Health care reform requires non-grandfathered group health plans to implement external review processes for benefit claim determinations. As promised in the July 2010 claims regulations, new guidance has been released regarding the nuts and bolts of the external review process. The rules go into effect for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar-year plans) and do not apply to grandfathered plans.
The agencies provided plans with some transitional relief as they implement external review processes. If a plan complies with either of two methods set forth in Technical Release 2010-01, the Department of Labor and IRS will not take enforcement action against the plan. The two methods are as follows: plans may either comply with an applicable state process, if available, or comply with the federal external review process described in the recent guidance. State external review processes generally are not available for self-insured plans. As such, the federal external review rules will apply to most self-insured group health plans, unless a particular state opens up its processes to include self-insured plans.
The federal external review process as laid out in the recent guidance contains the following requirements:
- Request of External Review: Plans must give claimants four months to file a request for external review after receiving a notice of an adverse benefit determination.
- Preliminary Review: Plans must complete a preliminary review of an external review request within five days after receipt, and respond to the request within one day thereafter.
- Referral to Independent Review Organization (IRO). Plans must assign an accredited IRO to conduct the external review. Plans must contract with at least three IROs and rotate claims among them. The IRO must review claims de novo and provide notice of the final external review decision to the claimant and plan within 45 days.
- Reversal of Plan's Decision. If the final external review decision reverses an adverse benefit determination, plans must immediately provide coverage or payment for the claim, regardless of any potential lawsuit.
Plans must also expedite external review if the regular timeframes would seriously jeopardize the life or health of the claimant.
Independent Review Organizations
The external review must be conducted by an IRO that is accredited by URAC or a similar nationally-recognized accrediting organization. As of September 21, 2010, the online URAC Directory of Accredited Organizations lists 43 IROs as accredited or in the process of accreditation. The DOL clarified that a plan can contract with an IRO in another state.
Plans must enter into contracts with at least three IROs and rotate claims among them. Although plans could delegate this responsibility to its third-party administrators, business associate agreements between the plans and third-party administrators would not likely cover review by an IRO. As such, plans will likely want to contract directly with IROs.
External review is de novo, without deference to the plan's prior decision, and claimants will have the opportunity to provide additional evidence to the IRO. This is a substantial change from existing rules, where so long as a plan's claims process is followed, no new evidence is allowed in court and the court gives deference to a plan's decision unless arbitrary and capricious. This change may cause plans to reexamine the structure of their existing claims processes. Given de novo external review, there may be little reason for a plan to maintain the right to review a third-party administrator's decision on appeal.
Disclosure of External Review Process
At the same time as the guidance was published, three model notices describing a participant's right to appeal and external review were also published. Specifically, the notices address adverse benefit determinations, final internal adverse benefit determinations, and final external review decisions. Plans are not required to use these model notices and may instead draft their own language to satisfy the regulation's disclosure requirements. Although model language for summary plan descriptions is expected in the future, plans may want to review and revise the description of the claims process prior to the effective date of the new rules.
Potential Penalties for Non-Compliance
There is currently no expiration date for the safe harbor described in Technical Release 2010-01. In an FAQ released on September 20, 2010, the DOL stated that compliance with the external review processes will be determined on a case-by-case basis looking at all facts and circumstances. As such, failing to satisfy all of the standards in the Technical Release may not necessarily cause a plan to violate the new external review requirements. However, the plan must be able to prove that its external review process is independent and without bias—and complying with the procedures in the Technical Release is likely the most reliable option at this point.
Compliance with the new external review processes is also important given the potential excise tax penalties. Plans that violate the external review processes are subject to Code section 4980D excise tax penalties of up to $100 per day per affected individual. Although there are limits on the excise tax in the case of unintentional failures and for small employers, plans should now begin seriously considering how they will implement external review processes.
For more information on health care reform, please visit www.beyondhealthcarereform.com.
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