On December 17, 2001, the Department of Labor (DOL) issued guidance, in the form of frequently asked questions and answers, on its benefit claims regulation. The guidance contains helpful information on important questions regarding the application of the final claims regulation to employee benefit plans, including pension and disability plans. Most of the questions and answers however, concern the provisions of the claims regulation that apply to group health plans.

Background

On November 21, 2000, the DOL published a final regulation setting new standards for processing benefit claims of participants and beneficiaries who are covered under employee benefit plans governed by ERISA. A complete discussion of these rules is available in The Segal Company's April 2001 In Depth, "DOL's Final Rule on Claims and Appeals Establishes a Complicated Structure for Health and Disability Plans".

Key Issues

The guidance provides, among other things, information concerning the following:

• Disability Benefits Provided in a Pension Plan Generally disability benefits are subject to the special rules for disability claims (e.g., de novo review, consultation with a health professional concerning medical judgments) where the plan conditions benefits upon a showing of disability. This is true whether the plan as a whole is a pension plan or a welfare plan. However, if the plan provides disability benefits based on a finding of disability made by a party other than the plan for purposes other than making a benefit determination under the plan, then the special rules for disability would not apply. Thus, if a pension plan provides pension benefits for individuals who have been determined to be disabled by the Social Security Administration or under an employer’s long-term disability plan, then claims for pension benefits are subject to the regulation’s rules for pension claims, not the special rules for disability claims. This issue has generated significant controversy among plan sponsors. Some plan sponsors may have determined that the general pension rules were applicable to any disability benefits provided under a pension plan. Those plan sponsors will need to amend their claims and appeals procedures to take into account the new distinction for benefits based on third-party determinations of disability. In some cases, plan sponsors may wish to revise the eligibility criteria for disability benefits to require a previous third-party determination. In addition, these rules will be effective January 1, 2002, so immediate action will be required. Plan sponsors should look to legal counsel for guidance as to whether disability benefit determinations must be decided under the special disability rules or the general rules for pension benefits.

• Consistency Rule The claims regulation also requires that all employee benefit plans subject to the regulation have claims procedures that contain administrative safeguards to ensure that plan provisions are applied consistently with respect to similarly situated claimants. The guidance elaborates on this rule by stating that although the DOL is not prescribing any particular process, consistency may be ensured by applying consistent protocols, rate table, and fee schedules. Consistency may also be determined by periodic audits or reviews of benefit claims to see whether the appropriate protocol, fee schedule or other criteria was used.

• Quarterly Meeting Rule for Multiemployer Plans The claims regulation provides for special rules applicable to boards of trustees or committees of multiemployer group health and disability plans. These rules allow certain claims decisions to be made at quarterly meetings of the boards. The guidance states that these multiemployer plans cannot rely on both the special quarterly meeting rules and the rules in the claims regulation that allow for up to two levels of appeal. For example, if a plan makes a decision on appeal according to the quarterly meeting rule, it cannot then have a second mandatory level of appeal. It may, however, have a second voluntary level of appeal.

• Timeframes The guidance addresses when certain timeframes begin and end. For claims under all employee benefit plans the time for making an initial decision begins to run when the claim is filed in accordance with the plan’s reasonable filing procedures, regardless of whether the claim is a "clean claim." The guidance emphasizes that although the plan may require that claimants submit specific information including medical and coordination of benefits information, the plan may still have to make a decision on a claim before it receives this information in order to abide by the timeframes set out in the rule. A group health plan may extend the time to make a decision for 15 days for pre-service and post service claims (urgent decision cannot be extended) for reasons beyond the control of the plan. Where an extension is necessary due to a claimant’s failure to provide necessary information, and the claimant is notified, the plan’s time for making the decision is suspended from the date that the notice of the extension is sent to the claimant or the date that the claimant provides the information (this cannot be less than 45 days). The 15-day extension period means that the plan has 15 days to make a decision on a claim. The 15 days begins to run on the date the plan receives the claimant’s response regardless of whether all of the requested information is provided, or if earlier, the date that the plan provides the claimant to provide the information. Outside of these rules, a claimant may agree to extend the time period the plan has to make a determination on a claim, even where the rules do not provide for an extension. For example, a claimant may voluntarily agree to allow the plan extra time to make a decision on an urgent care claim.

This guidance is a valuable resource particularly for group health plans that must comply with the final claims regulation by the first day of the first plan year beginning on or after July 1, 2002, but not later than January 1, 2003.

All other employee benefit plans governed by ERISA must be in compliance by January 1, 2002. These plans must make sure they review the guidance as soon as possible to ensure that they comply with the standards elaborated on in the guidance, particularly the consistency rule and the rule regarding what standards apply to disability claims.

Compliance Alert, The Segal Company’s periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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