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New Review Process for Claim Denials Required under Health Care Reform

Health Care Reform requires additional procedural protections for health plan claims, including new standards for internal and external reviews following claim denials.

The new external review process involves a review of an adverse benefit determination by an independent third party who makes abinding decision to uphold or reverse the decision. Health reform law requires all non-grandfathered plans -- whether fully-insured or self-funded, and whether subject to ERISA or not -- to satisfy either a state or federal external review process for claims denials. (Grandfathered plans enjoy a delay in the application of these rules.) The reviews generally are done by Independent Review Organizations, or IROs.

Implementing these complex new requirements seems at first to be a daunting challenge, but most HUB clients will be able to rely on their insurance carrier or third party administrator (TPA) to coordinate compliance obligations.

Although PPACA directs a robust and very detailed review appeals process, the impact is minimized if the plan sponsor takes certain designated compliance steps.

Plan-by-Plan Impacts

Insured Plans and Non-ERISA Plans.  Fully-insured group plans generally will achieve compliance through their carrier, which itself must comply with health reform standards. Insured plans must comply with a state's external review process to the extent the process includes consumer protections found in the National Association of Insurance Commissioners (NAIC) Uniform Model Act. If a state's external review process does not meet the minimum standards, the federal review process applies. Self-funded programs not subject to ERISA (plans of churches and state and local governments) can use anys tate external review standard satisfying the NAIC standards.

Self-Funded ERISA Plans.  A key change will be the more rigid and strict external review process for self-funded group health plans subject to ERISA. These plans are generally exempt from state rules, and must comply with a federal external review process by taking one of two approaches:

  1. Voluntarily adopt a state external review process - The plan sponsor may, at its discretion, agree to satisfy a review process that would not ordinarily apply to a self-funded plan under ERISA. The selected state external review process must meets certain standards. The following states do not have compliant processes: Alabama, Alaska, Florida, Georgia, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Dakota, Pennsylvania, Texas, and West Virginia. Wisconsin is in a transition period until March 2012; we are monitoring that state. In those non-compliant states, the federal standard, explained in the next paragraph, should apply instead.
  2. Fulfill new federal external review standards by contracting with at least two independent review organizations (IROs) by January 1, 2012 - The plan must contract with at least three independent review organizations by July 1, 2012. Although contracting with IROs is possible (usually through a TPA), some employers may find it quicker and easier to use Option 1 above. However, TPAs already have contracted on behalf of most plans, so use of employer action is usually not necessary.

Grandfather status.  As noted above, grandfathered plans avoid the new internal and external review process rules - but those grandfathered plans covered by ERISA remain subject to long-standing ERISA claims and appeals regulations and/or state rules if insured. Note: Many carriers and TPAs will not maintain two separate claims review processes, so grandfathered plans may be thrown into the same process/system as non-grandfathered plans.

Practical Impact and Next Steps

For many employers, changes to the claims review process will not be obvious. Insurance carriers and TPAs will shoulder most administrative responsibilities. Insured plan sponsors simply will look to insurance carriers to modify controlling practices for compliance purposes. Even self-funded plans should, for the most part, be able to rely on TPAs to make the necessary refinements to achieve compliance.

As a result, except for perhaps confirming that outside parties have incorporated the proper procedural modifications, a majority of employers will (thankfully) not be required to immerse themselves in the minutia of the rules.

HUB International is assisting its clients in confirming carriers and TPAs are compliant. As part of our ongoing efforts to communicate health care reform developments to our clients, HUB will closely monitor these issues and share further insight in future publications.

Useful Links

DOL Technical Release 2011-01 explains the amended changes to PPACA external review process. That document is available at:

HHS published similar guidance outlining PPACA requirements for external review. That document may be found at:

The National Association of Insurance Commissioners (NAIC) Uniform Model Act is available at the following link:

For general information about PPACA claims and appeals rules basedon originally issued guidance see the following HUB International Client Bulletin: