By Sara Rosenbaum

Background

The right to a fair and impartial appeal when a group health plan or health insurer denies a claim would seem to be a basic matter of fairness. Historically, however, this has not been the case. Patient protections vary tremendously depending on the type of health insurance and federal and state legal requirements.

Generally speaking, a patient whose coverage is denied has the right to take a health insurer or an employer-sponsored group health plan to court to enforce his or her rights. Whether the claim is heard in state or federal court depends on whether the claim for benefits arises under a federal law such as Medicare,^[1] Medicaid,^[2] or the Employee Retirement Income Security Act (ERISA),^[3] or flows from state laws that create a right to enforce a contract of coverage purchased directly from a private insurer or acquired through a public program such as the Children’s Health Insurance Program (CHIP). But taking an insurer to court is costly and difficult, and the process can be very slow. Where a lawsuit in court is the only option, insurers may have no incentive to decide matters swiftly or fairly, because they are aware of how unlikely it is that litigation will result from their actions.

Patient advocates have long argued for reforms that would create a fair and uniform appeals process that includes both an internal appeal (an appeal taken to the insurance plan administrator) as well as an external appeal to an entity that is totally outside the plan itself (i.e., an independent external reviewer). Advocates have pointed out that such a process would not only protect patients, but also potentially allow for the swifter resolution of claims without having to resort to litigation. While internal appeals are more common, external appeals are rare, estimated at approximately 1.3 for every 10,000 group health plan participants. But the rarity of appeals could in part be the result of a lack of transparency in the appeals process itself; furthermore, the availability of an external review process for claims against health insurers and health plans may have some deterrent effect on the frequency with which insurers actually deny claims.

Since 1974, ERISA has required all employer-sponsored group health benefit plans to offer a “full and fair review” of claims that are denied.^[4] Federal regulations issued in 2000 expanded on the meaning of a full and fair review of health benefit claims,^[5] which are unique because of their ability to arise even as treatment is proceeding. The rules instituted a special expedited appeals process for urgent care claims while also addressing other issues that affect the fairness of the process, such as the right of access to all relevant plan documents and information used by the plan administrator to make a decision, such as internal practice guidelines. However, the 2000 regulations did not require health benefit plan administrators whose activities are governed by ERISA (which applies to all private employers) to submit to an impartial external review. These administrators’ decisions were considered final, and the only recourse was judicial review.

Equally important, once an ERISA claim actually makes it into court, judges give deference to the decision of the plan “fiduciary”, i.e., the person empowered to make the final decision on behalf of the ERISA plan; as a result, courts will overturn the decision only if the patient can show that the decision is arbitrary and capricious,^[6] a very difficult standard to meet. The fact that the plan fiduciary has a conflict of interest because of the value to the plan of a denial is not deemed to create the kind of situation that would affect the deferential standard, although evidence that the decision-maker might have acted in a self-interested way—rather than fairly and impartially—may trigger closer judicial scrutiny.^[7]

States have the power to establish both internal and external appeals standards under their laws regulating insurance. In 2002, the United States Supreme Court held that state external appeals laws that permit an impartial review of a plan’s decision regarding the medical necessity of care are not preempted by ERISA, but in fact are “saved” as state laws that regulate insurance.^[8] However, the decision applies only to group health plans that involve the purchase of group health insurance and does not apply to group health plans that are self-insured by an employer and simply administered by an insurer. Medium and larger employers tend to self-insure; the Department of Labor estimates that approximately 77 million workers (half of all participants) are covered by self-insured plans.

Moreover, while states have the power to regulate the insurance market by establishing appeals procedures, not all do so,^[9] and the state laws that do exist are a wild patchwork of procedures and protections. The National Association of Insurance Commissioners (NAIC)^[10] has developed a uniform model law to guide states in the development of appeals laws, but information from NAIC suggests that as of July 2010, only Connecticut, Idaho, Illinois and Tennessee had adopted the model law either completely or substantially completely. Colorado, Iowa, Kentucky, North Carolina, North Dakota, and Virginia maintained appeals statutes, but their statutes in NAIC’s view significantly fell short of the NAIC model. The remaining states showed no action. Furthermore, some state laws may provide comprehensive protections, applying to both the individual and group markets, and covering all forms of health insurance products (e.g., HMOs, PPOs, and traditional indemnity plans). Other states may regulate only certain markets (e.g., only the individual market) and may limit their laws to certain products (e.g., only HMOs). The comprehensiveness of the protections also can vary: some states may provide comprehensive protection, allowing access to an insurer’s documents and internal coverage guidelines and guaranteeing an expedited appeal for urgent claims while treatment is pending; other states may not regulate these matters.

Furthermore, even where state law permits an appeal, the law may fail to guarantee that where the appeal comes in the midst of a course of treatment, coverage must continue pending the outcome of the appeal, a key protection for patients experiencing coverage denials in the middle of a course of treatment. Prior to passage of the Act, ERISA contained no such rights, and such rights were not a feature of the NAIC uniform law.

Changes Made by the Health Reform Law
P.L. 111- 148, §§1001 and 1253

The health reform law establishes federal standards for state external appeals laws governing health insurance products sold in the group and individual markets, establishes a new federal external appeals process for self-insured plans, and amends ERISA to provide external appeals rights to all plan participants, including those in self-insured plans. The law makes no change in Medicare and Medicaid appeals procedures, which are governed by separate federal laws.

Specifically, the law amends the Public Health Service Act^[11] to specify that:

• All group health plans and health insurance issuers offering group or individual health insurance coverage must have an “effective” claims appeals process for “appeals of coverage determinations and claims” that at a minimum:
  • must include an internal appeals process;
  • must provide notice to enrollees “in a culturally and linguistically appropriate manner” of available internal and external appeals process and of the availability of any applicable office of “health insurance consumer assistance or ombudsman” [established under the Public Health Service Act] to assist enrollees with their appeals;
  • must allow an enrollee to review his or her file, present evidence and testimony as part of the appeals process, and to receive “continued coverage pending the outcome of the appeals process”; and
  • in the case of ERISA-governed health plans, must continue to comply with the 2000 regulations and must update the process in accordance with federal regulations issued by HHS.
• All group health plans and health insurance issuers must comply with a state’s external review process if the process meets the NAIC standards or, alternatively, must implement a process established by the Secretary of HHS.
• Self-insured group health plans not subject to state regulation must implement a review process specified by the Secretary of HHS.
• The Secretary of HHS may deem the external review process used by a health plan or a health insurance issuer as being in conformity with the law.

Furthermore, the law amends ERISA to apply the Public Health Service Act appeals provisions to self-insured plans.^[12]

Implementation

Agency

Three federal agencies – HHS, Labor, and Treasury – are responsible for issuing joint regulations governing the group health plan and health insurance markets.

Key Dates

Because the appeals law goes into effect for plan years beginning on or after September 23, 2010 (except in the case of grandfathered health plans), the three agencies issued interim final regulations available for public review on June 22, 2010. The regulations were formally published in the Federal Register on July 23, 2010.^[13] Comments are due prior to September 21, 2010.

Process

Because of the significance of the issue and the fact that the regulations are designed to implement new legal protections for patients, the implementation effort has initially taken the form of formally published regulations. Further informal guidance related to the appeals process will also be forthcoming. On August 23, 2010, the United States Department of Labor issued a “Technical Release”^[14] setting forth procedures for the federal external review process in the case of self-insured plans and for insurers to use in states whose external appeals procedures either do not exist or do not meet NAIC standards (states are given a one-year transition period to bring their appeals laws into compliance) as a means of guiding plans and insurers, especially regarding the states whose external appeals process are deemed to satisfy the NAIC Uniform Law standard.

Recent Agency Action

The federal regulations issued on July 23, 2010 contain important further interpretation of statutory terms. Additional federal guidance issued in August, 2010, provides further information on the appeals process:

Internal appeals

The rules:

• Clarify the scope of what is appealable to include claims that are appealable under the DOL rule, which reaches denials, reductions, or terminations of or failure to provide or make, a payment (in whole or in part) for a benefit, whether pre-service or post-service. Denials, reductions, terminations, or failure to provide or make a payment can be in the context of:
  • a determination of the individual’s eligibility to participate in the plan or insurance coverage;
  • a determination that a benefit is not a covered benefit;^[15]
  • the imposition of a pre-existing 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.
• Broaden, beyond the 2000 DOL regulation, the types of adverse benefit determinations covered by the appeals process to include rescissions (i.e., cancellations) of coverage.
• Tighten to 24 hours the turnaround time for notifying a claimant of a benefit determination with respect to urgent care claims, unless the claimant provides insufficient information from which to make a determination.
• Clarify that insurers and plans must provide claimants, free of charge, with any new or additional evidence considered or relied upon or generated by the plan or issuer in connection with the claim. The information must be provided as soon as possible in order to give the claimant the chance to respond prior to the actual date of the adverse determination.
• Establish new criteria to avoid conflicts of interest and to assure independence and impartiality.
• Set new standards for what constitutes appropriate notice.
• Clarify direct appeals rights in cases in which the plan fails to adhere to internal standards.
• Apply the same standards to individual coverage products.

External appeals

The rules:

• Clarify that insurers must comply with state laws that meet the NAIC standards or use a federal external review process.
• Clarify that external review decisions are independent and are binding on the plan or health insurer.^[16]
• Spells out 16 specific elements of the NAIC model law that the federal agencies consider to be key in guiding plans and insurers as to whether state law meets federal standards.
• Specify that states may charge claimants a nominal filing fee, not to exceed $25.00.
• Bar states from imposing minimum dollar thresholds (e.g., $500) before an external appeal can be filed.
• Clarify that HHS will determine whether a state external review process meets the NAIC elements.
• Establish a federal process for self insured plans and for insurers in states whose laws do not meet the NAIC process, while giving states a grace period (plan years beginning before July 1, 2011) to amend their rules and allowing insurers to use the state process even if not fully compliant during this time.

Key Issues

• The distinction between internal appeals and external reviews. The NAIC Model Law allows external review of adverse benefit determinations that are based on medical necessity, appropriateness, health care setting, level of are, or effectiveness of a covered benefit. This standard is considerably narrower than the DOL definition of what is covered by an internal appeal procedure, which reaches decisions regarding whether a benefit is covered at all, and exclusions on coverage and network based exclusions. How might the agencies reconcile this fact, or will it be the case that the external review process is not available for the full range of claims that can be raised internally?
• State compliance with NAIC. How many states may be found to be in compliance with NAIC standards, and how will this information be communicated by the agencies? How many states will amend their laws to come into compliance?
• The end of judicial deference to the ERISA fiduciary? As noted, under the “common law” of ERISA and in the absence of a conflict of interest of the type that causes a decision to be set aside, the courts will defer to the judgment of an ERISA health plan “fiduciary.” This wide berth seems to change entirely under the terms of the regulation; furthermore, the August 23rd guidance explicitly empowers independent review organizations to independently review claims de novo, that is, to conduct a fresh look that does not defer to the plan’s decision. Will the courts recognize that a coverage determination by an independent reviewer that favors the patient not only will bind the plan but will be recognized as binding by a court if a plan refuses to go along with the decision and the patient challenges the plan’s refusal to cover a treatment in court?

Authorized Funding Levels

The changes are regulatory in nature and funding therefore is not specified.