject to dismissal by the court for failure to exhaust administrative remedies.

In other words, it’s not at all hard for an ERISA practitioner to see why the Final Rule’s seemingly innocuous procedural change is much more important than that. Both the Supreme Court’s decision in Heimeshoff and the industry’s objections during this regulatory process to providing this information to claimants misunderstand or ignore what claimants actually face just to get their day in court. As such, the Final Rule appropriately places this burden back where it belongs — on the plans who crafted these unnecessarily onerous provisions and who are in a far better position to determine the date of the expiration of their own limitations period.

One final note. The regs clearly require plans to calculate an actual limitation expiration date and convey that date to the claimant in the denial letter. However, in the short time since the regulations went into effect, we are finding that some plans are doing somewhat less than what is required, such as stating that the limitations period expires one year from the date of the denial. That does not meet their obligation under the new regs. They must state the actual date.

In Part 3, we’ll conclude our discussion of the new disability regulations and provide a run-down of the remaining rule changes that will benefit disability claimants.

Disclaimer: We are ERISA attorneys, but we are not your attorneys and this article does not create an attorney-client relationship. The information in this blog post is provided for general information purposes only, and may not reflect the current law in your jurisdiction. No information in this blog post should be construed or seen as legal advice, nor is it intended to be a substitute for legal counsel on any subject matter.