The New Consumer Appeals Process

The Health Lawyer, ABA Health Law Section, June 2011

By: Andrew B. Wachler, Esq. and Jesse Adam Markos, Esq. Wachler & Associates, P.C.

I. INTRODUCTION

In the July 23, 2010 Federal Register, at 75 FR 43330, the United States Departments of Health and Human Services, Labor, and the Treasury published its interim final regulations regarding changes to consumer health plan appeals. The new appeals regulations are among the most important consumer protections resulting from the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”). The interim final regulations establish enhanced protections for consumers appealing adverse health benefit decisions through their health plan’s internal claims and appeals process, and for the first time, extend to consumers in new health plans in every State the right to appeal decisions made by their health plan to an outside, independent decision-maker.

II. BACKGROUND OF THE NEW CONSUMER APPEALS PROCESS

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) added section 2719 to the Public Health Service Act (“PHSA”)¹. Section 2719 of the PHS Act requires group health plans and issuers offering individual and group policies that are not grandfathered to implement “effective” internal claims and appeals and external review processes.²

In response, the Departments of Health and Human Services, Labor, and the Treasury published interim final regulations implementing PHS Act section 2719 on July 23, 2010, at 75 FR 43330 (the interim final regulations). The interim final regulations provide standards that plan sponsors and issuers can use to implement effective internal claims and appeals and external review processes that meet the requirements of PHS Act section 2719.

Prior to the interim final rule changes, internal claims and appeals processes varied considerably between market segments. ERISA plans were required to provide an internal claims and appeals process that complied with the Department of Labor’s (DOL’s) claims procedure regulation. Meanwhile, non-ERISA plans and issuers offering individual coverage were required to comply with applicable State internal claims and appeals processes. However, internal claims and appeals processes also varied from state-to-state.

Consumers were also subject to assorted external review protections prior to the interim final rule changes. Insured ERISA plans, insured State and local governmental plans, insured church plans, and health insurance issuers offering individual coverage were generally subject to applicable State external review processes.³ However, procedures varied from state-to-state. For example, some states measured filing deadlines in calendar days; in others, deadlines were measured in business days. More importantly, accessibility and consumer protection varied from state-to-state as some states processes did not require the external reviewing entity’s decision to be binding on the plan or issuer.

Moreover, although approximately 40 percent of benefit denials are reversed on external review, some state processes limited external review to only certain types of health plans, while at least six (6) states did not even have external review laws before the Affordable Care Act was enacted. Issuers in those States were not required to implement an external review process. Meanwhile, the preemption provisions of ERISA generally prevented a State’s external review process from applying to an ERISA-covered self-insured plan.⁴ As a result, the only recourse for consumers of self-funded group health plans subject to ERISA was expensive ERISA litigation.

III. NEW CONSUMER APPEALS

The new consumer appeals regulations were enacted to establish a fair and uniform appeals process and to ensure that all consumers have a venue to challenge adverse decisions. The final interim regulations tiered review process includes an internal review by the plan and an external review through a state or federal process.

The final interim regulations extend to non-ERISA plans all of the internal claims and appeals procedure requirements that currently apply to ERISA plans under the existing DOL claims and appeals regulations. Implementation of these procedures will be burdensome for many non-ERISA plans unless they already follow the requirements of the DOL regulations because their insurers or third party administrators are accustomed to. Moreover, the final interim regulations impose additional claims and appeals procedure requirements that go beyond these existing requirements.⁵⁶

The interim final regulations also provide that following the upholding of an adverse benefit determination at the conclusion of the internal appeals process or an adverse benefit determination with respect to which the internal appeals process has been deemed exhausted all non-grandfathered health plans must offer the opportunity for an external review by an independent entity that is binding on a plan or issuer.

To promote stability, consumers have the ability to retain coverage under a group health plan or health insurance coverage in which they were enrolled on March 23, 2010. These “grandfathered” plans and policies do not have to implement the new internal claims and appeals and external review processes.⁷ The current Department of Labor (“DOL”) claim and appeal process remains in effect for plans that maintain their grandfather status. Of course, grandfathered plans may choose to make certain disqualifying changes and relinquish their grandfather status.

The Departments of Health and Human Services, Labor, and the Treasury estimate that 31 million people are currently enrolled in group health plans subject to the new consumer appeals process. This number is expected to grow to approximately 78 million by 2013. The number of individual policies subject to the new consumer appeals process is expected to increase with even more rapidly as 40 percent to 67 percent of all individual policies terminate each year. Of course, newly purchased individual policies are not grandfathered and therefore subject to the new consumer appeals process.

A. INTERNAL CLAIMS AND APPEALS PROCESS

As noted above, the final interim regulations require plans and health insurance issuers to implement an internal claims and appeals process that complies with the requirements of the Department of Labor’s (DOL’s) claims procedure regulation and incorporates any updates established by the Secretary of Labor.⁸ As such, plans must continue to provide coverage pending the outcome of an internal appeal.⁹ This applies to ongoing courses of treatment and rescission of past coverage. In addition, consumers receiving urgent care or ongoing courses of treatment may be allowed to pursue expedited external review while the internal appeals process is in progress.

1. Group Health Plans and Health Insurance Issuers in the Group Market

In addition to the requirements specified in the Department of Labor’s (DOL’s) claims procedure regulation, the new regulations provide that plans and health insurance issuers in the group market must incorporate six (6) new requirements that strengthen consumer protections.¹⁰ First, plans and health insurance issuers must broaden the scope of adverse benefit determinations subject to internal claims and appeals processes to include a rescission of coverage, whether or not there is an adverse effect on any particular benefit.¹¹ The DOL claims procedure regulations allow consumers to appeal a denial, reduction or termination of a benefit, and failure to make a payment in whole or in part for a benefit.¹² Applying internal claims and appeals processes to rescissions of coverage is intended to combat health plans using rescission to invalidate insurance policies for pre-existing conditions or simply unintentional mistakes on insurance applications.

Second, plans and health insurance issuers must provide a reduced timeframe for making urgent care claims decisions.¹³ The DOL claims procedure regulations require notification of the benefit determination as soon as possible but not later than 72 hours after receipt of the claim. The DOL claims procedure regulations were originally published in the Federal Register in 2000. Since that time, improvements in health information technology and electronic communication allows for faster decision-making and notification. As a result, the Departments of Health and Human Services, Labor, and the Treasury have reduced the turnaround time in urgent care cases and require notification of the benefit determination as soon as possible but not later than 24 hours after receipt of the claim. Nevertheless, there is a special exception if the consumer fails to provide sufficient information to determine whether, or to what extent, benefits are covered or payable under the plan.

Third, consumers must be automatically provided, free of charge, new or additional evidence used to make an adverse benefit determination and any new or additional rationale used to uphold a previous adverse benefit determination. Plans and health insurance issuers must then give the consumer sufficient time to respond before the benefit determination is issued.¹⁴ In addition, plans and health insurance issuers must also allow consumers to review the claim file and to present evidence and testimony as part of the internal claims and appeals process. The final interim regulations do not indicate whether plans and health insurance issuers must allow oral testimony, or, similar to the DOL claims procedures regulations, only written testimony is permitted.

Fourth, plans and health insurance issuers must incorporate additional conflict of interest safeguards. Accordingly, decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to a claims adjudicator or medical expert must be made independent of the likelihood that the individual will support a denial of benefits. Nevertheless, the Departments of Health and Human Services, Labor, and the Treasury may not have done enough to ensure the impartiality and independence of the reviewer as plans and health insurance issuers are still permitted to use in-house clinicians to review adverse coverage determinations.¹⁵

Fifth, plans and health insurance issuers must provide broader content and increased specificity in consumer notices. Specifically, notice of adverse benefit determinations must include the denial code and its corresponding meaning as well as a description of the standard, if any, used to deny the claim. If the notice is for a final internal adverse benefit determination, this description must also include a discussion of the decision. In addition, the plan or issuer must provide a description of available internal appeals and external review processes, including information regarding how to initiate an appeal and contact information for available offices of consumer assistance created by the Affordable Care Act to assist consumers with the internal claims and appeals and external review processes.

Moreover, notice to policy holders must contain sufficient information to identify the claim at issue. Pursuant to the interim final regulations, this includes the diagnosis and treatment codes and their corresponding meanings. Inserting this information into the explanation of benefits creates significant privacy concerns as the policy holder this highly sensitive information is addressed to is not always the patient. Moreover, even if the policy holder was the patient, there is no assurance that another individual will not intentionally or inadvertently open the notice.

Finally, notice to consumers must be provided in a “culturally and linguistically appropriate manner.”¹⁶ At the beginning of a plan year, this requirement is mandatory for plans that cover fewer than 100 participants if 25 percent or more of all plan participants are literate only in the same non-English language and for plans that cover 100 or more participants if the lesser of 500 participants or 10 percent of all participants are literate only in the same non-English language.

If the applicable threshold is satisfied, then notices must be provided upon request in the non-English language with respect to which the threshold is met. In addition, the plan must include, within the English version of all notices, a statement in the applicable non-English language offering to provide the notice in the non-English language. Once a consumer requests a notice in the non-English language, the plan must provide all subsequent notices to the consumer in the non-English language. In addition, any customer assistance programs offered with respect to the plan (such as call centers and customer assistance hotlines) must also provide assistance in the non-English language. However, the interim final regulations do not require plans and health insurance issuers to ensure effective communication with consumers with disabilities who may require notices in alternative formats.

The Department of Labor and Department of HHS/Office of Consumer Information and Insurance Oversight have provided model notices that can be used to satisfy all notice requirements under the interim final regulations, including: (1) a notice of adverse benefit determination; and (2) a notice of final internal adverse benefit determination.¹⁷

Sixth, if a plan or health insurance issuer fails to strictly adhere to the internal claims and appeals procedure requirements, the consumer is deemed to have exhausted the internal claims and appeals process, whether or not the plan or health insurance issuer substantially complied or the error committed was de minimis. As a result, the consumer will be able to initiate external review and pursue any available remedies applicable law, such as judicial review. Internal appeals processes generally provide consumers and plans with an efficient and cost-effective means for timely resolution of disputed benefit claims. If bypassed, disputes that could more appropriately be resolved during an internal review will only be resolved after expensive external review processes or litigation. The consumer may also pursue any additional remedies available under ERISA or applicable state law for the plan’s failure to provide a reasonable internal claims and appeals process that would yield a decision on the merits of the claim. If the consumer pursues remedies under ERISA, then the claim or appeal is deemed to have been denied on review without the exercise of discretion by the appropriate fiduciary—which means that a de novo, rather than deferential, standard of judicial review applies.

2. Health Insurance Issuers Offering Individual Health Insurance Coverage

Health insurance issuers offering individual health insurance coverage must generally comply with all the requirements for the internal claims and appeals process that apply to group health coverage. As a result, an individual health insurance issuer is subject to the DOL claims procedure regulation and the six (6) additional standards in the interim final regulations detailed above.¹⁸ Moreover, the new interim final regulations provide that health insurance issuers offering individual health insurance coverage must have an internal appeals process that complies with three (3) additional requirements.¹⁹

First, health insurance issuers offering individual health insurance coverage must allow consumers to appeal initial eligibility determinations for individual health insurance coverage. Approximately 10 percent to 15 percent of applicants are declined coverage in the individual market.²⁰ These eligibility determinations are frequently based on the health status of the applicant, including preexisting conditions. With the prohibition against preexisting condition exclusions taking effect for policy years beginning on or after September 23, 2010 for children under 19 and for all others for policy years beginning on or after January 1, 2014, applicants in the individual market have the opportunity for a review of a denial of eligibility of coverage to determine whether the issuer is complying with the new provisions in making the determination.

Second, health insurance issuers offering individual health insurance coverage must limit their internal claims and appeals process to one (1) level of review. Accordingly, after an issuer has reviewed an adverse benefit determination once, the consumer is allowed to seek external review of the determination by an independent entity. Of course, group health plans are permitted two (2) levels of internal review. The Departments of Health and Human Services, Labor, and the Treasury believe there is no need for a second level of an internal appeal in the individual market since the issuer conducts all levels of the internal appeal unlike in the group market, where a third party administrator may conduct the first level of the internal appeal and the employer may conduct a second level of the internal appeal. In addition, multiple levels of internal reviews are often difficult for some consumers to navigate and may serve as a deterrent to consumers accessing care they are entitled to.

Third, health insurance issuers offering individual health insurance coverage are required to maintain records of all claims and notices associated with their internal claims and appeals process. These records must be maintained for at least six (6) years and must be made available for examination upon request.

3. Interim Procedures for Internal Claims and Appeals under the Affordable Care Act

An enforcement grace period lasting until July 1, 2011 has been granted by the Department of Labor and the Department of Health and Human Services. This grace period gives plans and issuers additional time to comply with the following internal claims and appeals requirements: (1) the requirement to make the initial decision on an urgent care claim within 24 hours of receipt of the claim; (2) the requirement to provide notices in a culturally and linguistically appropriate manner; (3) the new content requirements for notices of adverse benefit determinations and final adverse benefit determinations; and (4) the requirement for strict compliance with all of the new claims and appeals procedures. During the grace period, enforcement action will not be taken against a plan or health insurance issuer that is acting in good faith to comply with these requirements.²¹

¹ Section 1001 of PPACA

² The Departments published interim final regulations implementing section 1251 of the Affordable Care Act on June 17, 2010, at 75 FR 34538. A grandfathered plan is any group health plan or individual coverage that was in effect on March 23, 2010, the date of Act’s enactment. A plan or coverage can lose its grandfathered status if significant changes are made to the plan or coverage that reduce benefits or increase costs to participants

³ Kaiser Family Foundation, Assessing State External Review Programs and the Effects of Pending Federal Patients’ Rights Legislation, 2002. On average, about 40 percent of denials are reversed on external appeal. 54 AHIP Center for Policy and Research, ‘‘An Update on State External Review Programs, 2006,”July 2008.

⁴ 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.

³ The term “group health plan” includes both insured and self-insured group health plans. The Affordable Care Act adds section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue Code (the Code) to incorporate the provisions of part A of title XXVII of the PHS Act into ERISA and the Code, and make them applicable to group health plans, and health insurance issuers providing health insurance coverage in connection with group health plans….Accordingly, State laws that impose on health insurance issuers requirements that are stricter than those imposed by the Affordable Care Act will not be superseded by the Affordable Care Act.

⁶ The Department of Labor is also considering further updates to 29 CFR 2560.503-1 and expects to issue future regulations that will propose additional, more comprehensive updates to the standards for plan internal claims and appeals processes.

⁷ See 26 CFR 54.9815–1251T, 29 CFR 2590.715–1251, and 45 CFR 147.140 (75 FR 34538, June 17, 2010).

⁸ 29 CFR 2560.503-1.

⁹ The DOL claims procedure regulatio ns generally prohibit a plan or issuer from reducing or terminating an ongoing course of treatment without providing advance notice and an opportunity for advance review.

¹⁰ (b)(2)(ii) of these interim final regulations.

¹¹ 29 CFR 2560.503-1

¹² A rescission occurs when there is a cancellation or discontinuance of coverage that has retroactive effect, except to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage. as defined in the regulations restricting rescissions (26 CFR 54.9815–2712T(a)(2), 29 CFR 2590.715–2712(a)(2), and 45 CFR 147.128(a)(2))

¹³ A claim involving urgent care is generally a claim for medical care or treatment where the patient’s life or health would be endangered by waiting for the completion of a standard review; or, in the opinion of the physician with knowledge of the claimant’s medical condition, would subject the claimant to severe pain that cannot be adequately managed without the care or treatment that is the subject of the claim.

¹⁴

¹⁵ 29 CFR § 2560.503–‐1(3)(ii). provided they were not consulted in connection with the adverse benefit determination or subordinate to any such individual

¹⁶ as set forth in paragraph (e) of the interim final regulations.

¹⁷ have been posted on websites and (3) a notice of final external review decision

¹⁸ The special rules in the DOL claims procedure regulation applicable only to multiemployer plans (generally defined in section 3(37) of ERISA as plans maintained pursuant to one or more collective bargaining agreements for the employees of two or more employers) do not apply to health insurance issuers in the individual market.

¹⁹ (b)(2)(ii) of these interim final regulations.

²⁰ See ‘‘Fundamentals of Underwriting in the nongroup Health Insurance Market,” pages 10–12, April 13, 2005.

²¹ On September 20, 2010, the DOL issued EBSA Technical Release 2010-02

The New Consumer Appeals Process (continued)