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New ERISA Disability Claim Regulations – Part 1by Andrew Whiteman

Disability Insurance Benefits

New ERISA Disability Claim Regulations – Part 1

On December 19, 2016, the United States Department of Labor (referred to herein as “DOL”) revised the claims procedures for employee benefit plans that provide disability benefits under the Employee Retirement Security Act of 1974 (“ERISA”). The DOL’s new regulation strengthened the current rules primarily by applying to disability benefit claims the procedures and safeguards applicable to group health benefits under the Affordable Care Act. The effective date of the new regulation was extended from January 1, 2018, until April 1, 2018, to allow for an additional comment period.

This is the first of a series of blog posts that will summarize important features of the new regulation. The revision amended the existing regulation in the following eight areas:

  1. Conflicts of interest involving claims adjudicators and medical and vocational consultants.
  2. Additional disclosures required with denial notices.
  3. Disclosure of plan criteria.
  4. Requires notifications to be made in a “culturally and linguistically-appropriate”
  5. Disclosure of new evidence and new rationales prior to denial on review.
  6. Disclosure of contractual limitations period deadline.
  7. Enhanced remedy for a plan’s violation of the regulation.
  8. Expansion of the definition of “adverse benefit determination.”

Of equal importance to the amendments themselves, however, is the DOL’s extensive commentary, which may be found in section II. B of 81 Federal Register 243.[1] The DOL’s views will be very helpful to practitioners and the courts in interpreting the new regulations, and it is likely that courts will defer to the agency’s official interpretive statements under the Chevron doctrine. See Christensen v. Harris County, 529 U.S. 576, 587 (2000) (An agency’s interpretation of a regulation that was arrived as part of a formal notice-and-comment rulemaking process should be entitled to deference.)

This blog post, the first of nine, will cover the history of the DOL’s regulation of the disability claim process under ERISA, the rationale for revising the existing regulation, and the types of plans that are covered by the new regulation. Subsequent blogs will cover the eight changes to the regulation.

  1. History of DOL Regulations

The Department of Labor published its first regulation in 1977 at 29 C.F.R. 2560.503-1. This codification has been referred to as the “503 Regulation.” It applied to all covered employee benefit plans. The DOL revised the 503 Regulation in 2000 by providing new time frames and improved requirements for notices and disclosures relative to group health and disability benefit claims. Although the 503 Regulation continued to be applicable to all employee benefit plans, the more robust procedural requirements applied to claims for group health and disability benefits. The 2000 revision became effective for claims filed on and after January 1, 2002.

The DOL published its proposed revision on November 18, 2015.[2] The Department received 145 public comments in response to the publication. The new regulation and the Department of Labor’s extensive commentary were published on December 19, 2016, and may be found at 81 Federal Register No. 243 (2016).

On October 12, 2017, the DOL announced that it was seeking comments on a proposed 90-day delay of the applicability of the new regulations through April 1, 2018.[3] This action followed the Trump administration’s Executive Order 13777, entitled Enforcing the Regulatory Reform Agenda, which required, inter alia, a review of existing regulations within each federal agency and input from persons significantly affected by the existing regulation. The DOL received 110 comments in response to the proposed delay. Most of the industry commentators – employers, plans, insurers, and plan service administrators – offered comments similar those made during the rule-making process. Accordingly, on November 29, 2017, the DOL announced that notwithstanding the stakeholders’ comments it would adopt the proposed new regulation without change.[4] The effective date was revised to April 1, 2018.

2. Background of the Revision to the 2002 Regulation

The Department of Labor cited several reasons for reconsidering the 503 Regulation. Long-term disability cases dominate employee benefits litigation. Between 2006 and 2010, LTD cases accounted for 64.5% of benefits litigation, whereas cases involving health plans and pension plans accounted for only 14.4% and 9.3%, respectively. In addition, the DOL found that “[i]nsurers and plans looking to contain disability benefit costs may be motivated to aggressively dispute disability claims” and quoted from court cases to support its view.[5]

The DOL’s ERISA Advisory Council was asked to reconsider the disability claims process and in December 2012 and produced a report titled Managing Disability Risks in an Environment of Individual Responsibility[6] (herein, “Council Report”). The Council concluded:

Not all results have been positive for the participant under ERISA-covered plans and the implementing claim procedures regulations, even though these rules were intended to protect participants. The Council was made aware of reoccurring issues and administrative practices that participants and beneficiaries face when appealing a claim that may be inconsistent with the existing regulations.[7]

The DOL’s determination to revise the claims procedures was influenced by industry practices:

The Department’s determination to revise the claims procedures was additionally affected by the aggressive posture insurers and plans can take to disability claims as described above coupled with the judicially recognized conflicts of interest insurers and plans often have in deciding benefit claims. In light of these concerns, the Department concluded that enhancements in procedural safeguards and protections similar to those required for group health plans under the Affordable Care Act were as important, if not more important, in the case of claims for disability benefits.[8]

     3.    What Plans are Covered by the New Regulations

Any employee benefit plan that conditions the availability of a benefit upon a finding of disability by the plan provides a disability benefit that is subject to the special rules for disability claims under the 503 Regulation.[9] Thus, a disability pension or early retirement benefit that is conditioned on a finding of disability by the plan would be considered a disability benefit. On the other hand, where a plan provides that a benefit is available upon on a finding of disability made by a party other than the plan, such as the Social Security Administration or another employer plan, a claim for such a benefit is not treated as a disability claim for purposes of the 503 Regulation.[10]

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The next blog post will cover topic 1 – conflicts of interest involving claims adjudicators and medical and vocational consultants.”

 

© Andrew Whiteman 2019

 

[1] 81 Federal Register 243, at pp. 92319-21331.

[2] See 80 Federal Register 230 (2015).

[3] 82 Federal Register 196 (2017), available at https://www.gpo.gov/fdsys/pkg/FR-2017-10-12/pdf/2017-22082.pdf.

[4] See 82 Federal Register 228, available at https://www.gpo.gov/fdsys/pkg/FR-2017-11-29/pdf/2017-25729.pdf.

[5] See 81 Federal Register 243, n.6.

[6] Available at http://www.dol.gov/sites/default/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2012ACreport2.pdf.

[7] Council Report, p. 6.

[8] 81 Federal Register 243, p. 92317.

[9] 81 Federal Register 243, n.3.

[10] Id., and see also Benefit Claims Procedure Regulation FAQs, A-9, available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/benefit-claims-procedure-regulation. (Caution: The FAQs have not been updated to reflect the 2018 claims procedures.)

 

Whiteman Law Firm specializes in cases involving claims for disability insurance and other employee benefits. These cases typically involve application of a federal law, the Employee Retirement Income Security Act of 1974, known by the acronym ERISA, and are usually resolved through the benefit plan’s appeal process or federal court. We have helped hundreds of individuals with their claims for short-term and long-term disability insurance benefits.

Contact us for more information about our ERISA disability benefits practice.

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