When Coverage is Denied Under Health Reform, the Ground Rules for Appeals No Longer Apply

Policyholder Advisor & Alert

PUBLISHED ON: November 9, 2010

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Editor’s Note: At Anderson Kill’s Policyholder Advisor Conference on September 23, one of the liveliest sessions was “Changes in the Wake of Health Care Reform,” chaired by Rhonda Orin. A focal point of the session was the still-uncertain impact on existing practice of the new requirement that health plans establish an external review process for denied claims. Below, Ms. Orin and Pamela Hans outline the new requirements and the legal questions they raise.

When health reform took effect on September 23, 2010, in the form of the Patient Protection and Affordable Care Act and the Reconciliation Act (collectively PPACA), the ground rules changed immediately for the process of appealing claims denials by employer-run health plans.

Under PPACA, group health plans now are required to establish an internal claims appeals procedure that includes an external review process. The external review will be done by an independent entity and the health plan will be required to pay the costs.

Significantly, the external review will be on a de novo basis, which means that the reviewer will not be restricted in any way by the underlying evidence or the coverage determination. Until now, except in cases of conflicts of interest, both external reviewers and courts were limited to discretionary reviews, in which they could consider only the evidence that was before the plan at the time of the coverage determination and could decide only whether the evidence was sufficient to support the plan’s determination. If their answer was in the affirmative, they were obligated to affirm the determination even if they would have decided the claim differently.

At least for now, the new rules regarding the claims review process do not apply to grandfathered, self-funded plans. They do apply, however, to insurance companies for plans that are fully insured.

Under the new rules, plan participants will have a two-part review process. First, the internal review process is intended to provide a quick and objective review of a claim decision. In addition, participants are entitled to receive a detailed explanation of the reason for the group plan’s denial of a claim. A participant who remains unsatisfied by that explanation may demand an external review.

This change in the rules has created a new array of questions, particularly about the implications for existing precedent. Outstanding questions include when external reviews will be subject to appeal to the courts and, during such appeals, what legal standards will be applied.

Notably, the judicial precedent that currently limits courts to discretionary reviews arises out of the principle of according deference to decisions made by plans. There is no such precedent with regard to decisions made by external review organizations.

Recently issued interim regulations modify existing Department of Labor regulations regarding claims and appeals procedures for employee benefit plans. Most significantly, if a plan fails to comply with the new requirements regarding the claims appeals procedure, the claimant will be deemed to have exhausted his or her administrative remedies and be permitted to seek judicial review.

On another front, the new rules provide that external reviews must comply with the requirements of the applicable state, provided that the state standards meet minimum federal standards established by the National Association of Insurance Commissioners (NAIC) in the Uniform External Review Model Act. If the state review standards do not meet the minimum protections established by the NAIC Uniform Model Act, then the group health plans must implement an external review process that meets the minimum standards and procedures that are established by that Act.

For states whose standards do not meet the minimum standards established in the NAIC Uniform Model Act, the Department of Health and Human Services (HHS) will work with the states so that their review process provides the consumer protections mandated in that Act. There is a transition period until July 1, 2011, during which time the HHS will work with states to help them make the changes that may be necessary for the state’s review process to comply.

Related People

Insurance Recovery Attorney | Anderson Kill LLP
Rhonda D. Orin
Managing Shareholder (Branch)
Washington, DC
Insurance Recovery Attorney in Pennsylvania | Anderson Kill P.C.
Pamela D. Hans
Managing Shareholder (Branch)
New York | Philadelphia

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