Under the Patient Protection and Affordable Care Act (“PPACA”), insurers and the sponsors of non-grandfathered self-insured health plans must allow for an external review process in the event of an adverse benefit determination. An adverse benefit determination is essentially any rescission of coverage or any full or partial denial of a benefit. External review provides individuals with the right to have an adverse benefit determination reviewed by a third-party and to have the potential opportunity for a third-party to reverse the decisions of insurers and plan sponsors. This blog will focus on the application of the external review process to the sponsors of self-funded health plans that are subject to ERISA (herein simply referred to as “sponsors”).
Different sets of regulations will apply to the external review process based on what type of a plan is at issue, on what state an insurer or sponsor is operating in, and on whether the applicable state has enacted binding regulations that provide consumer protections that are similar to federal regulations; however, if a plan is subject to ERISA, then federal regulations will apply. If a state has not enacted binding consumer protections that are similar to federal protections, federal regulations will apply to most plans and the following discussion of the federal review process will be applicable. The Centers for Medicare & Medicaid Services maintain a running list of states and territories that are subject to federal regulations, which can be found here.
Federal external review protections only apply to claims that involve a medical judgment that is not, as determined by a third-party reviewer, exclusively a contractual or legal interpretation that can be made without the aid of medical judgment and claims that involve a rescission of coverage. Regulations issued by the Department of Labor (“DOL”) explain that medical judgments “include, but [are] not limited to, those based on the plan’s or issuer’s requirements for medical necessity, appropriateness, health care setting, level of care, or effectives of a covered benefit; or its determination that a treatment is experimental or investigational.” DOL also provides examples of medical judgments, including, but not limited to: whether to provide care at home or at a rehabilitation facility; determining whether a medical condition is a preexisting condition; whether a participant in a wellness program is entitled to a reasonable alternative qualification standard for a reward—a discussion of the PPACA’s new wellness program rules can be found here and here; and whether it is medically necessary for an individual to receive treatment by a specialist. A full list of the examples provided by DOL can be found on page 9 of the PDF file found at this link.
Plans with grandfathered plan status are not required to comply with the federal requirements. However, non-grandfathered health plans are subject to the federal requirements, besides excepted benefit plans. Excepted benefit plans generally include retiree-only plans, vision and dental plans that have a limited scope, certain FSAs, and a few HRAs.
An individual is permitted to request review within four months of the date that she received a notice denying a benefit (some exceptions apply if the last day of the four month period falls on a Saturday, a Sunday, a Federal holiday, or a date that does not exist in the final month). After a notice is filed, within five business days, a sponsor must complete a preliminary review that includes an examination to determine whether the internal review procedures have been exhausted and whether the necessary paperwork has been filed, among other tasks. Preliminary reviews can be handled internally or handled by a third-party. After a preliminary review is complete, the plan must utilize an accredited independent review organization (“IRO”), and the plan must safeguard against bias while maintaining independence from the IRO. For safeguard eligibility, the DOL requires that a sponsor form contracts with at least three IROs and that a sponsor rotate claims among the various IROs. The contract between a sponsor and the sponsor’s IROs must include various provisions, but discussion of the mandated provisions is beyond the scope of this post. Once an IRO has come to a decision regarding a particular claim, a sponsor must immediately comply with the decision.
Expedited external review procedures, which have truncated deadlines, must be utilized under some circumstances. Generally, this process applies when a delay could do medical damage to the individual making the claim. When a sponsor receives an external review request, the determination must be made immediately whether the claim meets the standard for expedited review, and if the claim meets the standard for expedited review, the documents necessary to review the claim must be transmitted to an IRO expeditiously. In the event of expedited review, an IRO is required to give no deference to the original determination made by the plan in reviewing a claim. An IRO must complete review in 72 hours, but will be required to complete the review in less time if the individual seeking review has a medical condition that so requires.
Most sponsors are likely interested to know how much the external review process will cost. Federal agencies involved in the external review process estimate that the average cost of review was $605 in 2011 and that approximately 2,600 external reviews took place. Because of the complexity of the external review process, many plan sponsors will wisely choose to rely on their plan administrator’s to administer the external review process. One national plan administrator builds five external reviews per plan year into its standard rates for administration of self-funded health insurance plans. The administrator charges the plan sponsor $500 for each external review after the five initial reviews are utilized. A knowledgeable source indicated anecdotally that she was unaware of a plan that experienced more than five external reviews in a particular plan year.
A study conducted by the America’s Health Insurance Providers found that external reviews upheld an insurer’s determination 59% of the time in 2006. The study took place before the PPACA was enacted, but at the time of the study, some states had laws mandating external review. Because it seems that relatively few external reviews take place and that the majority of reviews end in favor of the plan sponsor, the cost of the external review procedures for sponsors may be relatively low, but with that said, external reviews may become more costly if more individuals begin utilizing the external review process. It may be possible for sponsors to charge a nominal fee to offset some of the costs of external review. This is clearly permissible under federal regulations in the event a plan is subject to state mandated external review, assuming that the state regulations also permit the fee; however, the DOL regulations are silent on whether plans subject to federal external review procedures are permitted to charge a fee. Further, plans are specifically prohibited from charging a fee for internal review procedures. Prudent sponsors should wait on further guidance before charging a fee, but this blog will attempt to provide further information if the DOL issues additional guidance and expressly permits plan sponsors to charge a nominal fee to individuals seeking external review.