In the final installment of our three-part series on ERISA’s new disability claim-processing procedures, we will wrap up our discussion by providing a run-down of the remaining changes to the regulations.
Independence and impartiality.
The Final Rule provides that disability plans “must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.”
In other words, hiring, firing, promotion, bonus, and compensation decisions of claims adjudicators can no longer be made based upon the likelihood that individual will support the denial of disability benefits. This rule also applies when plans contract with outside medical and vocational reviewers. And it applies whether they are hired directly by the plan or through third parties. No longer can plans utilize reviewers based upon reputation for expected outcomes.
This might all sound pretty obvious, but discovery in litigation and admissions obtained by law firms across the country has revealed that, without question, these practices are prevalent in the industry. By way of example, plans have been routinely found to pay compensation to claims adjusters based upon denying a certain number or percentage of claims, while others have received promotions for similar behavior. Additionally, many medical reviewers have gained notorious reputations across the country based upon their tendency for routinely denying claims, being found to receive a disproportionately high percentage of their income from one party (such as a particular insurance company or plan administrator), or maintaining a statistically inconsistent rate of siding with the plan. No more.
Better basic disclosure requirements.
This is another important change. Denials must now contain a more complete “discussion of the decision,” including why the plan denied the claim and the standards it utilized in reaching that adverse decision. If the denial is based on medical necessity, experimental treatments, or similar exclusions or limits, the scientific or clinical judgment for the determination must be provided.
Plans must also inform claimants that they are entitled to receive the entire claim file and other relevant documents, upon request, at the initial claim stage, whereas the former regulations only required those disclosures after an adverse benefit determination on appeal. You would probably be surprised at just how many unrepresented claimants do not know to ask for their claim file from plans that are vague or obstructive about the process and the claimant’s rights.
This new disclosure requirement includes providing the “specific rules, guidelines, protocols, standards or other similar criteria” relied upon by the plan in denying the claim. The commentary makes it clear that plans are not shielded by simply stating that they did not “rely” upon documents in order to avoid producing them. Rather, the DOL makes it clear that if they exist, they are relevant. As such, plans are now required to make an affirmative statement that no such specific rules, guidelines, etc. exist. If they exist, they must be produced. However, in the short time they have been in effect, we have already seen some plans simply stating that they did not rely upon any specific rules, guidelines, etc. That’s simply not the same as saying they do not exist and it does not meet their obligation under the new regs. It is also important to note that the commentary states that plans may not conceal any such information by claiming that it is proprietary or confidential business information. This was a very common practice. It will be interesting to see how this change impacts plans’ arguments that protective orders must be entered by the court prior to production. In our view, if plans have an affirmative obligation to produce these documents during the pre-litigation claim process, the argument for putting protective orders in place during litigation is specious.
While some of these disclosure requirements arguably already existed, in our experience, the level of compliance with ERISA regulatory disclosure requirements varied widely across plans and largely depended upon the interpretation by each particular plan or their decision-makers and counsel. In fact, we already had a practice of requesting these documents in every appeal and yet, we rarely received them. As such, even where they may be some overlap in what the new regulations require, it is valuable overlap that reiterates the critical transparency requirements inherent in ERISA and should make it more difficult for plans to ignore such lawful requests. As the commentary to the Final Rule states: “the Department believes that expressly setting forth additional requirements in the regulation, even if some may already apply under the current rule, is an appropriate way of reinforcing the need for plan fiduciaries to administer the plan’s claims procedure in a way that is transparent and that encourages an appropriate dialogue between a claimant and the plan regarding adverse benefit determinations that ERISA and the current claims procedure regulation contemplate.”
Deemed exhausted.
If plans fail to strictly adhere to all claims processing rules, the claimant is deemed to have exhausted their administrative remedies (which is typically required prior to a claimant having the right to file a lawsuit) and is free to seek judicial review. The Final Rule does provide certain exceptions for “minor errors,” including “where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance.” Importantly also, if the court rejects the claimant’s request for review and dismisses the suit (for example, based upon one of the above exceptions), the plan must treat the claim as refiled on appeal upon receipt of the court’s decision.
This protection relieves the claimant from engaging in an otherwise mandatory process in which the decision-maker fails to follow the rules. After all, why should a claimant be required to comply with the regulations when the plan is not?
This protection, however, is also important for claimants for another critical reason. In typical ERISA cases, where the plan has granted itself discretionary authority, the standard under which the court reviews the claim is highly deferential to the plan. This is so because trust principles, which are foundational elements to ERISA, rely upon the premise that the fiduciary is not acting in conflict with the goals and purposes of those of the plan and its participants over which it is entrusted. As such, where a plan gives itself discretion as a fiduciary, that discretion is typically upheld unless it is found to be unreasonable. Of course, in reality, many ERISA fiduciaries are not typical trustees, but rather are conflicted, profit-maximizing insurance companies, plans, and for-hire third party administrators. As such, because a claimant may lawfully proceed to court following a substantive violation of ERISA’s regulations, that discretionary authority is effectively eliminated, as it has not been exercised, and the court should review the claim de novo. While the Final Rule does not expressly state that de novo applies in all deemed denied situations, the commentary does state that courts may well find that “de novo review is appropriate because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.”
Coverage rescissions.
With the exception of failing to timely pay premiums or make contributions to the cost of coverage, rescissions of coverage that have a retroactive effect are now considered adverse benefit determinations, subject to regulated appeal procedures. This includes situations where the rescission is due to an alleged misrepresentation of fact, such as an error in the application for coverage.
Allowable evidence.
The Final Rule clarifies that evidence submitted to the plan by claimants in support of their claim or appeal is not limited by courtroom evidentiary standards. As such, illustrative or demonstrative exhibits, as well as audio, video, and any other form of electronic media is allowable. In our experience, while this may not be appropriate in every case, it is absolutely critical in some cases to better illustrate the claimant’s struggles in ways that is not otherwise demonstrable on paper.
Culturally and linguistically appropriate notices.
The Final Rule essentially adopts the ACA’s standard for providing group health benefit notices in setting the standard for plans providing adverse disability benefit determinations. Plans are now required to provide adverse benefit determinations in a “culturally and linguistically appropriate manner” if the claimant’s address is in a county where 10% or more of the population are literate only in the same non-English language based on U.S. Census data. For those claimants, adverse benefit determinations must include a prominent one-sentence statement in the relevant non-English language about the availability of language services and that the notice will be provided in the other language upon request. The Final Rule also requires verbal customer assistance (such as a telephone hotline) in the non-English language.
So that’s it. For claims filed after April 1, the new regulations are in place and ready to get to work. There’s really no question that disability claimants are better protected now, but in time, we expect that creative plan attorneys will concoct new defenses and challenges, and plans will start to develop tactics for mitigating the protections afforded by the Final Rule. But we think we’re up for the challenge and we’re excited to see what this next phase of ERISA will bring to disabled workers.
Join us next week for our discussion of the 10 steps that we recommend you take if your disability benefits are denied or terminated. In the meantime, we invite you to submit questions, comments, (veiled) criticisms, and suggestions for future topics here.
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.