Enacted on March 23, 2010, the Patient Protection and Affordable Care Act ("PPACA"), (1) imposes a broad array of new requirements on group health plans and individual health insurance policies. (2) Included among these requirements are a set of rules governing internal appeals and external review of benefit denials. (3) This article will examine those rules as they apply to group health plans governed by the Employee Retirement Income Security Act of 1974 ("ERISA").
To provide context, Section II notes the different insurance arrangements affected by the new rules. Following that overview, Section III addresses the historical antecedents of the rules in external review paradigms developed under state managed care laws. Section IV accepts as postulates (1) significant dissatisfaction with pre-PPACA internal appeals processes as well as standards of judicial review of denials upheld following the internal appeal process and (2) attribution of this dissatisfaction to a set of core procedural and substantive limitations on claims for benefits imposed by ERISA. Section IV will describe the operation of these core limitations on claimants in ERISA benefit denial litigation.
The PPACA adds a new set of rules governing claim denial appeals, review of internal claims adjudication, and appeals by an external review organization. (4) Section V describes requirements of the new law as implemented by interim final regulations released on July 23, 2010 ("July 2010 regulations") (5) and other regulatory guidance, including amendments to the Interim Final Regulations released on June 24, 2011 ("June 2011 amendments"). (6) Section VI evaluates the claims made for the new processes and, specifically, the new law's effect in ameliorating ERISA's core limitations on claims described in Section IV.
Granted, the new law provides new opportunities for ERISA claimants in claim disputes. Nonetheless, the fundamental ERISA protections remain in place for ERISA plans and fiduciaries that have drawn criticism from consumer advocates. The greatest opportunities for ERISA claimants lie in the alternative of external review. On balance, however, the inconsistency and complexity of the new rules, the historic underutilization of external review, and disparity in legal and medical resources between participants and plan administrators leave substantial doubt as to the advantages claimed for the new procedures.
II. OVERVIEW OF BENEFIT ARRANGMENTS SUBJECT TO RULES
Group health plans are one form of employee welfare benefit plan under ERISA and constitute the predominant source of private funding of medical care in the United States. Approximately 138 million Americans are participants in ERISA group health plans, easily dwarfing the 16.7 million estimated to be covered by individual health insurance policies. (7)
A. INDIVIDUAL HEALTH INSURANCE POLICIES & ERISA EXEMPT PLANS
Given the focus of this article on ERISA governed group health plans, the following discussion will not attempt to detail the requirements applicable to individual health insurance policies or to group health plans exempt from ERISA. (8) Nonetheless, a few observations about such arrangements in this section may serve to provide a helpful contrast, particularly since they are frequently referred to in the regulations.
1. DOL Claims Regulations & Internal Appeals
In 2000, the Department of Labor ("DOL") issued final regulations requiring that ERISA governed plans establish reasonable claims procedures for claims adjudication, notification of payment decisions, and appeals of benefit denials. (9) At that time, the claims regulations only applied to ERISA governed plans. (10) Among other things, the claims regulations prohibited claims procedures from imposing more than two levels of appeals prior to judicial review under ERISA section 502(a).
PHS Act section 2719 provides that plans and issuers must initially incorporate the internal claims and appeals processes set forth in 29 C. …