Definition of Adverse Benefit Determinations, Recision of Benefits

The Regulation: 29 CFR § 2560.503-1 Claims procedure.

(m)Definitions. The following terms shall have the meaning ascribed to such terms in this paragraph (m) whenever such term is used in this section:

(4) The term “adverse benefit determination” means:

(i) Any of the following: A denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including any such denial, reduction, termination, or failure to provide or make payment that is based on a determination of a participant's or beneficiary's eligibility to participate in a plan, and including, with respect to group health plans, a denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review, as well as a failure to cover an item or service for which benefits are otherwise provided because it is determined to be experimental or investigational or not medically necessary or appropriate; and

(ii) In the case of a plan providing disability benefits, the term “adverse benefit determination” also means any rescission of disability coverage with respect to a participant or beneficiary (whether or not, in connection with the rescission, there is an adverse effect on any particular benefit at that time). For this purpose, the term “rescission” means a cancellation or discontinuance of coverage that has retroactive effect, except to the extent it is attributable to a failure to timely pay required premiums or contributions towards the cost of coverage.The revisions to the ERISA regulations regarding disability benefits claims amends the definition of an adverse benefit decision to include a rescission of benefits, including retroactive rescissions, except for rescissions for failure to make required premium payments.  29 CFR 2560.503-1(m)(4).  This is the case even if there is no adverse effect on any particular benefit as a result of the rescission.  An example of a rescission would be a determination that a plan participant’s coverage is cancelled because the plan concluded that the participant’s application included a material misstatement, assuming that the policy includes a provision giving the plan the right to cancel a participant’s policy under such circumstances.  Under the newly revised rules, the plan must comply with the claims procedures since the rescission would now be considered an adverse benefit determination.

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The Department of labor in its Supplementary Information addressed the question of whether an adjustment or suspension of benefits that reduces or eliminates a disability pension benefit under section 305 of ERISA would be a rescission under the newly revised regulation.  The DOL’s position is that it would not be a rescission within the meaning of 29 CFR 2560.503-1(m)(4), but that if a claims adjudicator had to make a disability determination in order to decide a claim, then the claim must be treated as an adverse benefit determination under the newly revised rules. 

One final point.  The DOL addressed a commentator’s question about a situation that does not directly relate to rescissions.  The question was whether a limited award of benefits would be considered a rescission.  For example, if a plan’s policy limited benefits to 24 months for disabilities caused by a mental illness and the plan adjudicator notified the claimant that her benefits would end after 24 months based on the limitation, would that be considered a rescission.  The DOL’s position is that it would not be.  Its position, previously set out in an FAQ, is that any claimant request for payment beyond the specified period would be constitute a new claim.  The position of the DOL in an FAQ does not have the same force as a regulation.  Claimants would therefore be well advised to immediately apply for benefits for the specified period and receive a determination before the time period for an appeal would otherwise have run, and to submit a notice of appeal with a submission of evidence in support of the appeal if the plan adjudicator does not make an initial determination on the ‘new claim’ in a timely fashion.