External Review Process
Smart first steps
Group health plans, except grandfathered health plans, must implement an effective process for participants to appeal coverage and other claims determinations. The mandate encompasses procedures both for internal appeals and external reviews of adverse benefit determinations.
Health Reform Issue Brief #5 provides a general overview of the mandate and related issues. This Issue Brief focuses specifically on what non-grandfathered group health plans must do to comply with the external review requirements, based on guidance issued to date. The key questions are:
- What external review process applies – a State process or the Federal external review process?
- If the Federal external review process applies, how does the plan comply until more guidance on that process is issued?
A plan that is already subject to a State external review process should continue following that process for plan years beginning before July 1, 2011. This will be the case for most insured plans, and also for some non-ERISA self-insured plans (e.g., those sponsored by state and local governments). For plan years beginning on or after July 1, 2011, a particular State external review process will apply only if the Department of Health and Human Services determines that it satisfies the minimum standards of the National Association of Insurance Commissioner’s Uniform Model Act.
Any plan that currently is not subject to a State external review process – e.g., self-insured plans subject to ERISA – generally must follow the Federal external review process. However, the Federal external review process is still under development and is not expected to be ready until after plans have to begin complying with the external review requirements. As a result, the Department of Labor has issued Technical Release 2010-01 to provide an interim compliance safe harbor for self-insured plans not subject to a State external review process. This safe harbor gives eligible plans the following two compliance options:
- Voluntarily comply with an available State external review process, or
- Implement an external review process that meets the standards and procedures set out in Technical Release 2010-01.
The first option is available only to the extent a State chooses to open its external review process to these self-insured plans.
The second option involves setting up an external review process for standard and expedited reviews. The plan’s responsibilities include:
- Performing a preliminary review of requests for external review to determine if the claimant is eligible for external review
- Contracting with at least three accredited Independent Review Organizations (IRO) to conduct external reviews
- Assigning validated claims to these IROs on a rotational or other basis to ensure unbiased selection
- Immediately paying claims or providing coverage upon receiving notice from the IRO that it is reversing the plan’s adverse benefit determination or final internal adverse benefit determination
Effective date: Plan years beginning on or after September 23, 2010. Does not apply to grandfathered health plans.
Key implication: Plan design
Sponsors of non-grandfathered plans must determine which external review process applies and make any necessary plan design changes. Sponsors of self- insured plans not subject to a State external review process also need to decide if they will voluntarily follow a State external review process (if the option is available) or implement their own external review process in accordance with Technical Release 2010-01. As a practical matter self-insured plans covering individuals in multiple states probably will end up having to implement their own external review processes.
Key implication: Cost
Self-insured plans not subject to a State external review process will incur additional administrative expenses associated with implementing and operating a new external review process. This will be true even if they have the option of voluntarily complying with a State external review process, particularly if
states choose to impose a fee for plans to participate. These plans also may face higher claims costs if previously denied claims are reversed on external review. By comparison, there likely will be minimal administrative or other cost implications for plans already subject to a State external review process,
at least in the short term.
Smart first steps for employers to consider
Plan design: Determine which external review process applies to the plan and what plan design changes, if any, are needed to implement.
Cost: Self-insured plans not subject to a State external review process might want to analyze the cost of implementing their own technical review process in accordance with Technical Release 2010-01 – including the cost of using accredited IROs to perform external reviews – so they can compare with the cost of voluntarily complying with a State external review process, if the option becomes available.
Communications: Update summary plan descriptions and other plan documents to reflect new external review processes. Existing adverse benefit determination notices also may need updating. Consider using the model notices available on the Department of Labor’s Web site, at
For more information, contact:
Steve Kraus, Deloitte Consulting LLP, +1 312 486 3041
Ron Barlow, Deloitte Consulting LLP, +1 312 486 2271
Barbara Gniewek, Deloitte Consulting LLP, +1 973 602 6266
Rick Wald, Deloitte Consulting LLP, +1 612 397 4601
David Lusk, Deloitte Consulting LLP, +1 213 688 3325
Deb Walker, Deloitte Tax LLP, +1 202 879 4955
Andrew Liakopoulos, Deloitte Consulting LLP, +1 312 486 2777