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Employer Health Reform Issues Brief: Internal and External Appeals of Claims Decisions

Smart first steps for employers


The Provision

All group health plans, except for grandfathered plans, must implement an effective process for participants to appeal coverage and other claim determinations. The mandate encompasses procedures both for internal and external appeals.

Employee Retirement Income Security Act (ERISA) plans can satisfy the requirement for internal appeals by complying with existing ERISA claims procedure rules and any future updates to those rules by the Department of Labor. Non-ERISA plans – e.g., state and local government plans – should continue following any otherwise applicable claims and appeal rules pending further guidance from the Department of Health and Human Services (HHS).

Plans currently subject to a state’s external review requirements – e.g., fully-insured ERISA plans and fully-insured or self-insured non-ERISA plans – generally must continue following those rules. Plans not subject to a state’s external review rules will be required to implement an external review process based on guidance to be issued by HHS.

Effective Date: Plan years beginning on or after September 23, 2010. This requirement does not apply to grandfathered plans.

Key Implication: Plan Design

Plan design changes eventually will be required for most plans, but not until relevant guidance is issued by the Departments of Labor or HHS. A significant change for self-insured ERISA plans will be implementing an external review process according to standards to be developed by HHS.

Key Implication: Administration

As with plan design, the impact on claims administration procedures will mostly be delayed until relevant guidance is issued. Even then there may be few required changes to most plans’ internal claims appeals procedures. But the administrative burden on self-insured ERISA plans of implementing and operating an external review process could be significant, depending on the standards developed by HHS.

Key Implication: Cost

The introduction of an external appeals process to self-insured ERISA plans (and other plans not subject to a state external review requirement) almost certainly will increase administrative costs for these plans. Less certain is the effect on these plans’ total claim costs, which will go up if the external appeals process results in a higher percentage of questionable claims being approved.

Smart First Steps

Plan Design: Significant changes will not be needed, if at all, until more guidance is issued. In the meantime a careful review of the plan’s current eligibility and benefit provisions might be helpful to identify and correct ambiguities and other items that are frequently the subject of appeals of adverse benefit determinations. Steps taken to tighten up these provisions now should help ease the transition to enhanced internal and external review processes in the future.

Administration: Same as above – no immediate action is needed. However, consider initiating a self-audit of the results of prior appeals to complement the previously discussed review of the plan’s eligibility and benefits provisions. This should include a careful review of the plan’s summary plan description (SPD) and other communications materials to ensure they are clear and consistent with the plan’s terms.

Cost: Taking the steps outlined above can help limit the number of appeals of adverse benefit determinations as well as the percentage of such appeals that are successful. That, in turn, will help limit the potential cost impact of the new and enhanced claims review requirements.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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