Disability Claim Rule Raises Duties for Administrators

A Department of Labor rule adding safeguards to disability claim reviews will require more diligence from plan administrators and fiduciaries in rendering decisions, legal experts said.

The rule, promulgated by the DOL’s Employee Benefit Security Administration, is aimed at ensuring fairness and accuracy in the disability claims review process to avoid claims from getting bogged down in long and expensive litigation, regulators have said.

The rule takes effect Jan. 1, 2018 and applies to disability claims under welfare and retirement plans covered by Employee Retirement Income Security Act (ERISA).

Employers typically buy long-term disability insurance, in which case the burden of complying with the new rules falls mostly on the insurer, wrote Rory Akers a compliance expert with Lockton Compliance Services.

Short-term disability benefits, which employers typically offer through a payroll practice, do not fall under the rule since payroll practices are not subject to ERISA, Akers added.

A long-term disability benefit pays an employee a percentage of his or her income for an extended period due to illness or injury.

Impartiality at Issue

Under the rule, disability claims and appeals must be processed in a way that ensures “independence and impartiality” of people involved — claims processors, medical experts and consultants — in reviewing disability claims.

Plan administrators must “fully explain” why the claim was denied and claimants must be notified of their right to obtain any records related to their disability claim, Akers wrote.

The new disability rules add requirements that are similar to group health plan claim procedures under the Affordable Care Act, experts said.

Complying with the new rule will fall predominantly on the insurer, but plan sponsors should be ready for the changes in any event.

Experts Advise Plan Reviews

Plan sponsors and administrators should review employer welfare and retirement plan documents, summary plan descriptions, appeals and administrative practices and procedures, legal experts with McDermott Will & Emery wrote in a January note to clients.

The final rules apply to all claims submitted on or after Jan. 1, 2018, regardless of the plan or contract year.

Any denial notices issued during the remainder of 2017 should be made available to a participant in the disability claim upon request, disability law specialists with Griffin Bridgers in Denver wrote.

A transitional provision that applies to denial notices is applicable through the end of 2017, wrote Laura Fischer and Spencer Fane with Griffin Bridgers.

Any denial must “either specify any internal rule, guideline, protocol or similar criterion relied on” to deny a claim, they explained.

DOL regulators originally proposed the rule in November 2015 and released the rule’s final version on Dec. 19.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.