RE: Employee Health Plan Regulatory Development

To Our Clients and Friends: 

The United States Department of Labor recently issued new regulations that change the administration procedures for employee health benefit plans and the content of summary plan descriptions.  The new regulations, which are a by-product of President Clinton's "Consumer Bill of Rights and Responsibilities," increase the amount of information that must be given to plan participants and significantly reduce the amount of time for group health plans to make coverage determinations. 

One set of regulations, which is codified at 29 CFR Section 2560, substantially restricts the amount of time group health plans have to process benefit claims.  The new regulations, which apply to claims that are filed on or after January 1, 2002, govern group health plans subject to the Employee Retirement Income Security Act of 1974 (“ERISA”).  The regulations separate claims into three categories:  urgent-care claims; pre-service claims; and, post-service claims.  Claims constitute urgent-care claims "if delaying deciding the claim could seriously jeopardize the claimant's 'life' or 'health' . . . ."  Urgent-care claims must be decided within 72 hours from the time a claim is submitted.  If an urgent-care claim is denied, a claimant may appeal the decision and a decision on the appeal must be made within 72 hours.

Pre-service claims are defined as non-urgent claims that involve access to medical care.  For pre-service claims, plans have fifteen (15) days from the date the claim is submitted to make an initial determination.  If a pre-service claim is rejected and the claimant appeals, plans have thirty (30) days to make a determination on the appeal. 

Post-service claims are defined as non-urgent claims "that involve purely the payment or reimbursement of costs for medical care that has already been provided."  For post-service claims, plans have thirty (30) days to make an initial determination and, if appealed, sixty (60) days to decide the appeal.  For pre-service and post-service claims, plans may obtain one fifteen-day (15) extension of the initial time restrictions if "the plan administrator determines that such an extension is necessary for reasons beyond the control of the plan."  The new regulations also increase the deadline for claimants to file an appeal from the present sixty-day period to one hundred and eighty (180) days. 

Although the new regulations do not give claimants an independent right to sue, the new regulations do not preempt state laws that provide such a right.  Moreover, the new regulations require plans to provide substantially more information to claimants.  For instance, if a claimant requests information regarding an adverse decision, the new regulations require plans to provide copies of the information that is generated or obtained in the process of making a determination.  Also, if a claim is denied, the plan must advise claimants of the plan’s internal rules, guidelines, or procedures that served as the basis for the adverse decision.  Moreover, if a claim is denied on the grounds that the procedure is not medically necessary or because the procedure is experimental, then the plan must explain the "scientific or clinical judgment of the plan in applying the terms of the plan to the claimant's medical circumstances, or include a statement that such an explanation will be provided free of charge" upon the request of the claimant.

The second set of regulations, codified at 29 CFR Part 2520, expands the requirements regarding the contents of Summary Plan Descriptions (“SPD’s”), which must be given to employee benefit plan participants under ERISA.  The new regulations, which take effect on the first day of the second plan year beginning on or after January 20, 2001, substantially increase the amount of information group health plans must include in the SPD.  Although not an exhaustive list, the new regulations require SPD's to include:  (1) an explanation of plan sponsor’s right to terminate plan and how termination affects participants' rights; (2) any annual or lifetime limits on benefits under the plan; (3) the extent to which preventive care is covered under the plan; (4) the type and extent of coverage for new and existing medications; (5) the type and extent of coverage for medical tests, procedures and devices; (6) a summary of provisions regarding out-of-state network providers; (7) the limitations and extent of coverage for emergency medical care; and, (8) the plan’s requirements regarding conditioning benefits on a pre-authorizations or utilization reviews.  The new regulations also require the SPD to provide detailed information regarding beneficiaries’ rights under the 1996 Newborns' and Mothers' Health Protection Act.  The NMHPA places certain restrictions on plans that attempt to limit a mother's or a newborns' stay at the hospital following childbirth. 

In short, the new regulations significantly increase the amount of information that is required to be given to plan participants and severely restrict the amount of time plans have to make coverage determinations.  The regulations are extensive and the issues set forth above are only a highlight of the significant changes mandated by the new regulations.

If you have any questions regarding these new requirements and how they may effect the administration of your employee benefit plans, please call either David Strock or Peter Bennett.