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Effective April 1, 2018, the changes to the Department of Labor’s disability claims regulations will finally go into effect, providing participants with a more full and fair review of disability benefit claims that is more in alignment with the medical plan claims procedures required by the Affordable Care Act. The delayed implementation was intended to give the DOL time to consider comments on the increased costs and other adverse consequences of more complex regulations; however, the DOL found that there was insufficient proof that the regulations would substantially increase the costs of operating disability plans and that further delay of implementation was not necessary. Below is a short summary of the key points of the regulations.
Which Plans Must Comply: ERISA-covered disability plans, retirement plans, and top-hat plans that require a determination of disability by the plan. Plans that condition benefits on a determination of disability by a party other than the plan (e.g., the Social Security Administration or another plan sponsored by the employer) are not subject to the new regulations. For insured short and long-term disability plans, the insurer is responsible for handling claims and appeals in accordance with the regulations and should maintain procedures compliant with the regulations. For self-funded short-term disability benefits, if the benefits are considered a payroll practice and not an ERISA plan, then the claims regulations do not apply.
- Prior to Issuing Adverse Benefit Determination. Prior to issuance of the notice of adverse benefit determination that includes new evidence or rationales, the plan must disclose such information to the participant and give the participant sufficient time to respond prior to issuing the determination.
- Changes to Content of Adverse Benefit Determination Notice.
- More In-depth Discussion of Basis for Determination. The notice must include any reason the determination is contrary to a third party’s disability determination (such as the Social Security determination). Adverse benefit determinations must include a disclosure of applicable internal rules, guidelines, protocols, standards or other similar criteria of the plan that were used (or a statement that none were used), which was previously only available upon request. If the determination is based on “medical necessity or experimental treatment or similar exclusion” must include an explanation of the “scientific” or “clinical judgment” for the determination.
- Contractual Deadlines. For plans with contractual deadlines to file a civil action, plans are required to disclose that such limitations exist in the adverse benefit determination letters, including the actual calendar date the participant must be aware of.
- Culturally and Linguistically Appropriate Style. Similar to medical plan claims, disability plan adverse benefit determination notices must be written in a culturally and linguistically appropriate manner, if the claimant’s address is in a county where 10% or more of the population is literate only in the same non-English language, and include a prominent statement in the relevant non-English language about the availability of language services. Upon request, the entire adverse benefit determination notice must be written in the other language and oral customer service assistance must be provided.
- Special Appeal Timing Rule Limitation. The extended review period that is generally applicable for benefit appeals when the claims fiduciary is a committee or board with regular meetings is only available for disability claim appeals in the multiemployer plan context.
- Deemed Exhaustion. Administrators must “strictly adhere” to the claim procedures or a participant will be deemed to have exhausted administrative remedies. Previously substantial compliance with the claims regulations was acceptable. This change is likely to increase the cost of offering benefits that have a disability determination (unless an exception applies).
- No Conflicts. Claims administrators or medical/vocational experts cannot be hired based on the likelihood that the person will support a denial of benefits.
- Rescissions of Coverage. Similar to medical plans claims procedures, retroactive termination of disability plans due to misrepresentation of fact and other rescissions of coverage must be treated as adverse benefit determinations.
Review benefits offered to employees to determine which plans are subject to the new regulations. Contact applicable insurers and third party administrators to confirm such entities are prepared to comply with the new regulations. Review “wrap” plan and other plan documents, including summary plan descriptions, and amend if needed. Consider whether any top hat plans or other executive compensation arrangements are impacted by the new regulations, and amend if needed.