Provides additional participant protection and administrative burden

On July 23, 2010, the Department of Health and Human Services (HHS), the Department of Labor (DOL), and the Treasury Department issued its next phase of regulations implementing the Patient Protection and Affordable Care Act (PPACA), as amended relating to internal claims and appeals and external review processes under the new Section 2719 of the Public Health Service Act. In addition, on August 23, 2010, the same federal agencies issued regulatory guidance on the availability of interim procedures for federal external review and model notices relating to internal claims and appeals and external review under the PPACA. Plan sponsors of non-grandfathered health plans will need to update their internal claims and appeals processes pursuant to this guidance as well as take into account the new external review processes.

Internal Claims and Appeals

Group health plans “must implement an effective internal claims and appeals process” in accordance with the new regulations. This generally requires compliance with the internal claims and appeals processes set forth in Labor Regulation Section 2560.503-1, as modified by the new regulations.  The regulations add six additional standards that group health plans generally will have to comply with relating to their internal claims and appeals processes. These include the following:

1. Clarification of “Adverse Benefit Determination”

Under the new regulations, the term “adverse benefit determination” has been expanded to include a rescission of coverage.

2. Expedited Notification of Benefit Determinations Involving Urgent Care

Group health plans must now notify a claimant of a benefit determination (whether adverse or not) with respect to a claim involving urgent care as soon as possible, taking into account the medical exigencies, but not later that 24 hours after the receipt of the claim. This is a significant change from the prior standard of 72 hours.

3. Full and Fair Review

Additional criteria have been added to ensure a claimant gets a full and fair review of his or her benefit claim. First, a plan must provide the claimant any new or additional evidence considered, relied upon or generated in connection with the claim. This evidence must be provided (a) free of charge and (b) as soon as possible and sufficiently in advance of the date on which the notice of a final internal adverse benefit determination is required to be provided to give the claimant a reasonable opportunity to respond prior to that date.

Second, before a plan can issue a final internal adverse benefit determination based on a new or additional rationale, the claimant must be provided with the rationale. Similar to the first new requirement, the rationale must be provided (a) free of charge and (b) as soon as possible and sufficiently in advance of the date on which the notice of the final internal adverse benefit determination is required to be provided to give the claimant a reasonable opportunity to respond prior to that date.

4. Avoidance of Any Conflict of Interest

A group health plan must ensure that all claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the decision makers. As such, any decisions related to hiring, compensation, termination, promotion or other similar matters with respect to any individual (i.e., claims adjudicator, medical expert) may not be based on the likelihood that the individual will support the denial of benefits.

5. Notice

In addition to the notice requirements under Labor Regulation Section 2560.503-1, plans must notify individuals of certain information. First, when notifying a claimant of an adverse benefit determination or final internal adverse benefit determination, a plan’s notice must identify the claim involved, including the date of service, health care provider, claim amount (if applicable), diagnosis code and its corresponding meaning, and the treatment code and its corresponding meaning.

Second, the notice of the reason(s) for an adverse benefit determination or final internal adverse benefit determination must include the denial code and its corresponding meaning and a description of the standard(s) applied in denying the claim. A notice of a final internal adverse benefit determination must include a discussion of the decision.

Next, the plan must provide a description of the available internal and external review processes (including information on how to initiate an appeal). Finally, the plan must disclose the availability of and contact information for any applicable office of health insurance consumer assistance or ombudsman established under the PPACA to assist individuals with the claims, appeals, and external review processes.

The August 23 guidance contains links to the new model forms that may be used to comply with the disclosure requirements of the new regulations. Among these forms includes a “Model Notice of Adverse Benefit Determination” and “Model Notice of Final Internal Adverse Benefit Determination,” which can be found on the DOL website ( and HHS website (

6. Deemed Exhaustion of Internal Claims and Appeals Processes

If a plan or insurer fails to strictly adhere to all the regulatory requirements applicable to a claim, a claimant will be deemed to have exhausted the internal claims and appeals process. In that case, a claimant may pursue the judicial remedies under Section 502(a) of the Employee Retirement Income Security Act (ERISA). In such a case, the court will review the claim de novo, as if the claim was denied without any exercise of fiduciary discretion.

External Review Processes

The new regulations generally require plans and issuers to comply with an external review process. Group health plans will need to determine whether they are potentially subject to state standards or federal standards. For health insurance coverage (i.e., fully-insured group health plans), if a state’s external review process is binding on an insurer and includes the consumer protections in the NAIC Uniform Model Act in place as of July 23, 2010, the insurer must comply with the applicable state standards (note that this requirement is imposed on the insurer and not the plan itself). If a state’s process does not meet such requirements, then the federal process will apply. The federal external review process generally will apply to ERISA-covered, self-insured plans, but the preamble to the final regulations also notes that this would not preclude a state from applying its external review process to self-insured group health plans not covered by ERISA or subject to other state insurance law (i.e., nonfederal governmental plans, church plans and multiple employer welfare arrangements).

State External Review

As noted above, in the context of health insurance and fully-insured group health plans subject to state external review processes, an insurer generally will have to comply with the state external review process if it includes, at a minimum, the consumer protections of the NAIC Uniform Model Act (as of July 23, 2010). The regulations list a number of elements that the DOL, HHS and Treasury Department have determined to be “minimum consumer protections that must be included for a state external review process to apply.”

Federal External Review

EBSA Technical Release 2010-01 provides an interim enforcement safe harbor for plans subject to the federal external review process. This safe harbor applies for plan years beginning on or after September 23, 2010 (i.e., January 1, 2011 for calendar year plans) and until superseded by future guidance currently being developed. During this interim period, the DOL and IRS will not take enforcement action against self-insured group health plans that comply with one of two interim compliance methods – compliance with the procedures described in the Technical Release or voluntarily complying with the state external review process.

The standard external review for self-insured group health plans generally is broken down in four steps:

First, a plan must allow a claimant to file a request for external review if such request is filed within four months after the date of receipt of an adverse benefit determination or final internal adverse benefit determination.

Second, within five days of the date of receipt for the external review, the plan must perform a preliminary review to determine whether:

  • The claimant was covered under the plan at the time the service was requested or provided (in the case of retrospective review);
  • The benefit denial was based on claimant’s eligibility under the plan;
  • The claimant exhausted the plan’s internal appeal process (unless not required to do so under the regulations); and
  • The claimant has provided all necessary forms and information required to process an external review.

Within one day after completion of the preliminary review, the plan must issue notification in writing to the claimant. If the claimant request is ineligible for external review or not complete, the notice must explain such.

Third, the plan must assign an accredited independent review organization (IRO) to conduct the external review. Because of the requirement that a plan must take action to prevent bias and ensure independence, plans must contract with at least three IROs for assignments and rotate claims assignments among them. Furthermore, financial incentives based on the likelihood that the IRO will support the denial of benefits are prohibited. A contract between the plan and IRO must satisfy a number of requirements, including:

  • The IRO will utilize legal experts where appropriate to make coverage determinations;
  • The IRO will timely notify the claimant in writing of the request’s eligibility and acceptance for external review;
  • The plan must provide the IRO the documents and information considered in the adverse benefit determination or final internal adverse benefit determination within five business days of the assignment;
  • Upon receipt of any information submitted by claimant, IRO must forward such information to the plan within one business day (allowing the plan to reconsider its prior determination);
  • The IRO will review the information and documents and, in reaching a decision, will conduct a de novo review of the claim (i.e., it will not be bound to the plan’s decision);
  • The IRO will provide written notice of its decision within 45 days after it receives the request for external review;
  • The IRO will issue notice of its decision meeting certain requirements (note that as part of the August 23 guidance, a “Model Notice of Final External Review Decision” was issued); and
  • The IRO will generally maintain records for six years after a final external decision.

Finally, upon receipt of notice of a final external review reversing an adverse benefit determination or final internal adverse benefit determination, the plan must immediately provide coverage or payment.

The final regulation provides claimants with the right to an expedited external review if (1) the claimant has filed a request for an expedited internal review and the time frame for an expedited internal appeal of an adverse benefit determination would seriously jeopardize the claimant’s life, health, or the ability to regain maximum function; or (2) the time frame for a standard external review following receipt of a final internal adverse benefit determination would seriously jeopardize the claimant’s life, health, ability to regain maximum function, or if the final internal adverse benefit determination relates to a decision on admission, availability of care, continued stay, or health care item or service for which the claimant received emergency services, and the individual has not been discharged from the facility.

Under the expedited external review procedure, the preliminary review described above must be performed “immediately” and the notice must be issued “immediately.” Upon referral to an IRO, all documents and information must be provided electronically, by telephone, by fax or any other available expeditious method(s). The IRO’s decision must be made as expeditiously as the claimant’s condition/circumstances requires, but in no event more than 72 hours after the IRO receives the request for expedited external review.


These new internal claims and appeals and external review requirements, like much of the PPACA, will impose substantial additional administrative burdens on plan sponsors. In addition, there are unanswered questions as a result of the regulations and Technical Release. Among these open issues include (1) what is “immediately” for purposes of expedited external review; (2) which state’s (or states’) external process(es) applies; and (3) how must a plan sponsor communicate all claims procedure requirements to plan participants. 

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