Deciders of Claims and Outside Experts Must be Independent or Impartial

The Regulations: § 2560.503-1 Claims procedure.

b)Obligation to establish and maintain reasonable claims procedures. Every employee benefit plan shall establish and maintain reasonable procedures governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations (hereinafter collectively referred to as claims procedures). The claims procedures for a plan will be deemed to be reasonable only if -

(7) In the case of a plan providing disability benefits, the plan must ensure that all claims and appeals for disability benefits are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. Accordingly, decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any individual (such as a claims adjudicator or medical or vocational expert) must not be made based upon the likelihood that the individual will support the denial of benefits.

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There are five revisions to the amendments to the ERISA claims regulations promulgated by the Department of Labor that went into effect April 18, 2018.  In providing its overview of the rule revisions, the Department of Labor described the first revision as providing that “[c]laims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the person involved in making the benefit determination.”  In order to accomplish this aim, according to the DOL, “…this final rule requires that decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual must not be made based upon the likelihood that the individual will support the denial of disability benefits.”  In plain terms, it means that insurers and self-insurers cannot, for example, “plan bonuses based on the number of denials made by a claims adjudicator…[or] contract with a medical expert based on the expert’s reputation for outcomes in contested cases…”  It is worth contemplating that this revision was necessary to “address practices and behavior [by insurers and self-insurers] which cannot be reconciled with the ‘full and fair review’ guarantee [in the ERISA statute].”

In addition to its own claims adjusters and any medical experts it hires, this new rule will apply to vocational experts.  The DOL also emphasized that the rule is not limited to persons responsible for making the decision, and therefore would apply to “consulting experts.”  The rule also applies to individuals hired or compensated by parties engaged by the insurer or self-insurer: insurers and self-insurers cannot avoid the rule by hiring a third party agency which itself engages in the practice of hiring experts likely to side with them. 

The DOL also addressed the concern that this revision may lead to claimants asking the insurer or self-insurer to provide the claimant with the statistics relevant to their compliance with this rule, presumably on the theory that it should be part of the administrative record.   The DOL also addressed the related concern that claimants may seek that information during litigation.  The DOL essentially punted on this issue, stating that the rule does not change the scope of “relevant documents” subject to disclosure under the rule as written, meaning that it does not change what documents constitute the administrative record.  Nor, according to the DOL, does it prescribe limits (or expand them) with respect to the kinds of documents already discoverable in litigation.  What is happening here seems to be that the DOL recognized that insurers and self-insurers have engaged in the practices of incentivizing employees to deny meritorious claims and of seeking experts known to deny claims, and have addressed them.  But they have chosen not to prescribe rules about how claimants can enforce the new rule, instead leaving it to courts to determine what rights claimants will have to discover whether the insurers or self-insurers are playing by the new rules.

 

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