DEPARTMENTS OF TREASURY, LABOR AND HEALTH AND HUMAN SERVICES RELEASE INTERIM FINAL REGULATIONS ON INTERNAL CLAIMS AND APPEALS AND EXTERNAL REVIEW PROCESSES

July 28, 2010

On July 23, 2010, the Departments of the Treasury, Labor (“DOL”) and Health and Human Services (“HHS”) released interim final regulations for group health plans and health insurance coverage relating to internal claims and appeals and external review processes under the Patient Protection and Affordable Care Act (“Affordable Care Act”).  These regulations are under Section 9815(a)(1) of the Internal Revenue Code (“Code”), Section 715(a)(1) of the Employee Retirement Income Security Act (“ERISA”) and Section XXVII of the Public Health Service Act (26 CFR 54.9815-2719T, 29 CFR 2590.715-27109 and 45 CFR 147.136).  The following will summarize the provisions of these regulations.

Introduction

Group health plans and health insurance companies must to establish internal claims appeal and external review procedures. They must at a minimum:

  • Establish an internal claims appeal process; provide notice to enrollees “in a culturally and linguistically appropriate manner” of the availability of internal and external appeals procedures and the availability of the office of health insurance consumer assistance or ombudsman to assist the enrollee with the claims procedures (which office or ombudsman must be established by the states);
  • Allow the enrollee to review the enrollee’s file and present evidence and testimony as a part of the appeals process; and
  • Allow the enrollee to continue to receive health coverage pending the outcome of the appeals process.

To establish an external review process, group health plans and insurance companies must comply with any applicable state external review process or implement an effective external review process that meets minimum standards to be established by the Secretary.

These requirements are in addition to any ERISA claims procedures, although the existence of ERISA claims procedures may be used to establish the existence of an internal claims appeal process.

This provision is effective for plan years beginning on and after September 23, 2010 and does not apply to grandfathered health plans.

Internal Claims and Appeals Process

All plans and insurance companies are required to comply with the 2000 claims and appeals regulations under Section 503 of ERISA, including insurance companies not otherwise subject to ERISA.  The new regulations impose six additional requirements that group insured and self-insured plans (including groups not covered by ERISA) must comply with, in addition to the existing DOL ERISA regulations:

  • It extends the internal appeals process to cover rescissions as well as adverse benefit determinations.  An adverse benefit determination eligible for internal claims and appeals processes under these regulations includes a denial of, reduction of, termination of, or failure to provide or make a payment for a benefit, including the following:
    • A determination of an individual’s eligibility to participate in a plan or health insurance coverage;
    • A determination that a benefit is not a covered benefit;
    • The imposition of a preexisting condition exclusion, source-of-injury exclusion, network exclusion, or other limitation on otherwise covered benefits; or
    • A determination that a benefit is experimental, investigational, or not medically necessary or appropriate.
  • It requires plans or insurance companies to notify members of determinations in urgent care claims within 24 hours rather than the 72 hours provided for in the DOL regulations.
  • Plans or insurance companies must provide claimants, without charge, any new or additional information relied upon or generated by the plan as soon as possible and far enough in advance of a determination to allow an opportunity to respond.  If plans or insurance companies make an adverse determination on a new or additional rationale, they also must provide this to the claimant in time to allow a response.
  • Plans and insurance companies must ensure that internal reviewers do not have a conflict of interest.  In particular, the rule prohibits hiring, compensation, terminations, or promotion of claims adjudicators or medical experts based on the likelihood that they will deny benefits.
  • Plans and insurance companies must provide culturally and linguistically appropriate notices as well as detailed information on diagnosis, treatment, and denial codes, and the meaning of the codes, so that claimants can understand which claim was denied and why.  The notice must explain the standard applied in the denial and inform the claimant of the availability of internal and external appeals and how to contact the consumer assistance or ombudsman office for assistance.  The DOL and HHS will issue model notices.  Model notices that can be used to satisfy all the notice requirements under these interim final regulations will be made available in the future at http://www.dol.gov/ebsa and http://www.hhs.gov/ociio/.
  • If plans or insurance companies fail to strictly adhere to the requirements of the process, the claimant may proceed to an external appeal or judicial review, even if the error was minor and the plan or insurer substantially complied with the requirements.

Application to Individual Health Plans

Individual health plans must comply with the same rules, plus three separate requirements.

  • The internal appeals process also covers initial eligibility determinations, including preexisting conditions denials.
  • Only one level of internal appeal is permitted, as compared to group plans where the DOL rules permit two levels of internal appeals.
  • Individual health insurers must maintain records of claims and appeals for six years.  They must make these records available for examination upon request and without charge to regulators.

External Review

Plans and insurance companies must comply with either a state external review process or the federal external review process.  If a state has in place an external review process offering at least as much protection as the NAIC Model Act, an insurance company must comply with the state law.  Plans and insurance companies not subject to state law (self-insured employee benefit plans), or located in states without external review laws as protective as the NAIC Model Act, must comply with a federal external review process yet to be established.

For health insurance coverage, if a state external review process includes, at a minimum, the consumer protections in the NAIC Uniform Model Act in place on July 23, 2010, then the issuer must comply with the applicable state external review process and not with the federal external review process.  In such a case, to the extent that benefits under a group health plan are provided through health insurance coverage, the issuer is required to satisfy the obligation to provide an external review process, so the plan itself is not required to comply with either the state external review process or the federal external review process.

These regulations do not preclude a state external review process from applying to and being binding on a self-insured group health plan under some circumstances.

While the preemption provisions of ERISA ordinarily would prevent a state external review process from applying directly to an ERISA plan, ERISA preemption does not prevent a state external review process from applying to some self-insured plans, such as nonfederal governmental plans and church plans not covered by ERISA preemption, and multiple employer welfare arrangements, which can be subject to both ERISA and state insurance laws.  A state external review process could apply to such plans if the process includes, at a minimum, the consumer protections in the NAIC Uniform Model Act.

Any plan not subject to a state external review process must comply with the federal external review process.

These regulations set forth the standards that would apply to claimants, plans, and issuers under this federal external review process, and the substantive standards that would be applied under this process, which are similar to a state external review process.  They also provide that the federal external review process, like the state external review process, will provide for expedited external review and additional consumer protections with respect to external review for claims involving experimental or investigational treatment.

These requirements do not apply to grandfathered health plans.  How non-grandfathered self-insured group health plans may comply or be brought into compliance with the requirements of the new federal external review process will be addressed in future “sub-regulatory guidance.”

For a state external review to apply instead of the federal process, the state external review process must include the following elements from the NAIC Uniform Model Act:

  • Provide for the external review of adverse benefit determinations that are based on medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit.
  • Require issuers to provide effective written notice to claimants of their rights.
  • Make exhaustion of internal review unnecessary if: the issuer has waived the exhaustion requirement, the claimant has exhausted the internal claims and appeals process under applicable law, or the claimant has applied for expedited external review.
  • Provide that the issuer must pay the cost of an independent review organization (“IRO”) for conducting the external review.
  • Not impose a restriction on the minimum dollar amount of a claim for it to be eligible for external review (for example, a $500 minimum claims threshold).
  • Allow at least four months after the receipt of a notice of an adverse benefit determination or final internal adverse benefit determination for a request for an external review to be filed.
  • Provide that an IRO will be assigned on a random basis or another method of assignment that assures the independence and impartiality of the assignment process.
  • Provide for maintenance of a list of approved independent review organizations qualified to conduct the review based on the nature of the health care service that is the subject of the review.
  • Provide that any approved IRO has no conflicts of interest that will influence its independence.
  • Allow the claimant to submit to the IRO in writing additional information that the IRO must consider when conducting the external review and require that the claimant is notified of such right to do so.
  • Provide that the decision is binding on the plan or issuer, as well as the claimant, except to the extent that other remedies are available under state or federal law.
  • Provide that, for standard external review, within no more than 45 days after the receipt of the request for external review by the IRO, the IRO must provide written notice to the issuer and the claimant of its decision to uphold or reverse the adverse benefit determination.
  • Provide for an expedited external review in certain circumstances and, in such cases, the state process must provide notice of the decision as expeditiously as possible, but not later than 72 hours after the receipt of the request.
  • Require that issuers include a description of the external review process in the summary plan description, policy, certificate, membership booklet, outline of coverage, or other evidence of coverage it provides to claimants.
  • Follow procedures for external review of adverse benefit determinations involving experimental or investigational treatment, substantially similar to what is set forth in the NAIC Uniform Model Act.

Existing state external review requirements that do not contain these essential elements will govern plans and insurers for a transitional period until the first plan year beginning after July 1, 2011, after which the federal process will govern unless the state updates its statute to comply.  As required by the statute, the various Departments will establish an external review process similar to the state process to govern self-insured plans and insured plans not governed by state law.

These regulations are effective on September 21, 2010 (effective 60 days after publication in the Federal Register).  However, the rules generally apply to group health plans and group health insurance issuers for plan years beginning on or after September 23, 2010.

DOL Releases Final Participant Contributions Regulations

January 21, 2010

On January 14, 2010, the U.S. Department of Labor (“DOL”) published final regulations (DOL Regulation Section 2510.3-102) in the Federal Register on when participant contributions become “plan assets” subject to the Employee Retirement Income Security Act of 1974 (“ERISA”).  Participant contributions are considered any amounts that an employer receives from its employees or are withheld from wages for contribution to an employee benefit plan.  These rules apply to employee contributions to qualified retirement plans (401(k), Savings Incentive Match Plan for Employees (“SIMPLE”) Individual Retirement Accounts (“IRAs”), Salary Reduction Simplified Employee Pensions (“SEPs”), Cafeteria Plans, Health Savings Accounts withheld from payroll or any other employee contributions made to welfare plans.  These new regulations establish a safe harbor period of seven (7) business days for employers to forward employee contributions to small pension and welfare plans.

Background

In accordance with DOL Regulation Section 2510.3-102, employers must segregate participant contributions from general assets on the earliest date on which the contributions can be segregated from employer general assets.  The maximum time period employers may take to pay the contributions into the plan trust are:

  • the 15th business day of the month following the month in which the participant contribution amounts are received by the employer (in the case of amounts that a participant pays to an employer), or
  • the 15th business day of the month following the month in which the amounts would otherwise have been paid to the employee in cash (in the case of amounts withheld by an employer from a participant’s wages).

The shorter maximum period for segregation of participant contributions applies only to qualified retirement plans.  In the case of SIMPLE IRAs and Salary Reduction SEPs, the period during which employers must make contributions to a retirement trust is extended to the 30th calendar day following the month in which the participant’s contribution would otherwise have been payable to the participant.  Welfare benefit plans, as described in ERISA Section 3(1), have 90 days to segregate participant contributions from plan assets.

New Requirement

In complying with this requirement, there were many employers who were not clear what the “earliest date” on which the segregation of contributions was possible.  To provide a higher degree of certainty, the DOL was asked to create a “safe harbor.”  In February 2008, the DOL released proposed regulations that provided a safe harbor for plans that have fewer than one hundred (100) participants (determined at the beginning of the plan year).  Under these proposed regulations, these plans would be considered to have been timely under the “earliest date” requirement if the contributions are deposited within seven (7) business days.

The DOL has adopted this seven (7) business day safe harbor rule, effective immediately.  This rule applies to both small qualified retirement and welfare benefit plans.  To comply with the safe harbor, deposits must be made to a small plan within seven (7) business days following, as applicable, the day on which elective deferrals would otherwise have been payable to the participant in cash or the day on which the employer receives plan loan repayments.  During the seven (7) business day safe harbor period, benefit plan contribution amounts that employers have received from employees will not be considered plan assets.

Under the final regulations, the safe harbor is available on a deposit-by-deposit basis, such that a failure to satisfy the safe harbor for any deposit of participant contribution amounts to a plan will not affect the unavailability of the safe harbor for any other deposit to the plan.

Why are these rules important?

Any late deposits of participant contributions and loan repayments (“delinquent contributions”) are a violation of ERISA’s trust requirement.  Participant contributions include elective deferrals (including catch-up and Roth contributions), after-tax contributions, any other participant contributions, and loan repayments that participants either have withheld from paychecks or pay directly to the employer for contribution into a plan.  A late deposit also may be a violation of the prudence rule and a prohibited transaction that can create excise tax penalties.

NEW INTERIM FINAL GINA REGULATIONS AFFECT WELLNESS PROGRAMS

October 13, 2009

Introduction

On October 1, 2009, the Internal Revenue Service, Department of Labor and Department of Health and Human Services jointly released an advanced copy of interim final regulations on the Genetic Information Nondiscrimination Act (“GINA”).  GINA’s group health plan provisions are effective for plan years beginning on or after May 21, 2009.  For calendar year plans the effective date will be January 1, 2010.

These regulations will be effective for group health plans beginning on or after 60 days after the regulations are formally published in the federal register.

The following questions and answers describe what GINA is, what GINA requires or prohibits, what genetic information or testing is and how GINA affects wellness programs.

What is “GINA?”

In regard to group health plans, GINA amended §702 of the Employee Retirement Income Security Act of 1974 (“ERISA”) to:

  • Prohibit enrollment restriction and premium adjustment on the basis of genetic information or genetic services;
  • Prevent group health plans and insurance companies from requesting or requiring that an individual take a genetic test; and
  • Cover all health plans, including those under ERISA, state-regulated plans, and the individual market.

GINA also prohibits:

  • Group health plans and health insurers from setting premiums or employee contribution levels based on genetic information;
  • Mandatory genetic testing by group health plans or health insurers; and
  • Group health plans and health insurers from requesting, requiring, or purchasing genetic information for underwriting purposes; or from seeking such information from individuals who have not yet enrolled.

The group health plan provisions also require amendments to the Health Insurance Portability and Accountability Act (“HIPAA”) privacy regulations to ensure that genetic information is treated as health information, and to prohibit group health plans and health insurers from using or disclosing protected health information (“PHI”) for underwriting purposes.

GINA provides that the prohibition does not: (1) limit the authority of a health care professional to request an individual to undergo a genetic test; or (2) preclude a group health plan from obtaining or using the results of a genetic test in making a determination regarding payment.  GINA requires plans to request only the minimum amount of information necessary to accomplish the intended purpose.

What is Genetic Information?

Genetic information is defined as information about an individual’s genetic tests, information about the genetic tests of an individual’s family members, or information about the manifestation of a disease or disorder in an individual’s family members.  Genetic information includes any request for, or receipt of, genetic services (including genetic testing, counseling, or education), or participation in clinical research which includes such services, by the individual or family member.

Genetic information also includes genetic information of any fetus carried by an individual or family member who is a pregnant woman, as well as genetic information of any embryo legally held by an individual or family member who is utilizing assisted reproductive technology.  Genetic information does not, however, include information about the sex or age of any individual.

What is genetic testing or monitoring?

A genetic test is defined as “an analysis of human DNA, RNA, chromosomes, proteins, or metabolites, that detects genotypes, mutations, or chromosomal changes.”  This does not include “an analysis of proteins or metabolites that does not detect genotypes, mutations, or chromosomal changes.”

Genetic monitoring refers to the periodic examination of employees to evaluate acquired modifications to their genetic material, such as chromosomal damage or evidence of increased occurrence of mutations that may have developed during employment due to exposure to toxic substances in the workplace.  In order to qualify as an exception to the prohibitions on genetic monitoring, the purpose of the monitoring must be to identify and control adverse environmental exposures in the workplace.

How does GINA affect wellness programs?

The regulations provide that GINA prohibits group health plans and insurance companies from collecting genetic information, either for underwriting purposes or prior to or in connection with enrollment.  If an individual seeks a benefit under a group health plan, the plan may limit or exclude the benefit based on whether the benefit is medically appropriate (and a determination of whether the benefit is medically appropriate is not within the meaning of underwriting purposes).

The regulations further provide that genetic information is considered collected prior to enrollment if it is collected before the individual’s effective date of coverage under the plan.  If any genetic information is collected after initial enrollment (and not for underwriting purposes) and the individual later drops coverage, but then later reenrolled in the plan, the collection of genetic information after the initial enrollment would not be considered collected prior to reenrollment.  In addition, incidental collections of genetic information that could not be reasonably anticipated do not violate GINA.  But this exception does not apply if it is reasonable to anticipate that genetic information would be provided unless there is an explicit statement that genetic information should not be provided.

The regulations clarify that underwriting purposes include changing deductibles or other cost-sharing mechanisms or providing discounts, rebates, payments in kind or other premium differential mechanisms in return for activities such as completing a health risk assessment (“HRA”) or participating in a wellness program.

Family history or other genetic information can be collected if the purpose of such collection is neither for underwriting purposes nor prior to or in connection with enrollment.  An example of when genetic information can be collected is that genetic information may be collected when making a determination whether a benefit is medically appropriate for the purpose of payment.  The determination of whether the benefit is medically appropriate is not within the meaning of underwriting purposes either.

The regulations also provide that genetic information includes the collection of family medical history.  Any wellness program that provides rewards for completing HRAs that request genetic information, including family medical history, violates the prohibition against requesting genetic information for underwriting purposes.  This is the result even if rewards are not based on the outcome of the assessment.

Genetic information can be collected as long as no rewards are provided (and if the request is not made prior to or in connection with enrollment).  A group health plan or health insurer can provide rewards for completing a HRA as long as the HRA does not collect genetic information.

Conclusion

GINA impacts HRAs in two areas:

  • HRAs cannot request genetic information prior to enrollment in the Plan, and
  • No rewards or penalties may be offered in conjunction with a HRA that requests genetic information, even if the request is made after the enrollment.

As a result of the regulations, employers and administrators:

  • Should review all wellness and disease management plans to determine how a HRA is used and what information is requested;
  • Remove any financial incentives or penalties if genetic information is collected in the HRA; and
  • Remove any genetic information from the HRA if financial incentives or penalties want to be offered.

“Michelle Law” Becomes Law

November 6, 2008

On October 9, President Bush signed into law (H.R. 2851) which amends the Employee Retirement Income Security Act, the Public Health Act and the Internal Revenue Code by providing that dependent full-time college students who take a medically necessary leave of absence for up to one year will not lose  their health insurance coverage under a new Code Section 9813. This requirement becomes effective for the first plan year beginning on or after October 9, 2009.

This new law is called “Michelle Law” in memory of Michelle Morse who maintained her full-time student load while receiving chemotherapy for colon cancer because she needed the family health coverage and could not afford the necessary COBRA premium to continue her coverage if she dropped out or reduced hours.

This new law will only apply to a group insured or self-insured health plan if the plan provides that for a dependent to continue to be covered after a specified age, he or she must be a full-time student.  For this new law to apply, the dependent child must have been enrolled in a group health coverage on the basis of his or her full-time student status on the date immediately preceding the leave of absence.

A self-funded nonfederal governmental plan can opt out of this new requirement by filing an election with the U.S. Department of Health and Human Services under the same provisions that apply to HIPAA and other federal health benefit laws.

Q&A Employee Retirement Income Security Act of 1974 (ERISA)

October 28, 2008

Is there a small employer exception for complying with ERISA?

No, virtually every private-sector employer is subject to ERISA  – there is no size exemption  This includes corporations, partnerships, and sole proprietorships   Remember, non-profit organizations are covered as well  However, the plans of governmental employers and of churches are exempt from the application of ERISA Title I.

What are the consequences if an employer if it does not have a plan document for its health and welfare benefits?

It could include:

  • Increase the number of Form 5500 filings,
  • Require courts determine plan terms for employees,
  • Force letters & company communications could become plan terms to determine benefits,
  • Make fiduciaries liable for benefit breaches,

Are there any exceptions from any health and welfare benefit being considered an ERISA benefit?

Yes. There is a safe harbor under DOL Reg. § 2510.3-1(j) for certain voluntary employee-pay-all” benefits. To qualify for this exemption from ERISA, an employer allows an insurance company to sell voluntary policies to interested employees who pay the full cost of the coverage. The Employer must then permit employees to pay their premiums through payroll deductions and permits the employer to forward the deductions to the insurer   However, the employer may not make any contribution toward coverage and the insurer may not pay the employer for being allowed into the workplace. The employer may not “endorse” the program – This element is the key element in treating the program as an ERISA benefit.

What makes up an endorsement?

  • Selecting insurers
  • Negotiating terms or design
  • Linking plan coverage to employee status
  • Using employer’s name
  • Recommending plan to employees
  • Doing more than permitted payroll deduction

Is there a small plan exemption for providing Summary Plan Descriptions to employees?

No, almost every private sector employee benefit plan must comply, as provided in DOL Reg. § 2520.104-20(c).

Can insurance contracts or polices serve as a Summary Plan Description for an employer’s benefit programs?

No. Insurance contracts or policies cannot serve as a Summary Plan Description because they are:

  • missing many important provisions – These can include:
  • Employer right to terminate or amend provisions,
  • What state law applies in case of benefit disputes,
  • Any important employer limitations on eligibility for employees,
  • Any detailed procedures for Qualified Medical Child Support Orders and
  • Provisions for other state and federal mandates.
  • not written in understandable language that employees can understand.

Can corporate officers or board directors be held liable for losses under an ERISA health welfare Plan?

Yes if any individual is determined to be “functional fiduciary” under ERISA Section 3(21). A person is a “fiduciary” with respect to an employee benefit plan to the extent that the person:

  • exercises any discretionary authority or discretionary control respecting management of the plan or exercises any authority or control respecting management or disposition of plan assets;
  • renders investment advice for a fee or for any other compensation, direct or indirect, or has any authority or any responsibility to do so; or
  • has discretionary authority or discretionary responsibility in the administration of the plan.

Under ERISA Section 409, any person who is a fiduciary with respect to a plan is liable for breach of fiduciary duty.  Liability includes:

  • personal liability for losses caused to the plan;
  • personal liability to restore to the plan any profits that the fiduciary made through the use of plan assets; and
  • other equitable or remedial relief, as a court may deem appropriate, including removal of the fiduciary.

Are there any exceptions from any health and welfare benefit being considered an ERISA benefit?

August 27, 2008

Yes. There is a safe harbor under Labor Regulations Section 2510.3-1(j) for certain voluntary employee-pay-all” benefits. To qualify for this exemption from ERISA, an employer allows an insurance company to sell voluntary policies to interested employees who pay the full cost of the coverage. The employer must then permit employees to pay their premiums through payroll deductions and permits the employer to forward the deductions to the insurer   However, the employer may not make any contribution toward coverage and the insurer may not pay the employer for being allowed into the workplace. Additionally, the employer may not “endorse” the program – this element deciding is the key element in deciding whether the program is treated as an ERISA benefit.

What makes up an endorsement?

  • Selecting insurers;
  • Negotiating terms or design;
  • Linking plan coverage to employee status;
  • Using the employer’s name;
  • Recommending the plan to employees; and
  • Doing more than the permitted payroll deduction.

What are the consequences for an employer if it does not have a plan document for its health and welfare benefits?

August 27, 2008

The consequences for not having a Plan document may include:

  • Increasing the number of Form 5500 filings;
  • Forcing a court to determine the plan terms for employees;
  • Having letters & company communications become the plan terms that would determine benefits for employees and their dependents, and
  • Making fiduciaries liable for benefit breaches
  • Is there a small employer exception for complying with ERISA?

    August 27, 2008

    No. Virtually every private-sector employer is subject to ERISA  – there is no size exemption.  This includes corporations, partnerships, and sole proprietorships.   In addition, non-profit organizations are covered as well.  However, the plans of governmental employers and of churches are exempt from the application of ERISA Title I.