by Cody Allison

A Great ERISA Decision – Seventh Circuit Court of Appeals

United States Court of Appeals,Seventh Circuit.

Brenda MOTE, Plaintiff-Appellant, v. AETNA LIFE INSURANCE COMPANY and Arthur Andersen LLP Group Long Term Disability Insurance Plan, Defendants-Appellees.

No. 06-4127.

    Decided: September 12, 2007

Brenda Mote sued Aetna Life Insurance Co. (“Aetna”) and the Arthur Andersen Long-Term Disability Plan (the “Plan”) under the Employment Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., alleging that Aetna and the Plan arbitrarily and capriciously terminated her disability benefit payments and that they should be estopped from terminating her disability benefits because the Social Security Administration found her “disabled” under its regulations.   The district court dismissed Mote’s claims against Aetna upon finding that Aetna was not a proper party to the action, denied Mote’s motion for summary judgment against the Plan, and granted summary judgment to the Plan on all of Mote’s claims against it.   Mote appeals.   We affirm.

I.

Brenda Mote was a human resource generalist with Arthur Andersen LLP until she ceased working on April 10, 1998, due to back pain and physical complications, including fibromyalgia,¹ stemming from an August 1997 accident.   On the day that Mote stopped working for Arthur Andersen, she applied for long-term disability benefits under the Plan, which was administered by Aetna.   The Plan states that for purposes of ERISA, Aetna shall act as the Plan’s fiduciary and be vested with “discretionary authority” both to “determine whether and to what extent employees and beneficiaries are entitled to benefits;  and construe any disputed or doubtful terms of this policy.” Specifically, Mote applied for long-term disability benefits under the Plan’s “own occupation” definition of disability.   That provision states that an employee is “totally disabled” if the insured employee is unable “[d]uring the first 5 years of disability to perform the material duties of the employee’s own occupation.”   The Plan approved Mote’s application, and on July 10, 1998, she began receiving long-term disability benefits.   Following the Plan’s approval of her application, Mote continued to receive medical care for her back pain and fibromyalgia, and the Plan periodically reassessed her condition to ensure that she remained eligible for long-term disability benefits.

After Mote had been receiving long-term disability benefits for five years, on December 8, 2003, the Plan notified her that it recently had reevaluated her claim under its stricter, five-year definition of “totally disabled” and determined that she no longer qualified for long-term disability benefits.   Under the Plan, while an employee only needs to demonstrate that he is unable to “perform the material duties of [his] own occupation” during the first five years of his disability, after five years the employee must demonstrate that he is unable to “work at any occupation for which [he] is, or may reasonably become, fitted by education, training or experience.”   In its letter to Mote, the Plan stated that it reached its decision after reviewing the office notes of Mote’s treating physicians, various lumbar MRIs, CT scans, and surgical procedures, as well as statements by Mote’s physicians regarding her physical limitations and restrictions.   The letter also informed Mote that the Plan had hired an independent investigator who, in January 2003, videotaped her engaging in activities that she stated on her April 30, 2003, Claim Questionnaire that she was unable to perform.   The Plan’s letter further stated that it based its decision on the results of Mote’s November 11, 2002, functional capacity examination and her September 15, 2003, independent medical examination, both of which found that Mote was capable of performing sedentary work.   The letter also noted that the Plan’s consulting physicians reviewed Mote’s medical information on two recent occasions and reached the same conclusion.

Mote requested that the Plan review its decision.   In support of her request for review, Mote submitted additional medical evidence from her treating physicians, including her primary care physician, Terry West, M.D., and her pain management specialist, James Gruft, M.D. Dr. West opined that Mote was suffering from a “class 5” physical impairment, which rendered her “incapable of minimal (sedentary) activity.”   He further noted that, in his opinion, “maximum medical improvement has [been] achieved.   I don’t believe she can ever work again.”   In a letter dated August 10, 2004, Dr. West stated that Mote suffers from fibromyalgia and chronic back pain, which remain unchanged, and he concluded that Mote “is still unable to work at this time, due to limitations of motion and need for sedating pain medication.”   Dr. Gruft also opined that Mote was incapable of sedentary activity, and that he believed that Mote’s condition had “retrogressed.”

Upon its receipt of Mote’s additional information, the Plan informed Mote that it referred her file for an independent medical review.   The Plan retained William Hall, M.D., to conduct its review. In his September 2, 2004, report, Dr. Hall stated that he reviewed Mote’s medical history and opined:

I must conclude that the weight of the medical credibility be given to the opinions of [Mote’s] treating physicians and that, absent medical or personal information regarding [Mote] to the contrary, her subjective musculoskeletal symptoms are of such severity to be totally medically limiting.

However, during his initial review of Mote’s medical records, Dr. Hall was unaware of the videotaped evidence of Mote’s daily activities that the Plan obtained from its independent investigator.   The independent investigator recorded the videotapes between January 29, 2003, and February 4, 2003.   Dr. Hall subsequently viewed selected portions of the videotapes, which showed Mote running errands, driving an elderly relative to doctors’ appointments, and loading groceries into her car.   Upon reviewing the videotape evidence of Mote’s functional abilities, Dr. Hall changed his opinion regarding Mote’s level of disability, stating:

After viewing surveillance videos of [Mote’s] activities for the dates and durations noted, I do not agree with assessments of severity or with medically limiting conclusions by [Mote’s] treating physicians.   I am not able to identify an objective or absolute impediment to [Mote] pursuing sustained and otherwise unrestricted activities at a light level of exertion.

In a letter dated September 28, 2004, the Plan notified Mote that, after a “full and fair review of the decision to terminate [her] claim,” it was upholding its decision to terminate her long-term disability benefits.²  The Plan’s letter cited a long list of materials that it reviewed in reaching its decision, and stated that “the weight of the medical information does not support a condition of total disability.” ³  Mote then filed suit against both the Plan and Aetna, claiming that they improperly terminated her long-term disability benefits.   The district court dismissed Aetna as an improper party, denied Mote’s cross-motion for summary judgment, and granted the Plan’s cross-motion for summary judgment.   Mote appeals.

II.

We review a district court’s decision on summary judgment de novo. Davis v. Unum Life Ins. Co. of Am., 444 F.3d 569, 574 (7th Cir.2006) (citations omitted).  “Summary judgment is proper when the ‘pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ ” Tegtmeier v. Midwest Operating Eng’rs Pension Trust Fund, 390 F.3d 1040, 1045 (7th Cir.2004) (quoting Fed.R.Civ.P. 56(c)).  “With cross-motions, our review of the record requires that we construe all inferences in favor of the party against whom the motion under consideration is made.”  Id. (quotations and citations omitted).

On appeal, Mote first argues that the Plan’s decision to stop paying her benefits after finding that she did not meet the stricter five-year definition of “total disability” was arbitrary and capricious.   In Firestone Tire & Rubber v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), the Supreme Court held that “ ‘a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.’ ” Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 636-37 (7th Cir.2005) (quoting Firestone, 489 U.S. at 115, 109 S.Ct. 948).  “When, as here, the terms of an employee benefit plan afford the plan administrator broad discretion to interpret the plan and determine benefit eligibility, judicial review of the administrator’s decision to deny benefits is limited to the arbitrary-and-capricious standard.”  Davis, 444 F.3d at 575 (citing Sisto v. Ameritech Sickness & Accident Disability Benefit Plan, 429 F.3d 698, 700 (7th Cir.2005)).

Under the arbitrary and capricious standard, “we will overturn a plan administrator’s decision ‘only ․ if it is downright unreasonable.’ ” Herman v. Cent. States, Se. & Sw. Areas Pension Fund, 423 F.3d 684, 692 (7th Cir.2005) (quoting Carr v. Gates Health Care Plan, 195 F.3d 292, 294 (7th Cir.1999) (internal quotation omitted)).  “That is, this court will not substitute the conclusion it would have reached for the decision of the administrator, as long as the administrator makes an informed judgment and articulates an explanation for it that is satisfactory in light of the relevant facts.”  Id. (internal quotations and citations omitted).   We previously have noted that “ ‘[r]eview under the deferential arbitrary and capricious standard is not a rubber stamp,’ so that, ‘[e]ven under the deferential review we will not uphold a termination where there is an absence of reasoning in the record to support it.’ ” Id. at 693 (quotingHackett v. Xerox Corp. Long-Term Disab. Income, 315 F.3d 771, 774-75 (7th Cir.2003)).  “A satisfactory explanation is one that gives ‘the specific reasons for the denial,’ but it need not explain ‘the reasoning behind the reasons, ․ [that is,] the interpretive process that generated the reason for the denial.’ ” Id. (quoting Gallo v. Amoco Corp., 102 F.3d 918, 922 (7th Cir.1996) (internal quotation omitted)).   Further, we have found that “[t]he administrator of a pension fund does not act arbitrarily and capriciously when he changes a previous decision because the facts known to the plan have changed;  ‘[p]ut simply, a reversal based on new information is not a nonuniform interpretation.’ ” Id. (quoting Militello v. Cent. States, Se. & Sw. Areas Pension Fund, 360 F.3d 681, 690 (7th Cir.2004)).

In this case, Mote first argues that the Plan’s decision was arbitrary and capricious because there was no evidence in the record that her condition improved.   Mote contends that a finding of improvement is necessary because the Plan actually terminated her benefits under the “own occupation” definition of “totally disabled,” rather than the five-year, “any occupation” definition. Thus, she reasons that if the Plan found that she could not perform her position as a human resource generalist in 1998, and there is no evidence that her chronic back pain or fibromyalgia had improved, then the Plan had no basis for terminating her benefits.   As discussed above, the totality of the evidence indicates that the Plan terminated Mote’s benefits based on the five-year, “any occupation” definition.   See supra, at n. 1. Because that definition differs significantly from the more lenient “own occupation” definition, we find that even if Mote’s condition did not improve over the five-year period she was receiving disability benefits, that is not determinative of whether she was “totally disabled” under the five-year definition.   Accordingly, we evaluate whether the Plan arbitrarily and capriciously evaluated the evidence before it in making its determination that Mote was capable of performing some occupation, rather than merely her previous occupation.

Mote next asserts that the Plan did not properly weigh her treating physicians’ opinions in reaching its termination decision.   Mote’s argument is unavailing, however, because “ERISA does not require plan administrators to accord special deference to the opinions of treating physicians.”  Kobs v. United Wis. Ins. Co., 400 F.3d 1036, 1039 (7th Cir.2005) (citations omitted).   Further, courts may not “impose on plan administrators a discrete burden of explanation when they credit reliable evidence that conflicts with a treating physician’s evaluation.”  Davis, 444 F.3d at 578 (quoting Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003)).   We also have recognized that “[m]ost of the time, physicians accept at face value what patients tell them about their symptoms;  but insurers ․ must consider the possibility that applicants are exaggerating in an effort to win benefits (or are sincere hypochondriacs not at serious medical risk).”  Leipzig v. AIG Life Ins. Co., 362 F.3d 406, 409 (7th Cir.2004).   Accordingly, the Plan did not act improperly when it looked to, and credited, evidence that conflicted with Mote’s treating physicians’ opinions as part of its deliberative process in evaluating her claim.

Mote further argues that the Plan’s reviewing doctors’ opinions regarding her condition were unreliable and rendered the Plan’s decision arbitrary and capricious.   Specifically, Mote takes issue with the fact that none of the Plan’s physicians consulted a rheumatologist with specialized expertise in fibromyalgia, nor did the Plan contact her treating physicians to discuss her fibromyalgia. As a threshold matter, an ERISA plan is not required to hire specialists for every claimed malady in cases in which the plan hired an independent expert to conduct a physical examination of the claimant.   In this case, the Plan hired an independent expert, orthopedic surgeon Richard Tuttle, M.D., to examine Mote. The record indicates Dr. Tuttle conducted an “18 tender points” examination of Mote to assess her fibromyalgia, which was the same test that Mote’s own physician, Dr. Gruft, conducted.   While Mote seeks to impose a requirement on the Plan to consult with her treating physicians, the record reveals that Dr. Gruft is a pain management specialist and not a rheumatologist, and that Lee Lichtenberg, M.D., who is a rheumatologist, only examined Mote once.   Moreover, nothing in the record indicates that Mote’s primary care physician, Dr. West, has any particular expertise in fibromyalgia.   In addition to hiring Dr. Tuttle to examine Mote, the Plan also relied upon the opinions of William Hall, whose specialty is unknown, and Paul Radford, an occupational medicine specialist.   While neither of these consultants is a rheumatologist, the fact remains that Mote sought long-term disability benefits on grounds other than fibromyalgia, including chronic back pain, migraine headaches, and irritable bowel syndrome, all of which Drs. Tuttle, Hall and Radford are just as qualified to opine about as Mote’s treating physicians.   Accordingly, we do not find that the Plan’s reliance on the opinions of Drs. Tuttle, Hall and Radford, in conjunction with the treating records of Mote’s own physicians, as well as other outside evidence gathered during its deliberative process, rendered its decision either arbitrary or capricious.⁴

Next, Mote argues that Dr. Hall’s and Dr. Radford’s opinions are suspect simply because the Plan hired them.   Mote’s assertion that the Plan’s employees or its consultants had an incentive to deny her claim is without support in the record.   As we recognized in Leipzig v. AIG Life Insurance Co., “most insurers are well diversified, so that the decision in any one case has no perceptible effect on the bottom line,” and thus “[t]here is correspondingly slight reason to suspect that they will bend the rules,” absent suspect circumstances such as “an insurer or plan administrator pay[ing] its staff more for denying claims than for granting them.”  362 F.3d at 409 (citing Perlman v. Swiss Bank Corp., 195 F.3d 975, 980-81 (7th Cir.1999)).   As we have stated previously, ERISA “plan administrators have a duty to all beneficiaries and participants to investigate claims and make sure to avoid paying benefits to claimants who are not entitled to receive them.”  Davis, 444 F.3d at 575 (citations omitted).   Accordingly, the Plan would have been remiss if it did not investigate Mote’s long-term disability claim, and its use of independent experts and medical consultants not only was justified, but consistent with its duty to investigate.

Mote also asserts that the Plan’s reliance on the results of her November 11, 2002, functional capacity examination (“FCE”) was unreasonable.   In his report, the FCE evaluator concluded that Mote “is currently capable of working at the sedentary physical demand level within the material handling and positional tolerances set forth in the report, of an eight hour day.”   Despite that conclusion, Mote asserts that the FCE evaluator’s opinion was not supported by the evaluation findings regarding her severe pain, and that the Plan “cherry-picked” selected portions of the FCE report to justify its termination of her long-term disability benefits.   Her argument fails, however, because the Plan never stated that the FCE was the deciding factor in its decision.   Rather, the Plan advised Mote that it considered that FCE in tandem with Dr. Tuttle’s September 15, 2003, independent medial examination.   The Plan’s December 8, 2003, letter also advised Mote that both examinations revealed that she possessed greater physical capability than that stated in her subjective medical history, and that both examinations supported a conclusion that she could work at a sedentary position for a eight-hour work day.   Accordingly, we find that the Plan’s consideration of Mote’s November 11, 2002, FCE as one component of its deliberative process did not make its decision to terminate Mote’s long-term disability benefits either arbitrary or capricious.

Mote then contends that Dr. Hall’s opinion is suspect because he changed his conclusion after viewing the videotape snippets of her daily activities and that the Plan’s consideration of the videotapes during its deliberative process was improper.   These argument also are without merit.   In Shyman v. Unum Life Insurance Co., 427 F.3d 452 (7th Cir.2005), we considered an ERISA plan’s denial of benefits decision, which partially was based on evidence gathered by a private detective that contradicted claimant’s disability claims.  Id. at 456.   We did not object to the plan’s surveillance of the claimant, and we held that the plan’s denial decision was neither arbitrary nor capricious.  Id.;  see also Dougherty v. Indiana Bell Telephone Co., 440 F.3d 910, 917 (7th Cir.2006) (upholding ERISA plan’s decision to terminate disability benefits after surveillance videotape showed the claimant engaging in normal, everyday activities, such as driving his car and hauling shopping bags).   Mote attempts to distinguish these cases by arguing that the videotapes in this case do not contain evidence contradictory to her treating physicians’ diagnoses, and thus the Plan could not reasonably have relied upon them in its deliberative process.   The evidence in the record, however, rebuts Mote’s argument.   For example, Dr. Gruft opined that Mote “cannot operate a motor vehicle,” but the videotape shows Mote doing just that.   The videotapes also contradict Dr. Gruft’s claim on his December 11, 2003, Functional Capacity Worksheet that Mote could “never climb, crawl, kneel, move repeatedly or stoop,” but the surveillance videotape shows her kneeling, moving repeatedly, and stooping.   In short, the videotapes show Mote engaging in many of the activities that she claimed to be unable to accomplish in her application for long-term disability benefits and, consequently, the Plan properly considered them.   Further, Dr. Hall was justified in altering his opinion regarding Mote’s ability to work after viewing the videotapes, because Mote’s activities on the videotapes were exactly the type of additional, contrary evidence upon which he conditioned his original opinion when he stated that, “absent medical or personal information regarding [Mote] to the contrary, her subjective musculoskeletal symptoms are of such severity as to be totally limiting.”   Finally, the record reflects that the Plan relied upon the videotapes merely as one piece of the puzzle in its deliberative process and, while they may have altered the outcome, they were not the sole basis for the Plan’s denial of Mote’s claim.   Accordingly, we find that the Plan’s use of the videotape evidence of Mote’s physical capacity did not render its decision either arbitrary or capricious.⁵

Mote further argues that the Plan was estopped from asserting that she was not totally disabled because the Social Security Administration (“SSA”) later found Mote to be disabled under its standards.   Mote, however, ignores the fact that the Plan’s five-year definition of “totally disabled,” and the standard used in other ERISA plans, is not the same as the standard used for evaluating disability under the Social Security Act, 42 U.S.C. § 423(d)(1)(A).   See Nord, 538 U.S. at 833, 123 S.Ct. 1965 (“In determining entitlement to Social Security benefits, the adjudicator measures the claimant’s condition against a uniform set of federal criteria.  ‘[T]he validity of a claim to benefits under an ERISA plan,’ on the other hand, ‘is likely to turn,’ in large part, ‘on the interpretation of terms in the plan at issue.’ ” (quoting Firestone, 489 U.S. at 115, 109 S.Ct. 948)).   We previously have stated that a court may consider SSA determinations as relevant, and an SSA decision could be binding if an ERISA plan specifically includes SSA disability as a condition of plan disability.  Reich v. Ladish Co., 306 F.3d 519, 524-25 (7th Cir.2002).   The Plan, however, did not include any provisions regarding SSA decisions in its policy.   Further, even if the SSA’s decision could have had some bearing on the Plan’s decision, the Plan was unable to consider it because the SSA did not award benefits to Mote until May 24, 2005, eight months after the Plan issued its decision.   See Tegtmeier, 390 F.3d at 1046 (“While Social Security decisions, if available, are instructive, these determinations are not dispositive ․” (emphasis added)).   Accordingly, the Plan was not estopped from independently interpreting the terms of its policy merely because the SSA found Mote to be disabled pursuant to its standards months after the Plan issued its final decision to terminate Mote’s long-term disability benefits.

Finally, Mote contends that the district court erred by dismissing her claims against Aetna upon its finding that Aetna was not a proper party to the action.   She asserts that she should be able to sue both her employer’s ERISA plan (i.e., the Plan) and the Plan’s administrator, Aetna.   Generally, in a suit for ERISA benefits, the plaintiff is “limited to a suit against the Plan.” Blickenstaff v. R.R. Donnelley & Sons Co. Short Term Disability Plan, 378 F.3d 669, 674 (7th Cir.2004).   While we have allowed plaintiffs in ERISA cases to sue an ERISA plan administrator in some limited instances, the operative facts of those cases differ from those in this case.   For instance, in Riordan v. Commonwealth Edison Co., 128 F.3d 549, 551 (7th Cir.1997), we permitted a plaintiff to sue the plan administrator to recover ERISA benefits because the employer failed to raise the issue in the district court and the plan documents referred to the employer and the plan interchangeably.   Neither of those pivotal facts is present here.   Similarly, in Mein v. Carus Corp., 241 F.3d 581 (7th Cir.2001), we allowed a plaintiff to sue his employer to recover ERISA benefits because the employer and the plan were closely intertwined.  Id. at 584-85.   We are not faced with that situation in this case, since Aetna was not Mote’s employer and the Plan’s policy distinguishes between the Plan, the employer, and Aetna.   We thus find that the district court did not err in dismissing Aetna from the suit because it was not a proper party to the action.

III.

The district court properly entered summary judgment for the Plan and denied Mote’s motion for summary judgment because the Plan’s decision to terminate Mote’s long-term disability benefits was neither arbitrary nor capricious, and because the Plan was not estopped from terminating Mote’s benefits based upon the Social Security Administration’s subsequent finding that Mote was disabled under its regulations.   The district court also properly dismissed Mote’s claims against Aetna because Aetna was not a proper party to the action.   Accordingly, the district court’s judgment is Affirmed.

In fact-specific cases like this one, the court of appeals is usually de facto the last stop on the road for the litigants.   It is thus critical that we get the facts right, even if we agree on the governing legal standards.   Here, although I agree with the majority’s assessment of the claims against Aetna, the administrator of the plan at issue, I must part ways with its evaluation of Brenda Mote’s claims against the long-term disability plan (“the Plan”).   According to Mote’s treating physicians and other specialists, since at least 1998 she has suffered from fibromyalgia, migraines, a sleep disorder, depression, and pain throughout her body.   From 1998 to 2003, she received benefits from the long-term disability plan sponsored by her former employer, Arthur Andersen.   In 2003, Mote’s disability benefits were terminated because the length of Mote’s disability triggered a shift in the applicable standard for disability, from the earlier one in which she needed to show that she could not perform her own job, to the more stringent one in which she needed to show that she could not perform any work at all.   Mote appealed the decision, but the Plan affirmed itself.   Mote then filed this suit in federal court, alleging that the Plan’s decision to terminate her benefits was arbitrary and capricious.

Although arbitrary and capricious review ties our hands considerably, it is “not a rubber stamp.”  Hackett v. Xerox Corp. Long-Term Disability Income Plan, 315 F.3d 771, 774 (7th Cir.2003).   We have held that a benefits plan governed by ERISA “must weigh the evidence for and against [a benefits determination], and within reasonable limits, the reasons for rejecting evidence must be articulated.”  Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 695 (7th Cir.1992) (internal quotation marks omitted).   Further, “ERISA requires that specific reasons for denial be communicated to the claimant and that the claimant be afforded an opportunity for ‘full and fair review’ by the administrator.”  Id. at 688.

I see two significant problems in the Plan’s consideration of Mote’s appeal, either one of which would require reversal even under arbitrary and capricious review.   First, in denying Mote’s appeal on September 28, 2004, the Plan made the following statement:  “Reported pain also cannot be relied upon as [a] sufficient indicator of functional impairment since perception of pain may be affected by individual tolerance, motivation or psychological factors.”   Perhaps if this plan had language in it to that effect, that conclusion might be acceptable.   But most plans do not, and this one is no exception.   To the contrary, section VII, which includes the governing definitions for the Plan, says only that “total disability/totally disabled” means

that solely because of an illness, pregnancy or accidental bodily injury, an insured employee is unable:  (1) [d]uring the first 5 years of disability to perform the material duties of the employee’s own occupation;  and (2) [f]rom then on, to work at any occupation for which such employee is, or may reasonably become, fitted by education, training or experience.   The availability of employment will not be considered in the assessment of the employee’s disability.

Plan, sec.   VII, ¶ 29.   In other words, the Plan takes a functional approach to disability.   It does not forbid an employee from showing functional incapacity through self-reported symptoms.   The ability to “interpret” cannot mean the ability to add entirely new language to plans.   In my view, Mote’s case is indistinguishable from another ERISA case involving fibromyalgia, in which we held that subjective reports of pain can suffice to show one’s complete disability.  Hawkins v. First Union Corp. Long-Term Disability Plan, 326 F.3d 914, 918 (7th Cir.2003).   The Plan therefore made an error of law, or behaved arbitrarily and capriciously, in its analysis.   Although it was entitled to credit evidence other than Mote’s own reports of pain, it cannot begin with the premise that reported pain can never be enough.¹

The Supreme Court’s decision in Black & Decker Disability Plan v. Nord warns that “Plan administrators, of course, may not arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions of a treating physician,” even though the administrators have no obligation “to accord special weight to the opinions of a claimant’s physician.”  538 U.S. 822, 834, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003).   In this case, even if there were some language in the Plan on which the administrators could hang their conclusion that subjective evidence is never enough to support an award of benefits, the Plan still failed to articulate its “reasons for rejecting evidence,” which is necessary “if there is to be meaningful appellate review.”  Halpin, 962 F.2d at 695.   It may be that even under the correct standards, a weighing of all the evidence would lead once again to a rejection of her claim.   Nonetheless, Mote is entitled to have the decision, whatever it is, reached through the use of a fair process.   The record makes clear that this did not happen.

Second, although surveillance evidence can be used to undermine the credibility of a doctor’s medical opinions where the diagnosis is based substantially on patient reports, whether it was used properly here depends on how it was used and for what purpose.   The record indicates that the Plan’s medical reviewer, Dr. Hall, did not receive all of the surveillance information about Mote, which was gathered over days and days of observation.   Instead, as the majority concedes, he received only a compilation of two hours of pre-selected footage.   After reviewing this material and looking at no other new evidence, Dr. Hall withdrew his earlier conclusion that Mote was totally disabled from working in any occupation.   The fact that the tapes themselves are not in the record does not somehow make Dr. Hall’s conclusion reliable.   No one disputes that he never saw the vast majority of the evidence that was collected.   One might just as well view a two-hour snippet of Mote sitting on a sofa, and conclude that this was all she ever did.   Dr. Hall’s opinion was based on inherently unreliable evidence and thus should not have been entitled to any weight.

Properly used, surveillance evidence can provide a basis for choosing between contradictory medical evidence by rendering some of that evidence less credible.   This court has noted that “[w]e can imagine an argument that even if the activity disclosed ․ does not indicate a capacity to engage in full-time work, the fact that it is discrepant with the level of activity described by [the treating physician], presumably on the basis of representations made to him by [the plaintiff], fatally undermines [the plaintiff’s] credibility.”   Hawkins, 326 F.3d at 918.   Here, the Plan contends that the surveillance evidence was used to discredit the treating physicians’ statements and not as an independent basis for terminating Mote’s benefits, but the record belies this assertion.

Mote may well have concluded that there was no need to supplement the record before this court by furnishing all of the surveillance tapes, because even the evidence that Dr. Hall viewed was generally consistent with the records from Mote’s treating physicians.   One problem with the way in which the Plan used the surveillance evidence is the fact that it made assumptions that find no support in the record.   Thus, for example, in its 2004 denial of Mote’s appeal, it described the activities viewed in surveillance as Mote’s “daily living activities,” even though the record contains no evidence that these activities were daily or even regular.   As I have already noted, the record contains only the pre-edited, two-hour videotape that, in essence, constitutes a highlight reel of Mote’s most active moments during several days of surveillance.   There would have been no need to plant cameras inside Mote’s home in order to collect evidence that fairly reflected her ordinary activities;  a fair look at the days’ worth of footage actually obtained would have sufficed.

Most troubling to me is that when the activities observed by surveillance are put in context, their utility in assessing Mote’s level of disability appears flimsy at best.   Mote’s medical records state that Mote “overdoes it.   Others aware of her overdoing it and depend on it.   Patient aware of need for changes.”   We have recognized in the past that some disabled people manage to keep going only through superhuman efforts;  in those circumstances their activities do not negate the fact that they are disabled.   See Perlman v. Swiss Bank Corp. Comprehensive Disability Protection Plan, 195 F.3d 975, 983 (7th Cir.1999).   In 1999, Dr. Gruft noted that Mote had a goal of setting boundaries with her mother (who is also disabled) and setting limits with others generally.   The only days where Mote was observed undertaking any significant activity were the days she drove her mother to and from her mother’s doctor’s appointments (once in July 2001 and once two years later in January 2003).   Her activities that day included eating at a restaurant with her mother, where she sat for one hour, and standing up for two minutes after approximately 30 minutes of sitting.   The other day of surveillance came on a day where Mote was required by the Plan to undergo a functional capacity evaluation.   She drove 45 minutes each way to that appointment.   Although these contextual details are in the surveillance notes, there is no indication that Dr. Hall had access to the written notes or that they were incorporated into the video that he watched.   Notably, Mote cancelled the second day of her evaluation because she was in pain.   Although one of Mote’s treating physicians noted in her medical records that Mote could not operate a motor vehicle, this observation accompanied a new prescription for a sedative.   It is entirely possible that the doctor meant to warn against operation of a motor vehicle while taking the drug, rather than to describe Mote’s ability to drive.   The tape showing Mote picking up her mail and newspapers at the end of her driveway included observations that she limped to the end of the driveway, that the limp significantly worsened on the walk back to the house, and that Mote struggled twice with the newspaper, and so I am unable to see how this helps the Plan’s arguments at all.

Other courts have concluded that segments of surveillance showing light physical activities by a plaintiff do not amount to a showing that she is able to manage full-time employment.   See Osbun v. Auburn Foundry, Inc., 293 F.Supp.2d 863, 870 (N.D.Ind.2003) (“[Surveillance] evidence that [the plaintiff] can perform light physical tasks for 1.5 hours over two days falls far short of demonstrating that he is capable of sustaining a job.  [The defendant] produced no evidence showing how long [the plaintiff] can perform such tasks, whether he can perform them on a daily basis, or how much pain he must endure in the process.”);  Crespo v. Unum Life Ins. Co. of Am., 294 F.Supp.2d 980, 996 (N.D.Ill.2003) (finding, in a claim of disability due to fibromyalgia, that the defendant’s “comparison between [the plaintiff’s] daily activities and the requirements of a full-time job is misplaced,” as “[t]here is no evidence anywhere in the record that [the plaintiff] undertakes these activities [including taking walks and performing household chores] with the regularity and structure of a full time job”);  see also id. (noting that claimants need not “become inert in order to avoid having their disability benefits denied”).

Viewed in any light, the surveillance evidence in Mote’s case is nothing like what this court faced in Shyman v. Unum Life Ins. Co., 427 F.3d 452, 456 (7th Cir.2005), which involved an allegedly bedridden man coaching basketball and baseball teams.   Mote’s evidence demonstrates that she was not capable of functioning in any capacity within the workforce.   Surely there is room to conclude that a person is totally disabled from working without requiring that she be bedridden and immobile during every second of the day.   The Plan’s apparent assumption that only something this extreme would disable her from working is, or could be viewed by a finder of fact to be, arbitrary and capricious.

Before concluding, I note with some concern that the actual plan underlying this claim is shrouded in mystery.   Bizarrely, at oral argument, defense counsel acknowledged that although he represents both Aetna and the Plan, his only direction in this case came from Aetna.   Aetna, however, was dismissed from the case at the district court level, and all three judges on this panel agree that this was correct.   It is odd, at best, that Aetna therefore seems to be handling the litigation on appeal and that the Plan is nowhere to be found.   The evidence of the Plan was also handled carelessly.   Mote attached a copy of the long-term disability insurance contract between Arthur Andersen and Aetna to her complaint, entitled “Long-Term Disability Policy,” rather than another document, entitled “Arthur Andersen LLP Group Long Term Disability Insurance Plan,” which appears later in the record.   Both Mote and the defendants refer to the first document as the plan at issue in this case.   In the insurance contract, obligations are imposed on “Aetna” and the “policyholder” throughout, with Arthur Andersen (Mote’s former employer) identified as the policyholder.   In the latter document, which seems to be the actual plan at issue, obligations are imposed upon the “Administrator,” “Fiduciary,” and “Appeals Fiduciary,” as one would expect.   Arthur Andersen, which is defunct at this point, is named as the Plan Administrator, while both Fiduciary roles are filled by Aetna.

Given these two documents, it is unclear how an employee would know which plan document she should rely upon, who was in charge of the Arthur Andersen long-term disability plan, or if the Plan was its own entity separate from Aetna.   The employee would need to consult both plans, which notably have similar but not identical definitions of disability.   Mote has not pressed this issue in support of any of her arguments, and so we do not need to consider its implications on the case at hand.   It does help to explain, however, some of the problems in this case.

Because, in my view, Mote has raised genuine issues of fact on the question whether Aetna’s determination (or, more accurately, the Plan’s) that she could not show inability to perform any job in the economy was arbitrary and capricious, I would reverse the district court’s grant of summary judgment in favor of the Plan and remand for further proceedings.   I therefore respectfully dissent.

FOOTNOTES

1.   Fibromyalgia is “pain and stiffness in the muscles and joints that is either diffuse or has multiple trigger points.”   Dorland’s Illustrated Medical Dictionary 673 (29th ed.2000).

2.   The Plan’s letter of December 8, 2003, indicates that it based its decision to terminate Mote’s benefits on the Plan’s stricter, five-year definition of “totally disabled.”   Specifically, that letter states:  “Our review of the information in our file indicates you have the functional capacity to perform the material duties of any occupation and you no longer meet the plan requirements for total disability.”   The Plan’s letter of September 28, 2004, indicates that the Plan is “upholding [its] termination on December 8, 2003,” and it cites both the initial and five-year definitions of “totally disabled.”   However, the Plan’s second letter then states that Mote’s long-term benefits “ceased on December 8, 2003, after it was assessed you are capable of performing your own sedentary occupation.”   The Plan argues that the reference to Mote’s own occupation in the second letter was a scrivener’s error, and that Mote was apprised adequately of and able to respond to the stricter five-year definition set forth in the first termination letter.   We agree that the Plan’s letter of December 8, 2003, adequately notified Mote that the Plan’s termination of her benefits-which occurred exactly five years after it originally approved her claim-was based on the five-year definition, and provided Mote with an opportunity to submit additional evidence challenging the Plan’s decision under that definition of “totally disabled.”   The fact that the Plan erroneously cited the wrong definition of “total disability” in its final denial letter was inconsequential because that letter merely informed Mote that the Plan had affirmed its decision to deny her claim following its review of its earlier decision, which the parties do not dispute was based on the five-year definition.   Accordingly, the Plan’s scrivener’s error in the second letter does not warrant remand to the plan administrator.   See Schleibaum v. Kmart Corp., 153 F.3d 496, 503 (7th Cir.1998).

3.   The dissent asserts that the Plan’s letter to Mote of September 28, 2004, adds entirely new language to the Plan. The “entire new language” that it quotes is a sentence lifted from a three-page letter explaining, after an “independent, full and fair review,” why the Plan is upholding its decision to terminate Mote’s claim for long-term disability benefits.   The language that the dissent quotes is not an addition of entirely new language to the Plan, and when taken out of context, it misconstrues the text of the Plan’s letter.   Also, the dissent does not mention that the sentence that it quotes is surrounded by a full analysis detailing the Plan’s rationale for its prior decision and the medical evidence Mote presented for reconsideration.   Following the quoted statement, the Plan’s letter goes on to express its rationale for denying the request for reconsideration.   When read in context, it is clear that the quoted statement does not indicate that the Plan began its analysis with the premise that reported pain can never be enough.

4.   On appeal, Mote also raises for the first time the following arguments:  (1) that Dr. Radford was not qualified to render an opinion because he is an occupational medicine specialist;  (2) that Dr. Tuttle did not have the entire record to review before his independent medial examination;  and (3) that Drs. Tuttle, Radford, and Hall were opining outside their respective scopes of expertise when they determined that Mote could work at a sedentary occupation.   Because Mote failed to raise those arguments in the district court, she has waived her opportunity to raise them at this stage.  Taubenfeld v. AON Corp., 415 F.3d 597, 599 (7th Cir.2005) (citing Heller v. Equitable Life Assurance Soc’y, 833 F.2d 1253, 1261-62 (7th Cir.1987) (“On numerous occasions we have held that if a party fails to press an argument before the district court, he waives the right to present that argument on appeal․ As we have made clear, it is axiomatic that arguments not raised below are waived on appeal.” (citations and quotation marks omitted))).

5.   The dissent takes issue with the Plan’s use of portions of the surveillance videotapes, and attempts to draw conclusions regarding Mote’s activities depicted on the videotapes.   As the parties indicated during oral argument, neither the snippets of the videotapes viewed by Dr. Hall, nor the raw footage, are in the record.   We are thus unable to review either set of videotapes to determine whether the parties’ representations regarding the substance of those videotapes are accurate.   What is in the record, however, are Dr. Hall’s statements regarding their content after he reviewed them, as well as the records from the investigators who conducted the surveillance.   Based on those memorialized accounts in the record, there is ample evidence that the activities in which Mote engaged conflicted with her representations regarding her functional abilities.   Even if this is a close call, there is insufficient contrary evidence to conclude that the evidence presented on the videotapes rendered the Plan’s decision arbitrary and capricious.Moreover, if Mote believed that the portions of the surveillance videotapes relied upon by the Plan were not representative of her functional abilities, or if she believed the videotapes had been edited to omit evidence that supported her claim, she was free to submit that evidence to the court.   Mote elected not to submit any portion of the surveillance videotapes, and thus it is not a proper function of this court to speculate on what the videotapes may or may not have shown.

1.   My colleagues believe that the Plan’s letter of September 28, 2004, taken as a whole, does not rest on the premise that reported pain can never be enough, but I see nothing in the letter that qualifies the statement quoted above.   Page 1 of the letter summarizes the Plan’s conclusion that Mote is not entitled to relief and sets forth the definition of disability from the Plan. From the bottom of page 1 through the middle of page 2, the letter reviews Mote’s medical history.   It then states that[a]vailable medical records do not include references to clinical, laboratory or radio-graphic findings of progressive or worsening organic illness, or to severe or intractable medication side effects.   They also do not furnish descriptors of severity of your musculoskeletal symptoms or other subjective symptoms.   Although your subjective musculoskeletal symptoms are credible, they are not accounted for by identifiable neurological or musculoskeletal pathology.In my view, the only way to read this letter is that Mote’s reported pain is insufficient to justify relief.The only other items to which the letter refers are the surveillance evidence, which for the reasons I outline later is insufficient to support the Plan’s conclusions, and an Independent Medical Examination (“IME”) conducted by a Dr. Tuttle on September 15, 2003.   Dr. Tuttle was commissioned by the defense to examine Mote, but his examination could only have been as good as the data he had.   As Mote pointed out in her brief, both his background and the file he consulted were deficient.   Dr. Tuttle was given only a partial record to review and “lacked the appropriate medical specialization to evaluate a fibromyalgia claim.”   Based on his one-time examination of Mote, his review of an incomplete record of her medical history, and his viewing of the selective excerpts from the surveillance tapes, Dr. Tuttle stated that he could not “see any reason why [Mote] cannot return to a sedentary type of position at a full 8 hours a day.”   IME at 4. I fail to see how Dr. Tuttle’s opinion, given these significant limitations, could constitute a valid basis for disregarding the informed and fully documented conclusions of Mote’s treating physicians.   Yet the Plan justified its decision to deny benefits based solely on this IME and the surveillance evidence.

MANION, Circuit Judge.

by Cody Allison

Strong ERISA LTD Opinion From The Ninth Circuit Court of Appeals

______________________________________________________________________________

United States Court of Appeals,Ninth Circuit.

Graciela SAFFON, Plaintiff-Appellant, v. WELLS FARGO & COMPANY LONG TERM DISABILITY PLAN, an Erisa Plan, Defendant-Appellee.

No. 05-56824.

    Decided: January 09, 2008

We consider whether an ERISA plan administrator properly terminated benefits because of its beneficiary’s failure to produce evidence of her disability.

Facts

Graciela Saffon has long suffered from degeneration of her cervical spine, a condition confirmed by repeated MRI scans and X-rays.   After a car crash aggravated her condition in December 2001, Saffon quit her desk job at Wells Fargo Bank and applied for disability benefits from defendant, the Wells Fargo & Co. Long Term Disability Plan. The Metropolitan Life Insurance Company (MetLife), which served both as the Plan’s insurer and as its claims administrator, promptly began to pay her short-term disability benefits.   Saffon eventually applied for long-term disability benefits, which MetLife granted.   After paying long-term benefits for a year, MetLife informed Saffon that she “no longer m[et] the definition of disability” and terminated her long-term benefits.   Saffon then unsuccessfully availed herself of MetLife’s administrative appeals process.

Saffon sued the Plan under 29 U.S.C. § 1132(a), seeking payment of withheld benefits, attorney’s fees and a declaration that she is disabled.   After a bench trial on the administrative record, the district court concluded that the Plan hadn’t abused its discretion and denied Saffon any relief.

Standard of Review

1. We review benefits denials de novo “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits;” if the plan does grant such discretionary authority, we review the administrator’s decision for abuse of discretion.  Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).

Here, the Plan’s Summary Plan Description states:

In carrying out their respective responsibilities under the Plan, the Plan administrator and other Plan fiduciaries shall have discretionary authority to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits in accordance with the terms of the Plan.

Saffon argues that we must review MetLife’s decision de novo because it is unclear whether the Summary Plan Description’s discretionary clause refers to MetLife.  Kearney v. Standard Ins. Co., 175 F.3d 1084, 1090 (9th Cir.1999) (en banc) (we defer only if the grant of discretionary authority is “unambiguous[ ]”).  Saffon sees an ambiguity in the fact that the Summary Plan Description doesn’t refer to MetLife by name;  instead, it grants discretionary authority to “the Plan administrator [Wells Fargo] and other Plan fiduciaries.”   But it’s perfectly clear that MetLife is included in this grant of discretionary authority because it is one of the “other Plan fiduciaries” mentioned there.

A “fiduciary” is an entity with “any discretionary authority” in the “administration of” an ERISA plan.  29 U.S.C. § 1002(21)(A).   See Aetna Health Inc. v. Davila, 542 U.S. 200, 220, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (“When administering employee benefit plans, HMOs must make discretionary decisions regarding eligibility for plan benefits, and, in this regard, must be treated as plan fiduciaries.”).   MetLife’s Certificate of Insurance provides that “MetLife in its discretion has authority to interpret the terms, conditions, and provisions of the entire contract.”   The Summary Plan Description explains that the Plan “is ․ administered by [MetLife].”   “To qualify for LTD benefits,” beneficiaries must “[r]eceive approval for LTD benefits by MetLife.”   Those “benefits will begin” one month after “MetLife determines you are disabled,” and will end on “[t]he date MetLife determines that you are no longer disabled.”

These provisions leave no doubt that MetLife is an entity with discretionary authority to administer the Plan. MetLife is therefore one of the “other Plan fiduciaries” to which the Summary Plan Description grants “discretionary authority to ․ determine eligibility for ․ Plan benefits.”   While the path to this conclusion is somewhat tortuous, it is also perfectly clear.   See Wilson Arlington Co. v. Prudential Ins. Co. of Am., 912 F.2d 366, 371 (9th Cir.1990) (complexity is not the same thing as ambiguity).   The Plan unambiguously confers discretionary authority on MetLife to administer benefits claims.

2. Saffon also argues that we must disregard the discretionary authority granted to MetLife because the California Insurance Commissioner has revoked the Certificate of Insurance in Saffon’s policy, and “any related Summary Plan Descriptions.” ¹  At least 6 other states have done the same;  the National Association of Insurance Commissioners encourages the remaining 43 to follow suit.   See Henry Quillen, State Prohibition of Discretionary Clauses in ERISA-Covered Benefit Plans, J. Pension Planning & Compliance, Summer 2006, at 67.

This nationwide vote of no confidence seems to have been precipitated by the cupidity of one particular insurer, UnumProvident Corp., which boosted its profits by repeatedly denying benefits claims it knew to be valid.   UnumProvident’s internal memos revealed that the company’s senior officers relied on ERISA’s deferential standard of review to avoid detection and liability.   See John H. Langbein, Trust Law As Regulatory Law:  The UNUM/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U.L.Rev. 1315, 1317-21 (2007) (describing UnumProvident’s behavior).   It is an open question whether the states’ efforts are preempted by ERISA, 29 U.S.C. § 1144(a), or (as is more likely) they are saved from preemption because they “regulate[ ] insurance,” id. § 1144(b)(2)(A).   See Quillen, supra, at 77-79 (arguing against preemption).   The parties haven’t briefed the preemption question in depth, and we do not consider it.

Even if federal law permitted states to nullify an ERISA plan’s grant of discretionary authority, California law doesn’t authorize the Commissioner to do so retroactively.  Cal. Ins. Code § 10291.5(f).  Assuming that the Commissioner may prohibit insurance companies from using this discretionary clause in future insurance contracts, he cannot rewrite existing contracts so as to change the rights and duties thereunder.   Cf. Peterson v. Am. Life & Health Ins. Co., 48 F.3d 404, 410 (9th Cir.1995) (“[A]n otherwise valid [insurance] policy is a binding contract and governs the obligations of the parties until the Commissioner revokes his approval.”).

3. That the Plan grants MetLife discretionary authority is only the first step in determining the standard by which we review its denial of benefits.   While we nominally review for abuse of discretion, the degree of deference we accord to a claims administrator’s decision can vary significantly.   In Bruch, the Supreme Court instructed us to “weigh[ ]” a fiduciary’s “conflict of interest” as “a ‘facto[r] in determining whether there is an abuse of discretion.’ ”   489 U.S. at 115, 109 S.Ct. 948 (quoting Restatement (Second) of Trusts § 187 cmt. d (1959)).   MetLife labors under such a conflict of interest:  It both decides who gets benefits and pays for them, so it has a direct financial incentive to deny claims.   See Langbein, supra, at 1321 (“The danger pervades the ERISA-plan world that a self-interested plan decisionmaker will take advantage of its license under Bruch to line its own pockets by denying meritorious claims.”).

The district court didn’t take MetLife’s conflict of interest into account, apparently because Saffon didn’t produce “material, probative evidence” of the conflict.  Atwood v. Newmont Gold Co., 45 F.3d 1317, 1323 (9th Cir.1995).  Atwood was the law in our circuit at the time the district court reached its decision but it has since been overruled.  Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 966-67 (9th Cir.2006) (en banc).   In Abatie, we explained that a reviewing court must always consider the “inherent conflict that exists when a plan administrator both administers the plan and funds it.”  Id. at 967.   We “weigh” such a conflict more or less “heavily” depending on what other evidence is available.  Id. at 968.

We “view[ ]” the conflict with a “low” “level of skepticism” if there’s no evidence “of malice, of self-dealing, or of a parsimonious claims-granting history.”  Id. But we may “weigh” the conflict “more heavily” if there’s evidence that the administrator has given “inconsistent reasons for denial,” has failed “adequately to investigate a claim or ask the plaintiff for necessary evidence,” or has “repeatedly denied benefits to deserving participants by interpreting plan terms incorrectly.”  Id.

In explaining what it means to “weigh” a conflict of interest, Abatie “conscious[ly]” rejected the “sliding scale” approach adopted by other circuits:

[W]eighing a conflict of interest as a factor in abuse of discretion review requires a case-by-case balance ․ A district court, when faced with all the facts and circumstances, must decide in each case how much or how little to credit the plan administrator’s reason for denying insurance coverage.   An egregious conflict may weigh more heavily (that is, may cause the court to find an abuse of discretion more readily) than a minor, technical conflict might.

Id. at 967, 968.   Abatie went on to offer additional guidance:

[C]ourts are familiar with the process of weighing a conflict of interest.   For example, in a bench trial the court must decide how much weight to give to a witness’ testimony in the face of some evidence of bias.   What the district court is doing in an ERISA benefits denial case is making something akin to a credibility determination about the insurance company’s or plan administrator’s reason for denying coverage under a particular plan and a particular set of medical and other records.   We believe that district courts are well equipped to consider the particulars of a conflict of interest, along with all the other facts and circumstances, to determine whether an abuse of discretion has occurred.

Id. at 969.

As we read Abatie, when reviewing a discretionary denial of benefits by a plan administrator who is subject to a conflict of interest, we must determine the extent to which the conflict influenced the administrator’s decision and discount to that extent the deference we accord the administrator’s decision.   In so doing, we seek to overcome the “serious ․ danger of conflicted plan decisionmaking” illustrated by the UnumProvident scandal.   Langbein, supra, at 1335.

Because the district court did not have the benefit of Abatie’s teachings, it applied the wrong legal standard in reviewing MetLife’s determination that Saffon is not disabled.   We therefore accord the district court’s ruling no deference and examine the record afresh through Abatie’s lens.

Merits

1. After MetLife granted Saffon long-term disability benefits, it commissioned Dr. John D. Thomas to review her medical records.   Dr. Thomas found that Saffon hadn’t provided evidence to corroborate her claim that the pain prevented her from working:  “[Saffon’s] file,” he wrote, “lacks detailed, objective, functional findings or testing which would completely preclude [an effort by Saffon to return to work].”   MetLife forwarded Dr. Thomas’s report to Dr. David Kudrow, Saffon’s neurologist.   Dr. Kudrow responded to Dr. Thomas’s report in a detailed letter that discussed Saffon’s reported symptoms, his unsuccessful attempts to alleviate them and the evidence of Saffon’s condition:  “Objective evidence of cervical pathology is noted in previous cervical spine MRI which shows multilevel degenerative disease.”   Saffon herself also wrote explaining that her condition “has not changed, it has been the same for over a year now, my headaches and neck pain are moderately severe 24 hours a day.”

MetLife added Saffon’s and Dr. Kudrow’s letters to Saffon’s file and sent it back to Dr. Thomas for a second review, whereupon Dr. Thomas again concluded that Saffon’s file “lacks clear, sequential, detailed, objective clinical information which would completely preclude Ms. Saffon from an attempt at return to work.”   MetLife faxed this pronouncement to Dr. Kudrow and gave him a deadline:  “If you disagree with the findings of [Dr. Thomas’s second] review, please respond by fax [within ten days] with supporting documentation.   If we do not hear from you, we will presume you are in agreement with the findings of the review.”   MetLife did not send Saffon a copy of this query.   Dr. Kudrow did not reply before the expiration of MetLife’s ten-day deadline, nor, of course, did Saffon.

MetLife then terminated Saffon’s benefits, explaining its decision as follows:

The medical information provided no longer provides evidence of disability that would prevent you from performing your job or occupation.   You no longer meet the definition of disability therefore your claim has been withdrawn․

The letter advised Saffon that she could appeal the decision by providing

medical evidence from the doctor(s) treating you for a condition that indicates you are under the appropriate care and treatment and objective medical information to support your inability to perform the duties of your occupation.

Saffon appealed and, in an apparent effort to provide “objective medical information,” she included her most recent MRI, which showed that her cervical spine was “not significantly changed” since the MRI taken right after the car crash.   She also included another letter from Dr. Kudrow, her treating neurologist, who confirmed that Saffon had tried a variety of pain treatments “without sustainable benefit” and that she was still “unable to tolerate sustained sitting.”

MetLife referred Saffon’s appeal to Dr. Robert A. Menotti, who, like Dr. Thomas, neither examined nor interviewed her.   After reading MetLife’s file, Dr. Menotti concluded that “[t]here simply is not enough objective medical findings and office notes that have continued to flow into this file, that convince this reviewer that the claimant’s self-reported headache and chronic pain syndrome has been enough to preclude her from” working.

MetLife thereupon denied Saffon’s appeal:

Medical information furnished reflects diagnoses including chronic headaches, chronic pain syndrome, cervical spondylosis, cervical strain and sprain.   The determination of disability is not based on the presence of diagnoses, but is based on functional ability supported by clinical evidence that would substantiate symptoms consistent with those reported by the patient and medical providers.   In this determination of disability, we must take into consideration current restrictions and limitations that are supported by clinical evidence that substantiates an inability to perform the duties of your job for your own or any employer in accordance with the Wells Fargo Disability Plan.

․ It is not clear what Dr. Kudrow used as a basis for [his diagnosis of your] reported limitations as we’ve not been furnished with a Functional Capacity Evaluation that would objectively measure and document your current level of functional ability.

․ The MRI of April 28, 2003 documents degenerative changes [in your cervical spine], but indicates this is unchanged from the prior January 12, 2002 MRI. No progression in degeneration is documented.   Prescribed medications of bextra and celexa do not appear to represent an excessive amount of medication that would result in decreased concentration levels.   The frequency of pain clinic visits were noted to not be excessive to the degree that would render you unable to perform sedentary functions consistent with your own occupation.

2. Ten years ago, in Booton v. Lockheed Medical Benefit Plan, 110 F.3d 1461, 1463 (9th Cir.1997), we interpreted the ERISA regulations as calling for a “meaningful dialogue” between claims administrator and beneficiary.   In resolving Saffon’s claim for benefits, MetLife was required to give her “[a] description of any additional material or information” that was “necessary” for her to “perfect the claim,” and to do so “in a manner calculated to be understood by the claimant.”  29 C.F.R. § 2560.503-1(g).

MetLife cannot be faulted for taking our instructions in Booton too seriously.   Its communications with Saffon and her doctors are hardly a model of clarity;  they certainly do not explain “in a manner calculated to be understood by the claimant” what Saffon must do to perfect her claim.   For example, Dr. Thomas’s statement that Saffon’s file “lacks clear, sequential, detailed, objective clinical information which would completely preclude Ms. Saffon from an attempt at return to work” is little more than a long series of unconnected adjectives.   How an absence of information could preclude Saffon from returning to work, what function the word “sequential” plays in this litany, or why Dr. Kudrow’s report and attached MRI did not amount to “objective clinical information” or was not “clear” is left to the imagination.

MetLife’s termination letter to Saffon is equally uninformative.   It notes merely that “[t]he medical information provided no longer provides evidence of disability that would prevent you from performing your job or occupation,” but does not explain why that is the case, and certainly does not engage Dr. Kudrow’s contrary assertion.   The termination letter does suggest Saffon can appeal by providing “objective medical information to support [her] inability to perform the duties of [her] occupation,” but does not explain why the information Saffon has already provided is insufficient for that purpose.

Both Saffon and Dr. Kudrow then provided additional information about Saffon’s course of treatment, including evidence that Saffon’s pain was not relieved by a variety of pain treatments.   This proved unsatisfactory to Dr. Menotti (who reviewed Saffon’s administrative appeal);  he remained unconvinced “that the claimant’s self-reported headache and chronic pain syndrome has been enough to preclude her from” working.   Dr. Menotti does not explain why he is unconvinced, nor what Saffon or Dr. Kudrow would need to do to convince him.   MetLife nevertheless relied on Dr. Menotti’s evaluation to deny Saffon’s appeal in the three paragraphs quoted above at page 1213.   The first of these paragraphs is no more intelligible than MetLife’s original denial letter, perhaps less so.   It’s even unclear whether this paragraph purports to give reasons for the denial or merely explains the standard of review that MetLife is applying.   In any event, we can make out nothing in it of use to the claimant.

The second paragraph does communicate some useful information.   In responding to Dr. Kudrow’s various reports, MetLife notes that “[i]t is not clear what Dr. Kudrow used as a basis for [his diagnosis] ․ as we’ve not been furnished with a Functional Capacity Evaluation that would objectively measure and document your current level of functional ability.”   This appears to be not only MetLife’s first (and only) response to Dr. Kudrow’s evaluation, but also the first reference in the record to the absence of a Functional Capacity Evaluation-at least, the parties have pointed us to no other reference, and we’ve not located one on our own.   Since this was MetLife’s final denial of Saffon’s claim, this information came too late to do Saffon any good.

The third paragraph contains the following self-contradictory passage:

The MRI of April 28, 2003 documents degenerative changes [in your cervical spine], but indicates this is unchanged from the prior January 12, 2002 MRI. No progression in degeneration is documented.

We do not understand how the April 28, 2003, MRI can document “degenerative changes” but remain “unchanged” from the January 12, 2002, MRI. In any event, assuming that the MRIs document no “progression in degeneration,” MetLife does not explain why further degeneration is necessary to sustain a finding that Saffon is disabled.   After all, MetLife had been paying Saffon long-term disability benefits for a year, which suggests that she was already disabled.   In order to find her no longer disabled, one would expect the MRIs to show an improvement, not a lack of degeneration.

Insofar as MetLife believed that a Functional Capacity Evaluation, or some other means of objectively testing Saffon’s ability to perform her job, was necessary for it to evaluate Saffon’s claim, it was required to say so at a time when Saffon had a fair chance to present evidence on this point.   We addressed this issue directly in Abatie:

An administrator must provide a plan participant with adequate notice of the reasons for denial, 29 U.S.C. § 1133(1), and must provide a “full and fair review” of the participant’s claim, id. § 1133(2);  see also 29 C.F.R. § 2560.503-1(g)(1), (h)(2). When an administrator tacks on a new reason for denying benefits in a final decision, thereby precluding the plan participant from responding to that rationale for denial at the administrative level, the administrator violates ERISA’s procedures.  Section 1133 requires an administrator to provide review of the specific ground for an adverse benefits decision.   By requiring that an administrator notify a claimant of the reasons for the administrator’s decisions, the statute suggests that the specific reasons provided must be reviewed at the administrative level.   Moreover, a review of the reasons provided by the administrator allows for a full and fair review of the denial decision, also required under ERISA.   Accordingly, an administrator that adds, in its final decision, a new reason for denial, a maneuver that has the effect of insulating the rationale from review, contravenes the purpose of ERISA.   This procedural violation must be weighed by the district court in deciding whether [the administrator] abused its discretion.

458 F.3d at 974 (internal quotation marks, alterations and citations omitted).

In Abatie, the beneficiary presented evidence in the district court bearing on the new issue, but the court refused to consider it. Id. We held that this was error, which must mean that a claimant in such circumstances is entitled to present evidence and to have the district court consider it.   In addition, the fact that the claims administrator presented a new reason at the last minute bears on whether denial of the claim was the result of an impartial evaluation or was colored by MetLife’s conflict of interest.   After all, coming up with a new reason for rejecting the claim at the last minute suggests that the claim administrator may be casting about for an excuse to reject the claim rather than conducting an objective evaluation.   See Langbein, supra, at 1321 (noting that UnumProvident claim administrators played on the deferential standard of review to deliberately deny meritorious claims).   This is a matter to be resolved by the district court in the first instance, and we therefore vacate the district court’s ruling and remand for this purpose.

In order to avoid unnecessary disputes on remand, we offer additional guidance for the parties and the district court:  First, the district court must give Saffon an opportunity to present evidence on the one issue that was newly raised by MetLife in its denial letter-the results of a Functional Capacity Evaluation or other objective evidence of whether she is totally disabled under the terms of the Plan. Saffon need not present the results of such an evaluation, though she should be allowed to do so if she wishes.   However, Saffon may, instead, offer evidence (from Dr. Kudrow or some other qualified expert) that such evidence is not available or not particularly useful in diagnosing her ability to return to her job.   In this regard we note our case law in Social Security disability cases, e.g., Cotton v. Bowen, 799 F.2d 1403, 1407 (9th Cir.1986) (per curiam), where we have noted that individual reactions to pain are subjective and not easily determined by reference to objective measurements.   See also Bunnell v. Sullivan, 947 F.2d 341, 348 (9th Cir.1991) (en banc) (affirming Cotton );  Fair v. Bowen, 885 F.2d 597, 601 (9th Cir.1989) (“[P]ain is a completely subjective phenomenon” and “cannot be objectively verified or measured.”).²  If MetLife is turning down Saffon’s application for benefits based on Saffon’s failure to produce evidence that simply is not available, that too may bear on the degree of deference the district court shall accord MetLife’s decision and on its ultimate determination as to whether Saffon is disabled.

Second, in determining the degree of deference to which MetLife is entitled, the district court must consider MetLife’s course of dealing with Saffon and her doctors.   We have already pointed out some of the ways in which MetLife did not meet its duty-outlined 10 years ago in Booton-to have a meaningful dialogue with its beneficiary in deciding whether to grant or deny benefits.   MetLife seems to have disregarded this responsibility in various ways-the opacity of its communications with Saffon, the fact that it communicated directly with her doctors without advising her of the communication ³ and the fact that it took various of her doctors’ statements out of context or otherwise distorted them in an apparent effort to support a denial of benefits.⁴  See Langbein, supra, at 1319 (noting allegations of a physician claims reviewer for UnumProvident “that he was instructed ‘to use language to support the denial of disability insurance’;  that he was not allowed ‘to request further information or suggest additional medical tests’;  and that he was ‘not supposed to help a claimant perfect a claim’ ” (alterations omitted)).

Finally, after determining the degree of deference (if any) it should accord MetLife’s decision, the district court must determine whether Saffon is permanently disabled, taking into account not only the evidence presented in the record, but such additional evidence as Saffon may present (as discussed above) and any contrary evidence MetLife may present.   If the parties wind up presenting significant new evidence in the district court, it may be impossible for the court to grant any deference to the decision of the claims administrator, as that decision will perforce have been made without taking into account the new evidence.   As a practical matter, therefore, it may be unnecessary for the district court to determine the degree of deference to give MetLife’s decision, as the admission of significant new evidence will require a de novo reconsideration of the decision in any event.

VACATED and REMANDED.

FOOTNOTES

1.   Order from John Garamendi, Cal. Ins. Comm’r, to All Disability Insurers Doing Business in California 2 (Feb. 27, 2004).   MetLife chose not to request a hearing on this decision;  the Commissioner’s withdrawal therefore became effective 91 days after his Order was published.  Cal. Ins. Code § 10291.5(f).  As a result, MetLife may no longer “issue[ ] or deliver[ ]” an insurance policy like Saffon’s in California.   Id. § 10290.

2.   While the rules and presumptions of our Social Security case law do not apply to ERISA benefits determinations, see Black & Decker Disability Plan v. Nord, 538 U.S. 822, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003), our Social Security precedents are relevant for the factual observation that disabling pain cannot always be measured objectively-which is as true for ERISA beneficiaries as it is for Social Security claimants.

3.   For example, the letter to Dr. Kudrow, giving him 10 days to respond if he disagreed with Dr. Thomas’s second review, appears not to have been sent to Saffon.   Dr. Kudrow missed the 10-day deadline and, because Saffon was not notified, she was not in a position to urge him to timely respond or ask MetLife to extend the deadline.   MetLife also seems to have communicated directly with Dr. Soderlund, Saffon’s primary care physician, who had very little to do with Saffon’s treatment for her back injury.   A doctor is not a lawyer;  though he may provide information that is relevant to a claimant’s disability, his actions (or inaction) cannot bind the client.   If a claims administrator communicates with a doctor who has treated a beneficiary, it must disclose that fact to the patient at a meaningful time.

4.   MetLife, for example, relies on Dr. Kudrow’s suggestion that Saffon try returning to work, but omits this important qualifier:  “if she feels that she is able.”   Letter from Dr. David Kudrow re:  Graciela Saffon (Jan. 29, 2003).   There is a world of difference between saying that a patient can return to work and saying she should return to work if she feels she is able to do so:  Omitting the distinction could be a sign of either inattention to important details or bad faith.   In either event, it suggests less deference should be given to the decision of the claims administrator.   See Langbein, supra, at 1333-34 (citing Brown v. Blue Cross & Blue Shield of Ala., Inc., 898 F.2d 1556, 1566 (11th Cir.1990)) (courts should “insist[ ] on de novo review despite contrary plan terms in cases involving conflicted decisionmaking”).

KOZINSKI, Chief Judge:

by Cody Allison

ERISA Long-Term Disability Procedures Have Changed.

Below are highlights to updates to the long-term disability procedures under ERISA.  These things change from time to time and it is important to stay current on the proper procedures for making a disability claim.  Remember, if you need help filing a disability claim, contact us.  We are here to help!

Eight Updates for Your Disability Claims Procedures

Lois Gleason, CEBSMarch 29, 2018Disability, DOL, Employee Benefits, Regulatorydisability claims procedures
Facebook
T

Time to get your Employee Retirement Income Security Act (ERISA) plans in shape . . . there are no more delays for required new disability claims procedures!

After postponing the original effective date of January 1, 2018, the U.S. Department of Labor (DOL) announced that new disability claims procedure regulations for ERISA-covered plans will definitely take effect April 1, 2018. Many in the benefits industry were expecting more delays or amendments or withdrawal of the new rules, but that didn’t happen.

Eight Updates for Your Disability Claims Procedures

The new rules apply to all ERISA benefit plans that base any benefit decisions on their determination of whether or not a person is disabled. This includes disability benefit plans as well as some health and retirement plans. Why health or retirement plans? Some of their plan provisions could be based on a disability determination. For example, a retirement plan that allows unreduced early distributions after determining a person is disabled is basing a benefit decision on a disability determination.

[Related: Overview of Disability Plans E-Learning Course]

Effective April 1, 2018, disability claims procedures must include the following:

The people responsible for determining whether a claimant is disabled must be impartial and independent.
Denial notices must explain completely why the benefit claim was denied.
Plans must give claimants adequate time and notice to respond to denials.
Plans must give claimants timely access to their entire claim file upon request.
Claimants must be allowed to present evidence and testimony in support of their claim during the review process.
Certain rescissions of disability benefits are treated like denials for the claims procedures process.
Plans must write notices in a culturally and linguistically appropriate manner.
Claimants may seek court review of denials if the plan does not follow the proper claims process.

DOL made similar changes to health benefit claims procedures several years ago. With the new disability claims regulations, DOL intends to similarly protect participants’ rights to fair and full disability claims reviews.

[Related: Ancillary Benefit Plans, September 24-25, 2018, Washington, D.C.]

What should benefit plans do now?

Review ERISA plan document provisions.
Review disability claims administrative procedures.
Amend plans if necessary.
Make sure your benefits administrators comply with the new requirements.
If you’re not sure whether your plans comply, it would be a good idea to consult an employee benefits attorney.

Disability claims requirements are tightening April 1, 2018. Now is the time to update your plan documents and procedures.

__________________________________________________________________________________

by Cody Allison

The New ERISA Regs. Are Coming Soon

Periodically, the regulations that govern ERISA are updated and modified.  Below is a press release regarding updates from 2018.  These changes in the law can make filing or pursuing a long-term disability claim challenging.  Remember, call us if you need us — we are here to help!

If you believe you have been wrongfully denied your ERISA, or non-ERISA, long-term disability benefits, give us a call for a free lawyer consultation. You can reach Cody Allison & Associates, PLLC at (615) 234-6000, or toll free (844) LTD-CODY. We are based in Nashville, Tennessee; however, we represent clients in many states (TN, KY, GA, AL, MS, AR, NC, SC, FL, MI, OH, MO, LA, VA, WV, just to name a few). We will be happy to talk to you no matter where you live. You can also e-mail our office at cody@codyallison.com. Put our experience to work for you. For more information go to www.LTDanswers.com

_____________________________________________________________________________________

United States DEPARTMENT OF LABOR

Topics Agencies Forms FAQ About DOL Press Contact DOL

DOL HomeNewsroomNews Releases and Briefs

News Release
U.S. Department of Labor Announces Decision on April 1, 2018, Applicability of Final Rule Amending Claims Procedure for Disability Benefit Plans

WASHINGTON, DC – The U.S. Department of Labor announced today its decision for April 1, 2018, as the applicability date for employee benefit plans to comply with a final rule under the Employee Retirement Income Security Act (ERISA) that will give America’s workers new procedural protections when dealing with plan fiduciaries and insurance providers who deny their claims for disability benefits.

The new rule ensures, for example, that disability claimants receive a clear explanation of why their claim was denied as well as their rights to appeal a denial of a benefit claim, and to review and respond to new information developed by the plan during the course of an appeal. The rule also requires that a claims adjudicator could not be hired, promoted, terminated, or compensated based on the likelihood of denying claims.

The Department announced a 90-day delay of the applicability date of the final rule – from Jan. 1, 2018, through April 1, 2018 – to give stakeholders the opportunity to submit data and information on the costs and benefits of the final rule. The Department received approximately 200 comment letters from the insurance industry, employer groups, consumer advocates, and lawyers representing disability benefit claimants, all of which are posted on the Department’s website. Only a few comments responded substantively to the Department’s request for quantitative data to support assertions that the final rule would drive up disability benefit plan costs by more than the Department had predicted, cause an increase in litigation, and consequently reduce workers’ access to disability insurance protections.

The information provided in the comments did not establish that the final rule imposes unnecessary regulatory burdens or significantly impairs workers’ access to disability insurance benefits.
EBSA News Release:
01/05/2018
Contact Name:
Eric Holland
Email:
holland.eric.w@dol.gov
Phone Number:
(202) 693-4676
Release Number:
18-0044-NAT

by Cody Allison

Revisiting A Key First Circuit Decision

Below is a case that discusses the “safe harbor” exception to ERISA.   Remember, if you need help filing or pursuing your long-term disability claim, contact us — we are here to help!

United States Court of Appeals,First Circuit.

Diahann L. GROSS, Plaintiff, Appellant, v. SUN LIFE ASSURANCE COMPANY OF CANADA, Defendant, Appellee.
No. 12–1175.
Decided: August 16, 2013
Before THOMPSON, SELYA, and LIPEZ, Circuit Judges.Michael D. Grabhorn, with whom Jonathan M. Feigenbaum and Grabhorn Law Office, PLLC were on brief, for appellant. Joshua Bachrach, with whom Wilson, Elser, Moskowitz, Edelman & Dicker LLP was on brief, for appellee.

This case requires us to determine, inter alia, whether the “safe harbor” exception to the Employee Retirement Income Security Act of 1974 (“ERISA”) applies to the long term disability insurance policy that covers appellant Diahann Gross. The district court found that it did not. The court therefore held that Gross’s state law claims were preempted. Furthermore, it concluded that her insurer was entitled to the highly deferential “arbitrary and capricious” review prescribed for certain ERISA benefits decisions. Using that standard, the court upheld the insurer’s denial of benefits to Gross.

On appeal, Gross asserts that the district court triply erred. She first argues that the safe harbor exception applies, removing her benefits claim from the ERISA scheme. She further maintains that, even accepting that ERISA governs, the court reviewed the insurer’s decision under the wrong standard and—even under that standard—reached the wrong result.

Each of appellant’s contentions raises a substantial question. Although we agree with the district court that the safe harbor exception is inapplicable, we hold that the benefits denial was subject to de novo review. Joining several other circuits, we conclude that language requiring proof of disability “satisfactory to us” is inadequate to confer the discretionary authority that would trigger deferential review. We also conclude that the administrative record is inadequate to allow a full and fair assessment of Gross’s entitlement to disability benefits. Hence, we vacate the judgment and remand the case to the district court so that it may return the matter to Sun Life for further development of the record as described below.

I.

In reciting the facts germane to resolution of this ERISA appeal, we draw on the record that was before the claims administrator. Buffonge v. Prudential Ins. Co. of Am., 426 F.3d 20, 22 (1st Cir.2005).

A. Background

Appellant Gross, an optician and office manager for Pinnacle Eye Care LLC in Lexington, Kentucky, was placed on disability leave in early August 2006, when she was 34 years old. She complained of severe pain, weakness and numbness in her legs and arms, and recurring headaches that had been worsening since early 2004. Gross’s treating physician concluded that she had reflex sympathetic dystrophy (“RSD”),1 fibromyalgia, migraines, and chronic fatigue. In a report signed in September 2006, the doctor wrote that Gross “cannot work.”

Gross is covered under a long term disability (“LTD”) policy that Pinnacle obtained from Medical Group Insurance Services, Inc. (“MGIS”), a company that sells employee benefit coverage provided by the United Health Services Employer’s Trust (“the Trust”). Pinnacle had obtained group policies from the Trust, through MGIS, since 2003,2 with the policies originally written by The Hartford Life & Accident Insurance Company (“Hartford”) and, beginning in 2006, by appellee Sun Life Assurance Company of Canada. Pinnacle paid 100 percent of its employees’ premiums for life and accidental dismemberment and death (“AD & D”) insurance, but the employees themselves paid for LTD coverage. Despite the payment differences, the policies were administered under the same group number, MGIS Group. No. 20178808, and all of the coverage was billed to Pinnacle in a single monthly statement.3

Shortly after leaving her job, Gross filed a claim with MGIS seeking long term disability benefits. The administrative record includes voluminous medical evidence, some submitted by Gross to support her application for benefits and some solicited by Sun Life to aid in its evaluation. Sun Life also hired an investigator to perform a background check and video surveillance on Gross. In April 2007, Sun Life notified Gross that it had denied her request for benefits because of “insufficient objective evidence to substantiate” a disability that precluded her from performing her duties at Pinnacle. In so concluding, the insurer relied, inter alia, on its video surveillance and the opinions of consulting physicians who reviewed Gross’s medical history but did not physically examine her. Gross filed an administrative appeal, which Sun Life rejected in January 2008 with the explanation that it had found “no basis on which to conclude that Ms. Gross would be unable to perform the Material and Substantial Duties of her Own Occupation .” Sun Life emphasized the discrepancy between Gross’s activities while under surveillance and her appearance and behavior during medical visits.

B. Procedural History

Gross initially filed a lawsuit against Sun Life in Kentucky state court challenging the insurer’s denial of benefits on state law grounds, but later dismissed that action without prejudice. In September 2009, she filed suit in Norfolk County Superior Court in Massachusetts, again alleging only state law causes of action.4 Sun Life removed the new action to federal district court and filed a motion to dismiss based on ERISA preemption. After the court ruled in Sun Life’s favor, Gross amended her complaint to add claims under 29 U.S.C. § 1132, which, among other things, provides a cause of action for an ERISA plan participant “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).

In February 2011, Gross filed a motion asking that the district court apply de novo review in its evaluation of her ERISA claims, based on the Supreme Court’s decision in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). See id. at 115 (stating that the default standard for ERISA claims is de novo). The court denied the motion, and cross motions for summary judgment followed. On January 6, 2012, the district court granted summary judgment for Sun Life and denied Gross’s parallel motion. The court held that Sun Life’s decision to deny benefits was not arbitrary and capricious, and thus complied with ERISA’s requirements. In so ruling, the court noted that plan administrators “ ‘are not obligated to accord special deference to the opinions of treating physicians,’ “ Gross v. Sun Life Assurance Co. of Canada, No. 09–11678–RWZ, 2012 WL 29061, at *4 (D.Mass. Jan.6, 2012) (quoting Black & Decker Disability Plan v. Nord, 538 U.S. 822, 825, 123 S.Ct. 1965, 155 L.Ed.2d 1034 (2003)), and that “even ‘sporadic surveillance capturing limited activity’ may be used to uphold termination of benefits, particularly where videos show plaintiff engaging in activities that specifically contradict her claims as to ‘how she spent her time and what [actions] she could tolerate,’ “ id. at *5 (quoting Maher v. Mass. Gen. Hosp. Long Term Disability Plan, 665 F.3d 289, 295 (1st Cir.2011)).

On appeal, Gross asserts that the district court incorrectly found that: (1) her long term disability policy was part of an ERISA plan; (2) the plan gave Sun Life discretionary authority to make claims decisions, thus allowing only arbitrary and capricious review of the insurer’s rejection of benefits; and (3) Sun Life permissibly exercised its discretion in denying benefits to her. We begin as we must with Gross’s contention that her claims do not fall under ERISA.

II.

A finding that ERISA governs a benefits plan typically will impact a plaintiff’s appeal of her insurer’s denial of benefits in ways that will make that challenge more difficult. See Johnson v. Watts Regulator Co., 63 F.3d 1129, 1131–32 (1st Cir.1995). The application of ERISA triggers preemption of state-law principles, see 29 U.S.C. § 1144(a), which “may cause potential state-law remedies to vanish, or may change the standard of review, or may affect the admissibility of evidence, or may determine whether a jury trial is available.” Watts Regulator, 63 F.3d at 1131–32 (citations omitted); see also Aetna Health Inc. v. Davila, 542 U.S. 200, 215, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (“The limited remedies available under ERISA are an inherent part of the ‘careful balancing’ between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans.” (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 55, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987)). Gross’s vigorous opposition to applying ERISA to her claim is therefore unsurprising.

With exceptions not pertinent here, ERISA applies to “any employee benefit plan if it is established or maintained ․ by any employer engaged in commerce or in any industry or activity affecting commerce.” 29 U.S.C. § 1003(a)(1).5 We have observed that “the existence of a plan turns on the nature and extent of an employer’s benefit obligations,” Belanger v. Wyman–Gordon Co., 71 F.3d 451, 454 (1st Cir.1995), and, accordingly, the two common ways to show that a benefits decision falls outside ERISA both involve inquiry into the employer’s relationship with the benefits under scrutiny. First, the regulatory “safe harbor” provision excludes “group or group-type insurance programs” from ERISA’s oversight if they satisfy four criteria:

(1) the employer makes no contributions on behalf of its employees;

(2) participation in the program is voluntary;

(3) the employer’s sole functions are to collect premiums and remit them to the insurer, and, without endorsing the program, to allow the insurer to publicize the program to its employees; and

(4) the employer receives no consideration for its efforts, other than reasonable compensation for administrative services necessary to collect premiums.

See 29 C.F.R. § 2510.3–1(j); see also Watts Regulator, 63 F.3d at 1133.

A benefits program that fails the safe harbor test will not necessarily be deemed an ERISA plan, however. Watts Regulator, 63 F.3d at 1133. Exemption also may result from application of “the conventional tests” for determining whether ERISA governs. Id. An ERISA welfare benefit plan has “five essential constituents”:

(1) a plan, fund or program (2) established or maintained (3) by an employer or by an employee organization, or by both (4) for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, prepaid legal services or severance benefits (5) to participants or their beneficiaries.

Wickman v. Nw. Nat’l Ins. Co., 908 F.2d 1077, 1082 (1st Cir.1990) (quoting Donovan v. Dillingham, 688 F.2d 1367, 1370 (11th Cir.1982) (en banc)). We have observed that “[t]he crucial factor in determining if a ‘plan’ has been established is whether the purchase of the insurance policy constituted an expressed intention by the employer to provide benefits on a regular and long term basis .” Id. at 1083. The inquiry is performed from the perspective of a reasonable person: “[A] ‘plan, fund or program’ under ERISA is established if from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.” Id. at 1082 (quoting Donovan, 688 F.2d at 1373).

Thus, even if the Sun Life policy does not fall within the regulatory safe harbor, we must separately determine if it was a “plan” or “program” that was “established or maintained” by Pinnacle. Although we often start with the safe harbor inquiry, we begin here by examining whether Pinnacle’s benefits arrangement is properly classified as an ERISA plan because that sequence better fits our analysis.

A. Standard of Review

Although the district court’s refusal to remand this case to state court was a ruling on subject-matter jurisdiction engendering de novo review, see Samaan v. St. Joseph Hosp., 670 F.3d 21, 27 (1st Cir.2012); BIW Deceived v. Local S6, Indus. Union of Marine & Shipbuilding Workers of Am., 132 F.3d 824, 830 (1st Cir.1997), the underlying jurisdictional issue—whether ERISA governs the Pinnacle plan—is a mixed question of fact and law triggering scrutiny “along a degree-of-deference continuum,” Watts Regulator, 63 F.3d at 1132. Where, as here, factual questions about the plan dominate the inquiry, the clear-error standard will be our primary tool. See id. We keep in mind, however, that “the removing party bears the burden of persuasion vis-à-vis the existence of federal jurisdiction.” BIW Deceived, 132 F.3d at 831.

B. Existence of an ERISA Plan

The record demonstrates beyond debate that the “crucial factor” we identified in Wickman is satisfied here, i.e., that Pinnacle undertook to provide benefits for its employees “on a regular and long term basis.” 908 F.2d at 1083; see also, e.g., Anderson v. UNUM Provident Corp., 369 F.3d 1257, 1263 (11th Cir.2004) (“[T]he ‘established or maintained’ requirement is designed to ensure that the plan is part of an employment relationship ․ “ (alteration in original) (internal quotation marks omitted)). Pinnacle has participated in the United Health Services Employer’s Trust since at least October 2003, when the company and MGIS representatives signed a one-page “Group Benefit Summary” issued by the Trust that described the life, accidental death, and LTD coverages available to Pinnacle’s employees and their beneficiaries.6 So far as the record shows, each of those benefits has been offered to employees or provided at no cost on an ongoing basis since that time.

Gross does not address ERISA’s applicability to Pinnacle’s insurance benefits generally, but focuses instead on the LTD policy. Emphasizing that the LTD policy is the only one the employees must pay for themselves,7 she seeks to divorce that policy from any benefit “program” and have us separately evaluate whether ERISA applies to it. The district court, however, viewed the LTD policy as one part of a “comprehensive employee benefit plan.” Gross v. Sun Life Assurance Co. of Can., No. 09–11678–RWZ, 2010 WL 817409, at *2 (D.Mass. March 4, 2010). We detect no clear error in that conclusion. As detailed below, the record provides ample support for the court’s finding that Pinnacle’s package of insurance benefits constituted a unitary ERISA program.8

Significantly, the Trust identifies all of the Pinnacle employee policies by a single group number. In addition, as noted above, the Group Benefit Summary issued by the Trust referred to all of those policies. Paul Wedge, the “owner-member” of Pinnacle who signed the Summary on behalf of the employer, is noted on the document as the administrative contact, without distinction among policies. Similarly, invoices sent to Pinnacle by MGIS in 2006 list the life, AD & D, LTD, and short-term disability policies with the amounts due for each. The record also contains an “Employer’s Participation Agreement,” signed by Wedge in 2006, requesting membership in the Trust “and coverage under the Group Policies issued to the Trustees of the Trust now in effect or later modified or replaced,” again without distinction among the different types of insurance offered by the Trust.

The Trust polices have thus consistently been treated as a unit, despite their different contribution requirements. Moreover, the information provided to employees was in keeping with that approach. The record contains single-page summary fliers for the life insurance and LTD coverages that are similar in appearance, both containing the Sun Life logo in the upper right corner and both offering “Highlights” of the particular policy “for Employees of Pinnacle Eye Care, LLC.” The disability flier contains instructions on how to enroll, directs employees to return the form to their employer, and tells them that they “must elect or refuse insurance coverage within 31 days of your date of eligibility”—creating an explicit link between that form of insurance and Pinnacle notwithstanding the employer’s lack of financial involvement. The link is reinforced by the requirement that an enrolling employee acknowledge the following understanding: “I am requesting LTD coverage under a Group Insurance policy offered by my employer. This coverage will end when my employment terminates.” Yet another indicator of Pinnacle’s role is the fine print at the bottom of the flier describing the LTD coverage as a “benefit[ ] available from your employer” and advising employees that Pinnacle will provide a copy of Sun Life’s LTD booklet with complete details “[w]hen you become eligible for benefits under the plan.”

In these circumstances, we see no justification for isolating the long-term disability policy from Pinnacle’s insurance package for purposes of our ERISA inquiry. A “plan” under ERISA may embrace one or more policies, see Donovan, 688 F.2d at 1373 (noting that a benefits plan or program may consist of “a group policy or multiple policies”), quoted in Wickman, 908 F.2d at 1083, and it strikes us as both impractical and illogical to segment insurance benefits that are treated as a single group and managed together, potentially placing some under ERISA and some outside the statute’s scope. In so concluding, we join several other courts that have declined to “unbundle [ ]” a set of policies or benefits offered by an employer to its employees when evaluating whether ERISA governs. Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 538 (7th Cir.2000); see also Gaylor v. John Hancock Mut. Life Ins. Co., 112 F.3d 460, 463 (10th Cir.1997) (rejecting plaintiff’s attempt to “sever her optional disability coverage from the rest of the benefits she received through her employer’s plan”);9 Peterson v. Am. Life & Health Ins. Co., 48 F.3d 404, 407 (9th Cir.1995) (concluding that policy that did not on its own comply with ERISA requirements nonetheless fell under the statute because it “was just one component of [the] employee benefit program and ․ the program, taken as a whole, constitutes an ERISA plan”);10 Pando v. Prudential Ins. Co. of Am., 511 F.Supp.2d 732, 736 (W.D.Tex.2007) (“[W]here the employer contributes to some, but not all, benefits which arise from the employment relationship, a court will separately evaluate whether a particular policy is an ERISA plan only when it is clearly separate from the benefits plan to which the employer does contribute.”); cf. Smith v. Jefferson Pilot Life Ins. Co., 14 F.3d 562, 567 (11th Cir.1994) (rejecting plaintiff’s attempt “to sever the dependent coverage feature from the benefits package provided ․ through the Plan”).11

Having concluded that the LTD policy must be treated as part of Pinnacle’s longstanding insurance benefits program, we also conclude that a reasonable person could readily ascertain the program’s specific elements—the benefits, the class of beneficiaries, the source of funding, and procedures for obtaining benefits. See Wickman, 908 F.2d at 1082. The one-page Highlights fliers for the LTD and the combined life and AD & D insurance policies generally describe the benefits, costs, and enrollment procedure, and they direct employees to Sun Life’s detailed booklets for “complete plan details.” The life insurance flier notes that eligible employees will need to designate beneficiaries using one of two identified forms, and the LTD flier states that the benefits are “[a]vailable to all full time employees working 30 or more hours per week.”

Also in the record is an individualized LTD “Benefit Highlights” form prepared for Gross that lists pertinent details of the Sun Life policy, among them the waiting period for eligibility (“1st of the month following full-time employment”); the benefit percentage of earnings (sixty percent); the maximum monthly benefit ($9,000); and the elimination period (180 days). Sun Life’s forty-seven page LTD booklet contains instructions on filing a claim and explains the appeals process, including “your right to bring a civil action under ERISA, § 502(a) following an adverse determination on review.” See Wickman, 908 F.2d at 1083 (noting that handbook detailing ERISA rights, distributed to employees, “is strong evidence that the employer has adopted an ERISA regulated plan”); cf. Thompson v. Am. Home Assurance Co., 95 F.3d 429, 437 (6th Cir.1996) (noting, among facts undermining finding of employer endorsement, that “[t]he policy documentation ․ nowhere mentions that the policy is subject to ERISA” nor describes employee’s ERISA rights).

In combination, the documents in the record associated with Pinnacle’s employee benefits program establish all five of the constituent elements of an ERISA plan listed in Wickman: (1) a plan, (2) established and maintained (3) by an employer (4) to provide multiple types of insurance benefits (5) to employees and, in some cases, their beneficiaries.12 The materials further show that a reasonable Pinnacle employee would understand the nature of the plan, including the scope of coverage, the costs for the plan’s different components, and the claims procedures. Inescapably, Pinnacle’s arrangement with MGIS and the Trust represented a “calculated commitment to qualified employees for similar benefits regularly in the future.” Wickman, 908 F.2d at 1083. We therefore conclude that Pinnacle offered LTD benefits to its employees under a “plan” or “program” that is subject to ERISA.

C. The Safe Harbor Exception

Gross’s argument that the safe harbor exception applies depends on her assumption that the LTD policy may be examined independently from the rest of Pinnacle’s insurance benefits plan. Based on that assumption, she asserts that three of the four safe harbor requirements are clearly met: Pinnacle does not contribute to her LTD policy, her participation was voluntary, and Pinnacle did not receive any consideration in connection with the sale of the LTD policy to its employees. See Watts Regulator, 63 F.3d at 1133. She states that only the fourth requirement—that the employer’s sole functions are administrative and do not reflect endorsement of the policy—is “reasonably in dispute.”

Our rejection of Gross’s assumption that Pinnacle provided multiple, independent plans is fatal to her safe harbor argument. The exception does not apply unless all four requirements are met, id., and Pinnacle’s full funding of the life and AD & D insurance is thus sufficient to disqualify the Pinnacle plan. In addition, with respect to the “endorsement” criterion, the Pinnacle plan falls short as well. Our discussion above shows the close relationship between the LTD plan and the other Pinnacle insurance benefits, which were treated alike except for who paid the premiums. In an affidavit, Pinnacle’s Wedge stated that the employer “did not negotiate the terms of the voluntary long term disability insurance policy from Sun Life.” Although the employer did not specify the policy’s terms, MGIS’s benefits manager reported that Pinnacle did provide guidelines for eligibility, submitting “a list of eligible employees as well as class definitions, classes for each employee, plan waiting periods, and plan designs.”

Thus, eligibility for this LTD policy was not only tied to employment at Pinnacle, but Pinnacle also determined which employees had access to that benefit. Consequently, both in outward appearance and internally, Pinnacle played more than a bystander’s role concerning the LTD policy. See Watts Regulator, 63 F.3d at 1134 (linking endorsement to the employer’s “engagement in activities that would lead a worker reasonably to conclude that a particular group insurance program is part of a benefit arrangement backed by the company”); Thompson, 95 F.3d at 436 (holding that a finding of endorsement may be appropriate “where the employer plays an active role in ․ determining which employees will be eligible for coverage”); ERISA Op. Letter No. 94–26A, 1994 WL 369282, at *3 (July 11, 1994) (stating that endorsement occurs “if the [employer] engages in activities that would lead [an employee] reasonably to conclude that the program is part of a benefit arrangement established or maintained by the [employer]”).

In short, because Pinnacle’s insurance benefits program is an ERISA plan, and the safe harbor exception is inapplicable, we must determine the proper ERISA standard of review.

III.

A. Background

The question of what standard of review is applicable to a benefits decision governed by ERISA is an issue of law that we review de novo. Maher, 665 F.3d at 291. The default standard for reviewing benefits decisions also is de novo, and plenary review is displaced only if the benefit plan gives discretionary authority to the administrator or fiduciary to determine eligibility for benefits. See Firestone, 489 U.S. at 115; Maher, 665 F.3d at 291. If the plan affords such discretion, the court applies “a deferential ‘arbitrary and capricious’ or ‘abuse of discretion’ standard.” Maher, 665 F.3d at 291 (quoting Cusson v. Liberty Life Assurance Co. of Bos., 592 F.3d 215, 224 (1st Cir.2010)).13

The district court summarily denied Gross’s motion seeking application of de novo review. Sun Life urges us to affirm that ruling, arguing that the LTD policy contains sufficiently clear language granting discretionary authority to the insurer and that Pinnacle accepted that language, and the resulting deferential review of benefits decisions, when it signed the Employer’s Participation Agreement with the Trust.14 Sun Life points specifically to two statements in the policy: “Proof [of claim] must be satisfactory to Sun Life” and “Benefits are payable when Sun Life receives satisfactory Proof of Claim.” Sun Life relies on our decision in Brigham v. Sun Life of Canada, 317 F.3d 72 (1st Cir.2003), where we accepted the view that language in a different Sun Life policy comparable to the pertinent language here constituted “an indicator of subjective, discretionary authority on the part of the administrator.” Id. at 81.

Although Sun Life is correct that the language at issue in Brigham is similar to the language now before us,15 two factors important to our decision in Brigham are absent here. First, plaintiff Brigham advocated for de novo review for the first time on appeal, having assumed throughout the district court proceedings that the arbitrary and capricious standard applied. We saw no injustice in rejecting Brigham’s belated argument based on our well established raise or waive rule, and without “undertak[ing] a thorough exploration of the issue,” in light of the “widespread acceptance” by courts at that time that the phrase “satisfactory to us” triggers discretionary review. Id. at 82.

Since our decision in Brigham, however, the precedential landscape—the second important factor—has changed. In Brigham, decided more than a decade ago, we noted the split in the circuits on whether policy provisions containing a “satisfaction” requirement were sufficient to confer discretionary authority triggering deferential review. Id. at 81–82. We reported that some circuits considered the use of “to us” after “satisfactory” to be “an indicator of subjective, discretionary authority on the part of the administrator, distinguishing such phrasing from policies that simply require ‘satisfactory proof’ of disability, without specifying who must be satisfied.” Id. at 81 (citing, inter alia, Nance v. Sun Life Assurance Co. of Can., 294 F.3d 1263, 1267–68 (10th Cir.2002); Ferrari v. Teachers Ins. & Annuity Ass’n, 278 F.3d 801, 806 (8th Cir.2002)). Only the Sixth Circuit, in an 8–6 en banc decision, had held that discretionary review is triggered by a requirement of “ ‘satisfactory proof’ without specification of who must be satisfied.” Id. at 81–82 (citing Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556–58 (6th Cir.1998) (en banc)). The Second Circuit, in dicta, stood alone in suggesting that the “satisfactory to us” language might not convey discretion. Id. at 82 (citing Kinstler v. First Reliance Standard Life Ins. Co., 181 F.3d 243, 252 (2d Cir.1999)).

Although the division of opinion remains, three circuits have in the interim adopted the Second Circuit’s suggestion that the “to us” amplification on “satisfactory” is inadequate in itself to confer discretion. See Viera v. Life Ins. Co. of N.A., 642 F.3d 407, 414–417 (3d Cir.2011) (describing cases); Feibusch v. Integrated Device Tech., Inc. Emp. Benefit Plan, 463 F.3d 880, 884 (9th Cir.2006); Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 639–40 (7th Cir.2005). In reaching that conclusion, the Seventh Circuit panel departed from its own prior precedent and thus submitted its proposed decision to all active judges before it was published. No judge requested en banc review. See Diaz, 424 F.3d at 640. On the other hand, at least one circuit has reaffirmed its earlier view that a plan requiring submission of “ ‘satisfactory proof of Total Disability to [the plan administrator]’ “ granted discretion to the administrator. See Tippitt v. Reliance Standard Life Ins., 457 F.3d 1227, 1233–34 (11th Cir.2006) (quoting Levinson v. Reliance Standard Life Ins., 245 F.3d 1321, 1324–25 (11th Cir.2001)).

The procedural backdrop of Brigham and the intervening circuit court decisions mean that the standard of review issue in this case cannot be resolved, as Sun Life cursorily asserts, on the ground that it is governed by Brigham. That decision explicitly relied on the plaintiff’s procedural default, which we declined to sidestep because of the then-current state of the law: “[W]ith the possible exception of the Second Circuit in dicta, no federal appeals court has viewed the type of language at issue in this case as inadequate to confer discretion on the plan administrator.” 317 F.3d at 82. Here, where we do not have procedural default and we do have out-of-circuit precedent rejecting the adequacy of “satisfactory to us,” our acceptance of the language in Brigham is not binding. Rather, the time is now appropriate for the “thorough exploration of the issue” that we put off in Brigham, 317 F.3d at 82.

B. The Pursuit of Clarity

We have long recognized that the threshold question in determining the standard of review is whether the provisions of the benefit plan at issue “reflect a clear grant of discretionary authority to determine eligibility for benefits.” Leahy v. Raytheon Co., 315 F.3d 11, 15 (1st Cir.2002) (emphasis added). In Leahy, for example, we observed that the “discretionary grant hardly could be clearer” where the plan documents gave the insurer “ ‘the exclusive right, in [its] sole discretion, to interpret the Plan and decide all matters arising thereunder,’ “ and further provided that the insurer’s decision “in the exercise of that authority ‘shall be conclusive and binding on all persons unless it can be shown that the ․ determination was arbitrary and capricious.’ “ Id. (alteration and omission in original); see also, e.g., Twomey v. Delta Airlines Pilots Pension Plan, 328 F.3d 27, 31 (1st Cir.2003) (giving administrative committee “ ‘such duties and powers as may be necessary to discharge its responsibilities under the Plan, including ․ decid [ing] all questions of eligibility of any Employee ․ to receive benefits,’ “ with such decisions, assuming good faith, “ ‘to be final and conclusive’ “ (first omission and alteration in original)).

The wording at issue here is obviously a far cry from the explicit provisions in Leahy and Twomey. There are no required “magic words,” however, to confer discretion, and “language that falls short of th[e] ideal” can suffice. Brigham, 317 F.3d at 81. Here, the two pertinent sentences appear in a section of the LTD insurance booklet in which a series of questions about claims procedures are asked and answered. The first three questions address how a claim is submitted. The next question asks “What is considered Proof of Claim?” The response includes one of the sentences under scrutiny:

Proof of Claim must consist of at least the following information:

-a description of the disability;

-the date the disability occurred; and

-the cause of the disability.

Proof of claim may include, but is not limited to, police accident reports, autopsy reports, laboratory results, toxicology results, hospital records, x-rays, narrative reports, or other diagnostic testing materials as required.

Proof of Claim for disability must include evidence demonstrating the disability including, but not limited to, hospital records, Physician records, Psychiatric records, x-rays, narrative reports, or other diagnostic testing materials as appropriate for the disabling condition.

Sun Life may require as part of the Proof, authorizations to obtain medical and non-medial information.

Proof of your continued disability and regular and continuous care by a Physician must be given to Sun Life within 30 days of the request for proof.

Proof must be satisfactory to Sun Life.

App. at 250 (emphasis added). The next question in sequence asks when benefits will be received, with this response: “Benefits are payable when Sun Life receives satisfactory Proof of Claim.” Id. (emphasis added).

We note initially that the second reference to satisfactory proof lacks the “to us” modifying phrase and is thus used in a way that, as we noted in Brigham, most courts consider inadequate to signify discretionary authority. See 317 F.3d at 81; see also Viera, 642 F.3d at 414. We agree, and we therefore focus on the “satisfactory to us” (here, “satisfactory to Sun Life”) formulation.

The courts deeming even the “to us” wording insufficiently explicit have offered several justifications for their conclusions. The Second Circuit observed that specifying the need to satisfy the administrator adds nothing to the obvious point that “[n]o plan provides benefits when the administrator thinks that benefits should not be paid.” Kintsler, 181 F.3d at 252. That assessment was echoed in Diaz: “All plans require an administrator first to determine whether a participant is entitled to benefits before paying them; the alternative would be to hand money out every time someone knocked on the door, which is obviously out of the question.” 424 F.3d at 637. According to these courts, there must be language that “unambiguously indicate[s] that the plan administrator has authority, power, or discretion to determine eligibility or to construe the terms of the Plan.” Feibusch, 463 F.3d at 884 (internal quotation marks omitted); see also Viera, 642 F.3d at 417 (stating that in order for a plan to be insulated from de novo review, it must reveal that the administrator “ ‘has the power to interpret the rules, to implement the rules, and even to change them entirely’ “ (quoting Diaz, 424 F.3d at 639)); Diaz, 424 F.3d at 639–40 (“[T]he critical question is whether the plan gives the employee adequate notice that the plan administrator is to make a judgment within the confines of pre-set standards, or if it has the latitude to shape the application, interpretation, and content of the rules in each case.”).

Both the Ninth and Seventh Circuits emphasized that the “satisfactory to us” construct fails to alert plan participants to the administrator’s discretion because it is ambiguous as to what must be satisfactory to Sun Life. When faced with language and context virtually identical to that before us—also in a Sun Life policy—the Ninth Circuit easily dismissed the wording as inadequate:

[T]he Sun Life policy language simply does not clearly indicate that Sun Life has discretion to grant or deny benefits. Indeed, the language makes no reference whatsoever to granting or denying benefits, and is included under the policy heading “What is considered proof of claim?” We construe ERISA policy ambiguities in favor of the insured.

Feibusch, 463 F.3d at 884. The Seventh Circuit likewise found the “satisfactory to us” phrase ambiguous, observing that,

[f]airly read, it suggests only that the plan participant must submit reliable proof of two things: continuing disability and treatment by a doctor. In short, under [the policy], the only discretion reserved is the inevitable prerogative to determine what forms of proof must be submitted with a claim—something that an administrator in even the most tightly restricted plan would have to do.

Diaz, 424 F.3d at 639; see also Viera, 642 F.3d at 417 (observing that “the only discretion reserved by this single phrase, nested within a section wholly regarding the procedural requirements for submission of a claim, is ‘the inevitable prerogative to determine what forms of proof must be submitted with a claim’ “ (quoting Diaz, supra )).16

All four courts rejecting the adequacy of “satisfactory to us” recommended the use of language that either explicitly “stat[es] that the award of benefits is within the discretion of the plan administrator or ․ is plainly the functional equivalent of such wording,” and three of the courts proposed specific language. Kinstler, 181 F.3d at 252; see also Viera, 642 F.3d at 417 (“ ‘Benefits under this plan will be paid only if the plan administrator decides in [its] discretion that the applicant is entitled to them.’ “ (quoting Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir.2000)); Feibusch, 463 F.3d at 883 (“The plan administrator has discretionary authority to grant or deny benefits under this plan.” (internal quotation marks omitted)); Diaz, 424 F.3d at 637 (stating that “the surest way” for a plan to insulate its benefits denial from de novo review is to “includ[e] language that either mimics or is functionally equivalent” to the Herzberger language).

C. Our Conclusion

Our acknowledgment in Brigham of “an increasing recognition of the need for the clearest signals of administrative discretion” foreshadowed the insistence on “greater precision” that has surfaced in the later cases. 317 F.3d at 82. Although we refrained there from entering the discussion in light of the appellant’s procedural default, we did “wholly endorse” the Herzberger model language that the Third and Seventh Circuits have since expressly recommended. Id. at 81. Having now fully considered the issue, we agree with those courts holding that the “satisfactory to us” wording, without more, will ordinarily fail to meet the “requisite if minimum clarity” necessary to shift from de novo to deferential review. Herzberger, 205 F.3d at 331. We are persuaded primarily by the ambiguity of the phrase, which reasonably may be understood to state Sun Life’s right to insist on certain forms of proof rather than conferring discretionary authority over benefits claims. Indeed, in the present context, the language more naturally supports the former reading, as the phrase appears following a listing of the required information and appropriate types of evidence to prove a claim.17 We reiterate that no precise words are required. Yet, to secure discretionary review, a plan administrator must offer more than subtle inferences drawn from such unrevealing language. To conclude otherwise would negate our requirement of a clear grant of discretion. See Brigham, 317 F.3d at 80 (“We have ‘steadfastly applied Firestone to mandate de novo review of benefits determinations unless “a benefits plan ․ clearly grant[s] discretionary authority to the administrator.” ‘ “ (alterations in original) (quoting Terry v. Bayer Corp., 145 F.3d 28, 37 (1st Cir.1998)); Feibusch, 463 F.3d at 883 (“ ‘Neither the parties nor the courts should have to divine whether discretion is conferred. It either is, in so many words, or it isn’t.” (quoting Sandy v. Reliance Standard Life Ins. Co., 222 F.3d 1202, 1207 (9th Cir.2000)).

Two additional factors contribute to our decision. First, it is not difficult to craft clear language. The model text offered by other courts—including the wording endorsed in Brigham—demonstrates that “clear language can be readily drafted and included in policies.” Kinstler, 181 F.3d at 252; see also Feibusch, 463 F.3d at 883–84 (“[I]t is easy enough to confer discretion unambiguously if plan sponsors, administrators, or fiduciaries want benefits decisions to be reviewed for abuse of discretion.” (internal quotation marks omitted) (alteration in original)). Second, the drafters of ERISA plans have had ample time to take heed of the developing precedent rejecting the adequacy of the “satisfactory to us” language.

Indeed, Sun Life had every opportunity to avoid an adverse ruling on this issue. Our decision in Brigham, which indicated discomfort with the clarity of the “satisfactory to us” wording, made reliance on that language a risky strategy for securing discretionary review of benefits decisions. Sun Life’s relationship with the Trust began in 2006—three years after Brigham and a year after Diaz. Sun Life was also the insurer in Brigham. We see no reason why it could not have inserted more explicit language in either its policy or the summary policy booklet that it provided to Gross and the other employees covered by the Trust’s group policies.

In sum, the “satisfactory to us” language as used in the Sun Life policy insuring Gross does not state with sufficient clarity “that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary.” Herzberger, 205 F.3d at 332. Hence, Sun Life’s rejection of Gross’s claim for benefits is subject to de novo review.

IV.

A. Standards of Review

As with any summary judgment appeal, we review a district court’s decision on the merits of an ERISA benefits case de novo. See Kansky v. Coca–Cola Bottling Co. of New Eng., 492 F.3d 54, 57 (1st Cir.2007). Given that we play the same role as the district court in evaluating Sun Life’s denial of benefits, we have chosen not to remand to that court for application of the correct, de novo, standard for reviewing Sun Life’s decision.

Both in the district court and on appeal, however, the summary judgment analysis in ERISA benefits cases differs from the ordinary summary judgment inquiry “in one important aspect.” Orndorf v. Paul Revere Life Ins. Co., 404 F.3d 510, 517 (1st Cir.2005). In these cases, “where review is based only on the administrative record before the plan administrator and is an ultimate conclusion as to disability to be drawn from the facts, summary judgment is simply a vehicle for deciding the issue.” Id. The non-moving party in an ERISA benefits case is thus not entitled to the usual inferences in its favor. Id.; see also Cusson, 592 F.3d at 223–24.

Where, as here, a challenged denial of benefits is subject to de novo review under ERISA because there has been no grant of discretionary authority, “our task on appeal ‘is to independently weigh the facts and opinions in the administrative record to determine whether the claimant has met [her] burden of showing that [she] is disabled within the meaning of the policy.’ “ Scibelli v. Prudential Ins. Co. of Am., 666 F.3d 32, 40 (1st Cir.2012) (quoting Richards v. Hewlett–Packard Corp., 592 F.3d 232, 239 (1st Cir.2010)). In so doing, we give no deference to the administrator’s opinions or conclusions. Id.

We begin by summarizing both the evidence in the administrative record and Sun Life’s decisions rejecting Gross’s claim for benefits.

B. Gross’s Medical Evidence

1. Dr. Rita Egan

The physician who recommended that Gross stop working, Dr. Rita Egan, a rheumatologist, began treating Gross in February 2006. The doctor ordered a triple-phase bone scan to look for evidence of RSD, but the results were negative. Dr. Egan nonetheless concluded that Gross probably had the disease in her right arm, as well as other conditions that were contributing to her difficulties. For the first of three insurance-related assessments that Dr. Egan subsequently completed, the doctor prepared an Attending Physician’s Statement dated September 23, 2006, classifying Gross’s impairment level from her combination of medical problems as a “[s]evere limitation of functional capacity; incapable of minimum (sedentary[ ] ) activity.” On the line asking for “objective findings,” Dr. Egan wrote that Gross experienced “[p]ain to touch all over but [right] arm is untouchable.” The doctor did not note any mental impairment, although she had prescribed an anti-depressant to Gross in April 2006 and stated at that time that, if the drug did not work, Gross would “need[ ] to see a psychiatrist to help us with her medication.”18

In the second such statement, completed in October 2006, Dr. Egan stated that Gross’s pain had worsened over time, despite treatment, and that Gross could not sit in one place or drive for more than ninety minutes, use her right hand, or firmly grasp with her left hand. She reiterated her findings that Gross suffered from RSD, fibromyalgia, widespread pain, and fatigue. Two months later, in the third report (“Attending Physician’s Supplemental Statement”), Dr. Egan confirmed Gross’s limitations,19 adding that she could not lift more than ten pounds. The doctor described Gross’s diseases as “chronic” and stated that her condition was expected to last for her lifetime.

2. Other Medical Evaluations

In addition to her ongoing treatment with Dr. Egan, Gross consulted with several other medical practitioners. In October 2005, before she began seeing Dr. Egan, Gross was evaluated by Dr. Tarvez Tucker for complaints of headaches, neck pain, and scoliosis. Diagnostic tests showed no abnormalities, but Dr. Tucker noted her pain and weakness symptoms:

[Gross] has intractable transformed migraine, chronic daily headache, which has not been responsive to a variety of preventatives․ She also has ․ a lot of radicular upper extremity and cervical pain associated with tingling and numbness of the right arm and hand, which is worse at the end of the day. She has on examination a drift of the outstretched right upper extremity without pronation, weakness of the intrinsic hand muscles, and diminished perception of primary sensory modalities in the right arm and face.

In December, Dr. Tucker noted that her headaches had improved, but Gross reported worsening joint and muscle pain.

Dr. Egan twice referred Gross to pain management specialists. In April and May 2006, she saw Dr. William Witt, who diagnosed her with fibromyaligia, CRPS, and “probable post traumatic stress disorder” related to a history of sexual abuse.20 In May, Dr. Witt observed that “[h]er right hand continues to be reddened, somewhat swollen, and she is holding in a claw position.” He deferred medical intervention until after a scheduled evaluation and treatment by a psychologist,21 but there is no indication in the record that such an evaluation took place.22 The following year, in March 2007, Gross saw Dr. Fred Coates, who joined the chorus of doctors who diagnosed her with fibromyalgia and either RSD or CRPS. Dr. Coates observed that she was “showing signs of severe pain while seated,” and further noted that her right arm hung “limply at her side.” He described her right hand as “red, slightly swollen, cool to the touch and sweating.” He also recommended psychiatric or psychological counseling and treatment.

Meanwhile, in January 2007, Gross underwent a functional capacity evaluation (“FCE”) to determine her physical capabilities. The physical therapist who performed the evaluation offered a “[p]rimary” diagnosis of CRPS or RSD, and a “[s]econdary” diagnosis of fibromyalgia. He reported swelling of her right hand, as well as a “shiny” appearance, perspiration, and “increased temperature to touch vs. the left.” The report identifies a number of “key limitations” in Gross’s physical abilities, including lack of functional use of her right arm, poor standing balance, inability to perform sustained overhead activity, need for assistance or a handrail to negotiate stairs, and inability to crouch, kneel, squat or crawl. The document also lists numerous medications that Gross reported using on a daily basis: Wellbutrin, Duragesic patches, Klonipin, Tizanadine, Lortab, Ambien CR, Valtrex, Estrostep FE, Senokot, Tylenol Rapid Release, Excedrin Tension Headache, and Phaxyme. The FCE concludes that Gross

does not present at a functional level that could maintain sustained work activity. Her overall level of physical activity is well below the sedentary level category based upon the frequent position change requirement, lack of bilateral activity ability, and short length of time able to perform activity. Unless there is a significant change in her current level of activity, it is not known what form of employment this client would be able to obtain.

C. Surveillance Evidence

Sun Life supplemented the medical evidence by arranging for nine days of video surveillance of Gross during November 2006 and in January and February 2007. The investigator’s written reports reveal little activity by Gross during most of the surveillance days, with three exceptions. First, on November 9, 2006, shortly after dropping off a teenager believed to be her stepdaughter at school, Gross was observed driving for about an hour and a half to her mother’s home, with a brief stop at a rest area along the way. Second, during the evening of January 11, 2007, Gross drove a short distance with her stepdaughter to a Kmart, where she was observed bending down toward lower-level shelves, extending her arms above her head to retrieve items, and kneeling to examine other items. Third, on February 21, after receiving a phone call that her mother had been admitted to the hospital with chest pain, Gross drove to a gas station, pumped gas using her right hand, and then drove for two hours to the hospital, with a brief stop halfway through the trip. About two hours later, she left the hospital and drove home.23

The surveillance reports showed inconsistencies in Gross’s stamina and physical abilities. On multiple occasions, she was seen limping, but also was twice described as “jogging” a few steps. On November 7, for example, Gross left home with her husband at 7:17 AM to vote at a local elementary school, returned home at 7:34 AM, and then departed again with her stepdaughter at 8:21 AM for an apparent appointment at a nearby office building. When they returned home at 9:27 AM, Gross appeared to be limping. The investigator remained on the scene, but observed no further activity before his departure at about 4 PM. Two days later, the investigator reported that Gross “jogged down the sidewalk” to her car before driving her stepdaughter to school.

D. The Independent Medical Examination (“IME”)

On February 22, 2007, the last day of video surveillance and the day after Gross had driven to the hospital to see her mother, an IME was conducted at Sun Life’s request by a neurologist, Dr. Rukmaiah Bhupalam.24 The investigator observed Gross walk with a limp as she left home that morning for the appointment and, when she emerged from the doctor’s office more than four hours later, she was seated in a wheelchair pushed by her husband. Once they reached home, Gross’s husband opened the car door for her, though she stood up without assistance. The couple embraced before walking arm-in-arm up the driveway toward the house. About halfway to the front door, Gross’s husband held on to her right arm as she walked, with a slight limp, the remaining distance.

In his initial report of the IME, dated March 19, Dr. Bhupalam stated that Gross’s husband had “to assist her to move from [a] chair to the bed as she appeared to be in significant pain and she could not use her right hand.” Gross told Dr. Bhupalam that “she is usually able to walk 6 hours after she changes her Duragesic patch [pain medication delivered through the skin], and she can function better for approximately 10 to 12 hours after that and again she goes downhill.” The doctor stated that Gross’s “main difficulty is ambulating because of pain and also use of her right hand.” He diagnosed Gross with, inter alia, chronic fibromyalgia and “probably complex regional pain syndrome,” but speculated that “emotional factors ․ could be contributing to her pain symptomatology,” and recommended that she be seen by a behavioral specialist or mental health professional. In conclusion, Dr. Bhupalam stated that Gross is “unable to return to [her] prior occupation and is totally disabled even for sedentary work even on a part time basis.”

Immediately after receiving Dr. Bhupalam’s report, Sun Life sent him copies of the video surveillance. After viewing the recordings, the physician changed his assessment:

[I]t does appear that she can function very well without any difficulty and appears neurologically normal even the day before my examination. On the day of examination she was limping even in the videotape however, this appears to be a functional component. Based on the observation in the video tape, especially on the day before, and also to previous videotapes in January and November, I do feel that she can function quite well and probably will be able to return to her previous occupation as a manager in a multi physician opthalmology and optometric office. However, a re-evaluation might be beneficial. It does appear that she can use both upper and lower extremities quite well and her gait also appears to be normal, and she does not appear to be in any pain or discomfort in the video recorded on February 21, 2007 just a day before my evaluation in the office. Even on the videos that were done in November and January, it appears that she can function quite well, based on my review of the video.

Following Dr. Bhupalam’s examination, Sun Life obtained a paper review of Gross’s medical records from another medical consultant, Dr. William Hall, who likewise noted that the surveillance videos undermined Gross’s subjective reports of pain and functional limitations.

E. Sun Life’s Benefits Decisions

In a seven-page letter dated April 23, 2007, Sun Life notified Gross that it had denied her benefits claim because of “insufficient objective evidence to substantiate” a disability that precluded her from performing her duties at Pinnacle. The letter cited to the surveillance evidence, which in Sun Life’s view demonstrated “a capacity for activity that far exceeds” the limits described in Gross’s claim forms. The insurer specifically referred to Dr. Bhupalam’s reports, and it quoted from Dr. Hall’s file review. Dr. Hall’s evaluation highlighted the absence of “[c]onsistent and abnormal objective physical and neurological findings,” other than the doctors’ reports of swelling, temperature variation, perspiration, and discoloration of her right arm. He further noted that, while Gross’s medical records “provisionally support diagnosis of RSD right arm and hand,” the surveillance video “compellingly weighs against” that diagnosis and corresponding activity restrictions.

Gross filed an appeal of Sun Life’s decision, which she supported with results of a fourth functional capacity evaluation by Dr. Egan.25 In that November 2007 report, the doctor again diagnosed CRPS in the right arm, fibromyalgia, severe migraines, and chronic fatigue, as well as depression. She observed that Gross’s right arm was colder and discolored, “as is seen in complex regional pain syndrome,” and that Gross “can hardly raise her arm.” She further reported that Gross spends most of her day in bed or on a recliner and that “[a]ctivity leads to worsening pain.” Predicting that Gross was “unlikely to improve,” the doctor summarized her conclusions as follows:

She has had symptoms for many years. No medication or other modality has made her able to function well enough to have a life at home much less at work. With these diagnoses, she is unlikely to get to the point she will be able to work.

Dr. Egan stated that Gross was limited to sitting and standing for no more than one hour per day, and that she could neither push nor lift any weight. The physician also noted that Gross’s work capacity was further limited by the effects of four prescription medications, which left her tired or with trouble thinking, or both.

Sun Life rejected the appeal on January 23, 2008. Its letter of explanation relied heavily on a report from a third-party medical consultant, who had performed a paper review of Gross’s medical file earlier that month. The physician, Dr. Alan Neuren, noted “the marked dichotomy between [Gross’s] reported appearance, behavior, and findings when seen by healthcare providers ․ compared with her appearance under surveillance,” and asserted that “[t]he only reasonable conclusion” to be drawn “is that she has deliberately embellished her symptoms to her providers for secondary gain.” Invoking the multiple medical reports that had questioned the medical support for, and thus the veracity of, Gross’s complaints, Sun Life stated that “[t]he severe restrictions and limitations, as noted by Dr. Egan on ․ September 23, 2006, are clearly not credible when viewed in light of Ms. Gross’ demonstrated functional capacity on the surveillance video.” The insurer thus found “no basis on which to conclude that Ms. Gross would be unable to perform the Material and Substantial Duties of her Own Occupation.”

F. Discussion

Gross argues primarily that Sun Life gave unjustified weight to the surveillance videotapes. She asserts that the insurer wrongly depicted the activity seen during the surveillance as inconsistent with the physical limitations determined by the physicians and physical therapist who examined her, and she emphasizes that the episodes highlighted by Sun Life constituted a small percentage of the time she was observed. With respect to the long-distance driving in particular, she objects to Sun Life’s failure to take into account—and inform its medical consultants about—her mother’s poor health and medical emergency. Sun Life, meanwhile, insists that the surveillance videotapes provide substantial evidence in support of its denial of Gross’s claim, and it highlights the absence of objective evidence in support of her proffered diagnoses and limitations.

In considering these arguments, we initially put to one side the video surveillance, considering its impact only after examining the medical evidence.

1. Medical Analysis

We have no difficulty concluding that the medical evidence in the record, if credited, is adequate to prove Gross’s entitlement to disability benefits. Her long history of migraines, extreme fatigue, and widespread muscular pain is well documented, and the progressive weakness and numbness affecting her right arm and hand are also supported by numerous medical reports. Without exception, the doctors who examined her viewed her symptoms to be consistent with RSD, CRPS, fibromyalgia, or more than one of those illnesses. Although many of Gross’s physical complaints may not be readily susceptible to objective confirmation, findings of chronic pain may not automatically be dismissed by a benefits administrator for lack of confirmable symptoms. See, e.g., Maher, 665 F.3d at 304 (Lipez, J., dissenting) (“Our court has emphasized before that in dealing with hard-to-diagnose, pain-related conditions, it is not reasonable to expect or require objective evidence supporting the beneficiary’s claimed diagnosis.”); Cusson, 592 F.3d at 227 (recognizing that “fibromyalgia is a disease that is diagnosed primarily based on a patient’s self-reported pain symptoms”); Denmark v. Liberty Life Assurance Co. of Bos., 481 F.3d 16, 37 (1st Cir.2007), vacated on other grounds, 566 F.3d 1 (1st Cir.2009) (“We have previously found it unreasonable for an insurer to require objective evidence to support a diagnosis of a condition that is not subject to verification through laboratory testing.”).

Importantly, however, the record here includes objective evidence, as well as the recognition by Sun Life’s own medical consultant, Dr. Hall, that Gross’s “musculoskeletal symptoms, as presented by her, are credible to treating and consulting physicians .” Indeed, Dr. Hall wrote that the medical records he had reviewed “support her reported subjective symptoms, and provisionally support diagnosis of RSD right arm and hand.” For example, each of the medical professionals who examined Gross found her right arm to be visibly abnormal in one or more ways, including: reddened, blue or purplish, swollen, “profuse sweating,” shiny, cool to the touch, or with “increased temperature to touch vs. the left.” Multiple doctors viewed these distortions as symptomatic of RSD or CRPS.26 In addition, the physical therapist who performed her FCE, Chris Kaczmarek, noted that the “[g]eneral muscle tone of the right upper extremity and bilateral lower extremities was ․ hypotonic.”27

Moreover, not only did the examining doctors uniformly perceive her complaints of pain and limited capacity to be credible, but Kaczmarek also reported that, when undertaking tasks for the FCE, Gross was cooperative and “willing to work to maximum abilities in all test items.” He further observed that Gross’s “perceived abilities ․ are consistent with client’s functional abilities objectively identified during the FCE.” His assessment that she “gave maximal effort on all test items” was based on his observations of “predictable patterns of movement including increased accessory muscle recruitment, counterbalancing and use of momentum, and physiological responses such as increased heart rate.” These objective indicators of effort diminish the possibility that Gross was deliberately “failing” the capacity test and lend weight to Kaczmarek’s report that Gross was “physically unable to perform” a range of tasks. Medical notes from various doctors show that her weight dropped by about thirty pounds between October 2005 and March 2007.

Gross’s good faith in describing her limitations is also reinforced by letters from her co-workers and employers—not mentioned in either of Sun Life’s denial letters—describing her persistence in continuing to work despite obvious pain and compromised physical capacity. Indeed, contrary to Sun Life’s assertion in its initial denial letter that Gross chose to stop working,28 Pinnacle’s Paul Wedge told the insurer that “[w]e stopped her from working when we received her doctor orders that she was not fit to work.” In a “To Whom It May Concern Letter” written in February 2007, the general manager of the optometry practice where Gross worked described the “steady decline in the use of her arms and legs for nearly nine months.”29 Simply put, this does not seem to be the history of a person seeking to exaggerate her illnesses to avoid working and obtain disability pay. Cf. Gannon v. Metro. Life Ins. Co., 360 F.3d 211, 213 (1st Cir.2004) (observing that claimant’s performance during FCE was inconsistent and she “did not put forth her maximum effort during the tests”).

Of course, the medical evidence is not entirely favorable to Gross. All of her diagnostic tests, including a bone scan that is sometimes used to diagnose RSD, were negative, and Dr. Bhupalam noted that “there is no definitive evidence” for that syndrome. Dr. Hall noted that neither Gross’s “symptoms nor varying right arm or hand findings explained by appropriate MRI, CT, radioisotope or electrophysiologic findings or by hematologic, metabolic, endocrinologic or renal testing.” Dr. Coates pointed, inter alia, to Gross’s report that her Fentanyl pain-relief patch inexplicably wore off “in what would normally be the middle of the dosing.” The doctors who performed physical examinations speculated that the severity of her symptoms might be attributable in part to psychological factors and recommended that she obtain counseling or behavioral treatment. See, e.g., App. at 416 (Dr. Egan, in September 2006, stating that she believes “a lot of the problem is depression” and that Gross “needs to see a psychiatrist”); id. at 394 (Dr. Coates in March 2007); id. at 448 (Dr. Witt); id. at 459 (Dr. Bhupalam). She did not do so.

Nonetheless, even with negative tests and some puzzlement over the extent of her reported pain, doctors continued to diagnose her with RSD and fibromyalgia. The negative bone scan—emphasized by Sun Life—is not decisive. A CRPS fact sheet prepared by the National Institute of Neurological Disorders and Stroke (“NINDS”), a 2007 version of which is contained in the record, reported that “CRPS is diagnosed primarily through observation of the signs and symptoms” and stated that “there is no specific diagnostic test for CRPS.” R. 03359. The NINDS fact sheet further explained:

[T]he most important role for testing is to help rule out other conditions. Some clinicians apply a stimulus (such as touch, pinprick, heat, or cold) to the area to see if it causes pain. Doctors may also use triple-phase bone scans to identify changes in the bone and in blood circulation.

Id.30 The repeated referrals to counseling also reflect common practice in treating CRPS.31

In sum, the sustained and progressive nature of Gross’s complaints, their facial credibility to the medical practitioners who personally examined her, and the objective symptoms consistent with RSD—given the absence of any method for reaching a conclusive diagnosis—support a finding of total disability. Cf. Maher, 665 F.3d at 293 n. 4 (observing that the claimant arguably would be unable “to fool so many doctors over so many years if there were little or no serious pain”). The narrative changes, however, with the addition of the surveillance evidence.

2. Surveillance Videotapes

The immediate about-face of Dr. Bhupalam, an independent medical consultant whose April 2007 report was the final medical evaluation before the initial rejection of Gross’s claim, reveals the impact of the surveillance evidence on Sun Life’s decision to deny benefits. Although Dr. Bhupalam’s examination of Gross and her medical history had led him to conclude that Gross “is totally disabled even for sedentary work even on a part time basis,” the videotapes led him to the opposite conclusion: “I do feel that she can function quite well and probably will be able to return to her previous occupation as a manager in a multi physician ophthalmology and optometric office.”

Dr. Neuren, whose paper review of Gross’s file was the final medical assessment before Sun Life’s second rejection of her claim, similarly placed substantial weight on the videotapes. He noted “the marked dichotomy between her reported appearance, behavior, and findings when seen by healthcare providers (her own treating physicians, along with Dr. Bhupalam and therapist Kaczmarek) compared with her appearance under surveillance.” Addressing the one objectively manifested symptom noted by all examiners, Dr. Neuren stated that “[t]he reported sweating, redness, etc. can be self induced and may have been in this instance.” Dr. Neuren opined that the inconsistencies between Gross’s “observed activities while under surveillance and her appearance in the physicians’ offices are ․ indicative of symptom embellishment,” and he concluded that “[i]t is obvious that there has been no loss of function.”

We have long recognized that even limited surveillance is a useful way to check the credibility of individuals who claim disability based on symptoms that are difficult to evaluate through objective tests. See, e.g., Cusson, 592 F.3d at 229 (“We have permitted ERISA plan administrators to use this type of sporadic evidence in the past.”); Denmark, 481 F.3d at 38 (recognizing that insurer could properly use an investigator’s report and photographs in making the benefits determination); Tsoulas v. Liberty Life Assurance Co., 454 F.3d 69, 80 (1st Cir.2006) (approving insurer’s reliance on both surveillance evidence and medical advice). Where the activities captured on video directly contradict a claimant’s asserted limitations, and there is no definitive evidence of a disabling condition, the surveillance alone could provide adequate support for a denial of benefits. See, e.g., Cusson, 592 F.3d at 229–30 (noting that the insurer “reached its decision not because it failed to consider the evidence in [claimant’s] favor, but because it determined that the surveillance results undermined the credibility of important portions of that evidence”); Tsoulas, 454 F.3d at 74–75 (affirming denial of benefits where claimant stated, inter alia, that she could not walk or stand without assistance and spent fourteen to eighteen hours in bed each day and surveillance showed her walking without assistance and “traveling to a hotel, a parking garage, a restaurant, a comedy club, a night club, and back to the hotel on a single day”).

Sun Life maintains that this is such a case. On this record, under a de novo standard of review, we cannot agree. In our view, the most significant incompatibilities between Gross’s reports and her observed functional capacity arise in three episodes recorded by the investigator: the two lengthy drives to see her mother, and the evening shopping excursion to Kmart in which Gross was seen in a short span of time reaching over her head, bending, and kneeling, with “no signs of guarded motion.” Without these more ambitious activities, the remainder of the observations cited by Sun Life—Gross’s jogging a few steps on two occasions, driving short distances for errands or appointments, and walking without limping or other signs of pain—could be dismissed as day-to-day variations in physical ability related, inter alia, to fluctuations in her level of fatigue and the timing of pain medications. Indeed, even the ninety-minute drive to her mother’s home on the morning of November 9, 2006 was within the limitations specified by Dr. Egan, who reported that Gross could not sit or drive for more than that amount of time. Notably, Gross stopped at a rest area one hour into the trip, and it is not known when she drove home. The investigator left while Gross was still at her mother’s home, and no surveillance took place the next day.

The trip to Kmart on January 11, which spanned an hour door-to-door in the early evening, is more at odds with Gross’s reported limitations. Though accompanied by her stepdaughter, Gross was seen reaching for an item above her head, bending down to the lower level of the shelves, and kneeling to examine other items. Once at home, Gross carried two plastic bags as well as her purse from the car to the house. All of these movements occurred with no reported hesitancy or instability. According to physical therapist Kaczmarek, however, Gross reported a week later that “she tolerates short bouts of activity for less than a few minutes,” and that she has “difficulty walking with frequent falls.” Based on his testing, Kaczmarek concluded that Gross had “[p]oor standing balance,” “[u]nstable gait pattern requiring assistance of device or hand held assistance,” and “[i]nability to get into and out of positions such as crouching, kneeling, squatting, crawling.”

The 120–mile round-trip drive on February 21 from her home to the medical center in Ashland, Kentucky, is particularly troubling. Before setting off on the trip, Gross pumped gas, “us[ing] her right hand to hold the gas nozzle in her gas tank.” She then drove for an hour before stopping at a rest area, where she was observed “walk[ing] quickly and show[ing] no signs of guarded motion.” When she exited the restroom, she was seen walking quickly to her vehicle and taking two jogging steps before entering the car. She drove for another hour to the medical center, arriving at about 1:30 PM, and two hours later made the return trip home—possibly without a rest stop along the way. Gross’s activity on this day was singled out by Dr. Bhupalam in his revised assessment of her ability to work. Her manipulation of the gas pump is especially noteworthy given her reports of pain and numbness and “little functional usage” of her right hand.

Dr. Bhupalam also noted, however, that “a re-evaluation might be beneficial”—an observation we understand to suggest that the video surveillance, while damaging to Gross, did not necessarily undermine her claim. Indeed, the record does not show that either Dr. Bhupalam or Dr. Neuren knew that Gross’s travel to the medical center in Ashland was in response to a phone call reporting that her mother had experienced a medical emergency, possibly a heart attack. Dr. Neuren, in fact, commented in his report that “[i]t is unclear who the claimant was seeing [at the medical building in Ashland] or why she would need to travel so far to be seen.” We consider knowledge of the reason for Gross’s unusual travel that day essential for any reliable appraisal of her medical condition. Individuals often rise to the occasion in the event of an emergency. Hence, on the current record, we are unable to judge whether Gross’s condition and physical limitations, as she reports them, are necessarily inconsistent with her activities that day. In context, the extra driving, the hurried movements, the pumping of gas may have been at the far edge of what she could manage with the aid of medication in the face of a family crisis.32 In addition, the pain and functional limitations observed by Dr. Bhupalam during his examination of Gross the next day might possibly have been the price she paid for those actions, supporting her claim that she could not handle such activities on a daily basis. It is also noteworthy that on February 23, two days after the trip and the day after the doctor’s visit, the investigator observed no activity by Gross.

Sun Life’s handling of the inconsistencies between the medical reports and the video surveillance—specifically its apparent failure to provide important context to Dr. Bhupalam and its internal reviewers—raises a legitimate question about whether Sun Life has made a bona fide effort to determine Gross’s capabilities. On de novo review, we have no choice but to remand. As the record now stands, we are unable to resolve the debate between the parties on the significance of the surveillance evidence. Although the medical evidence in Gross’s favor is impressive, it is not monolithic and the surveillance results diminish its force. The capabilities documented on video, particularly on January 11 and February 21, require us to look more skeptically at Gross’s self-reported complaints of constant pain, fatigue, and limited function. Yet, we are unwilling to disregard the evidence in her favor without any contextualized assessment of the most significant departures from her professed limitations. See Marantz v. Permanente Med. Grp., Inc. Long Term Disability Plan, 687 F.3d 320, 329 (7th Cir.2012) (“[T]he weight given to surveillance evidence of this type depends both on the amount and nature of the activity observed.”); Maher, 665 F.3d at 295 (same).

We recognize that Gross bears the burden to prove disability. Moreover, as Sun Life pointed out in rejecting her appeal, she did not submit a statement from her own doctor refuting Sun Life’s assertion in its original denial letter that the surveillance “show[ed] a capacity for activity that far exceeds” the limitations she claims. This omission highlights what we regard as the open question: the effect that the surveillance evidence, when viewed in context, may have on other evidence indicating disability.33

Hence, as in Maher, we cannot “say with assurance that [Sun Life] denied [Gross] benefits to which she was entitled,” but we also have doubts about Sun Life’s justification for its decision. 665 F.3d at 295. We will remand this case so that the parties can further address both the significance of the video evidence in assessing Gross’s limitations and the veracity of her self-reported and observed symptoms, particularly concerning the condition of her right arm. Cf., e.g., Buffonge, 426 F.3d at 22 (ordering remand to the claims administrator for a new review); Quinn v. Blue Cross & Blue Shield Ass’n, 161 F.3d 472, 477 (7th Cir.1998).

V.

To recap, we hold that Pinnacle’s disability policy was a component of a benefits plan governed by ERISA and that the applicable standard of review for benefits claims under the plan is de novo. Applying that standard to the evidence currently in the record, we cannot determine whether Sun Life justifiably rejected Gross’s disability claim on the basis of the surveillance video and the likelihood of symptom embellishment, particularly relating to her right arm.

We therefore vacate the judgment appealed from and remand the case to the district court, with directions that it remand the matter to Sun Life for proceedings consistent with this opinion. The insurer, as plan administrator, will have the opportunity to address the concerns that we have identified, i.e., the significance of the video evidence in assessing Gross’s limitations and the veracity of her self-reported and observed symptoms. Gross, in turn, must be given the opportunity to respond. Before the district court enters its remand order, it should hear from the parties on whether to allow the record to be supplemented beyond those specific inquiries. We leave to the district court’s discretion whether to retain jurisdiction while the supplemental administrative process goes forward. We take no view as to the outcome of the further proceedings to be held on remand.

So ordered. Each party to bear its own costs.

FOOTNOTES

1. RSD is apparently considered equivalent to complex regional pain syndrome, or “CRPS,” and we thus refer to the two conditions interchangeably.

2. The Trust provides group life, accidental death, and disability insurance.

3. The monthly statements indicate that Pinnacle arranged for short term, as well as long term, disability coverage. We are unable to determine from the record who pays for the short term coverage.

4. Gross evidently chose to file her original lawsuit in Kentucky because she lives there. After Sun Life removed that action to federal court, Gross dismissed it and filed a new complaint in the Massachusetts county where Sun Life maintains its principal United States place of business.

5. ERISA also applies to plans established or maintained by employee organizations or “organizations representing employees engaged in commerce or in any industry or activity affecting commerce.” 29 U.S.C. § 1003(a)(2).

6. The Trust also provided short-term disability coverage for Pinnacle. The “Remarks” section of the Group Benefit Summary directs the reader to “[s]ee [the] attached addendum for Short Term Disability benefits.” The addendum is not in the record.

7. As noted earlier, the record does not reveal whether Pinnacle funded its employees’ short-term disability coverage, although the district court stated that, while Gross paid her own LTD premium, Pinnacle funded “all the others.” Gross v. Sun Life Assurance Co. of Can., No. 09–11678–RWZ, 2010 WL 817409, at *1 (D.Mass. March 4, 2010).

8. Gross points to a statement by Paul Wedge of Pinnacle that the company did not intend to create an ERISA welfare benefits plan. The question, however, is not the employer’s intent vis-à-vis ERISA, but whether the employer “intended to establish or maintain a plan to provide benefits to its employees as part of the employment relationship.” Anderson, 369 F.3d at 1264; see also, e.g., Watts Regulator, 63 F.3d at 1136 n. 5 (discussing the Safe Harbor elements and noting that “this case turns on the employer’s activities, not its intentions”).

9. Gross asserts that Postma and Gaylor are distinguishable because the companies in each instance paid the premiums for all of the policies. She is correct that, in Postma, the employer took over paying the LTD premium from the employees. See 223 F.3d at 537–38. The circumstances in Gaylor are less clear. The opinion states in one place that the employer contributed part of the LTD premium “for certain employees,” 112 F.3d at 462, but elsewhere indicates that the plaintiff paid the full cost of her coverage, see id. at 463. Regardless of these distinctions, the pertinent point is that “the disability policy was part of a broader benefits package maintained by [the employer] for its employees.” Postma, 223 F.3d at 538.

10. In Peterson, the policy at issue would not on its own have qualified as an ERISA plan because coverage was provided only to a partner in a business partnership and not to any employees. See 48 F.3d at 407 (citing 29 C.F.R. § 2510.3–3(b)). We offer no view on the Peterson court’s conclusion that a policy ineligible for ERISA coverage may nevertheless be governed by the statute if it is part of an ERISA-covered employee benefit program. In a somewhat similar context—where the benefit at issue (reimbursement for educational expenses) is not among those protected by ERISA—the Eleventh Circuit held that the benefit’s inclusion in a plan providing ERISA-covered employee benefits did not bring the non-ERISA benefit within the statute’s scope. See Kemp v. IBM Corp., 109 F.3d 708, 713 (11th Cir.1997).

11. As the Eleventh Circuit noted in Smith, 14 F.3d at 567 n. 3, the Supreme Court, in a different context, has recognized the importance of treating benefits plans holistically. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 107–108, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (“The administrative impracticality of permitting mutually exclusive pockets of federal and state jurisdiction within a plan is apparent.”); see also Smith, 14 F.3d at 567 n. 3 (stating that, based on Shaw, “we may infer that, generally, ERISA plans may not be severed so that portions of them may be excluded from regulation under ERISA”).

12. An ERISA plan may be created without formal documentation. See Donovan, 688 F.2d at 1372 (noting that “[t]here is no requirement of a formal, written plan in either ERISA’s coverage section ․ or its definitions section”); see also N.E. Mut. Life Ins. Co. v. Baig, 166 F.3d 1, 5 n. 6 (1st Cir.1999) (citing Donovan ).

13. The parties’ arguments on this issue rely on the language contained in a booklet that is described therein as “intended to provide a summarized explanation of the current Group Policy Benefits.” The booklet warns that “the Group Policy is the document which forms Sun Life’s contract to provide benefits.” Because the parties do not assert otherwise, we presume that the language in the booklet and the language in the policy are the same for our purposes.

14. The Agreement states, inter alia, that “upon acceptance for participation under the policies, Participant will be bound by the terms of this Request form and Policies.”

15. To the extent it differs, the Brigham language is more expansive. The Sun Life policy there stated that the insurer “ ‘may require proof in connection with the terms or benefits of [the] Policy’ “ and further declared: “ ‘If proof is required, we must be provided with such evidence satisfactory to us as we may reasonably require under the circumstances.’ “ Brigham, 317 F.3d at 81 (alteration in original) (emphasis removed).

16. The policy at issue in Viera covered accidental death and dismemberment. The pertinent language appeared in a section labeled “Proof of Loss” and stated: “ ‘Written or authorized electronic proof of loss satisfactory to Us must be given to Us at Our office, within 90 days of the loss for which claim is made.’ “ 642 F.3d at 411. The court explained the ambiguity in the language as follows: “In other words, it is not clear whether ‘satisfactory to Us’ means ‘electronic proof of loss [in a form] satisfactory to Us’ or ‘electronic proof of loss [substantively and subjectively] satisfactory to Us.’ “ Id. at 417.

17. Although the language as used here is unquestionably ambiguous, we do not foreclose the possibility that the same phrase may be clear if used in a context where the only plausible meaning would link it to the administrator’s discretion to make eligibility determinations.

18. In notes dated September 20, 2006, Dr. Egan reported:1. Chronic migraines—a little improved with present regimen of medications.2. Widespread pain and right arm reflex sympathetic dystrophy—she is doing a little better with the medications we have her on, but I think a lot of the problem is depression. It certainly is contributing to her pain. She also is not sleeping well. At this point, I am going to look into another neurosurgeon or anesthesiologist who may be able to put an implantable stimulator or consider cranial stimulation therapy, which I have been reading about with fibromyalgia, and also the patient needs to see a psychiatrist to help with a lot of issues.

19. This report varied slightly from the previous one, stating that Gross could not stand or walk for more than an hour, drive for more than ninety minutes, or sit in one place for more than two hours.

20. Among his written findings were the following:She has multiple health-related problems, various aches and pains throughout her body․․ She has definite swelling of the right hand as compared with the left. There is obviously differential sweating as well․ [Her gait] is slow and purposeful․ She has multiple tender points in all of the classic sites for fibromyalgia.

21. Dr. Witt noted that he was “very hesitant to engage in any interventional treatment or any further medical treatment ․ until we have had a chance to work with her from a behavioral standpoint which may serve several purposes ․ as this is clearly a sympathetically maintained pain.”

22. As reported in another doctor’s notes, Gross apparently explained to Dr. Egan that she could not afford to see the psychiatrist to whom she originally was referred and was to investigate other options. Dr. Egan stated in August 2006 that her scheduled appointments with a psychologist “did not work out ․ because they cancelled.” Gross was, however, treated with anti-depressants.

23. Sun Life states in its brief that Gross made the return trip without stopping. Although that may be a fair inference from the record, Gross correctly notes that the investigator did not explicitly say that she did not stop. Despite stating that he “followed [Gross] approximately the same distance back towards her residence,” he evidently lost sight of her at some point because, when he arrived at her residence, her car was already parked and she had entered her home.

24. This independent evaluation was recommended by Dr. James Sarni, a Sun Life medical consultant who had reviewed the information in Gross’s chart. Dr. Sarni noted thatthe documentation does not strongly support a diagnosis of reflex sympathetic dystrophy or complex regional pain syndrome․Therefore, it would be helpful if this patient were to be evaluated by a neurologist who would have experience in treating migraine headaches. Any neurologist should be able to comment intelligently upon the right upper extremity and whether or not they believe it is consistent with complex regional pain syndrome or RSD and what steps could be taken to both diagnose and treat it.

25. Gross submitted a forty-seven page letter to Sun Life in December 2007, which, inter alia, reviewed evidence that she previously had submitted and described the results of Dr. Egan’s most recent assessment.

26. The Mayo Clinic’s list of indicators of CRPS, which is defined as “an uncommon form of chronic pain that usually affects an arm or leg,” includes many of these qualities, including swelling of the affected area, changes in skin temperature, discoloration, and a shiny skin appearance. See Complex Regional Pain Syndrome, MayoClinic.com, www.mayoclin ic.com/health/complex-regional-pain-syndrome/DS00265 (last visited Aug. 7, 2013).

27. “Hypotonic,” in the physiological sense, is defined as “[h]aving less than the normal tone.” Random House Dictionary of the English Language (2d ed.1987) 945.

28. The pertinent paragraph in the denial letter was as follows:Therefore, it does not appear that you would be eligible for Total Disability benefits, Partial Disability benefits or benefits under the rider attached to your policy based on our thorough review of all of the medical, occupational and other information in the claim file. Rather, any loss of income appears to be as a result of a choice to stop working for your Employer and not as a result of any change in restrictions and limitations that would prevent you from performing a light occupation.

29. Gross’s boss, Mike Feeney, elaborated in his letter as follows:Countless times I spoke with Diahann about the need to take time off, to take care of herself before the job responsibilities. Stubborn is not a strong enough term each time she told me to mind my own business. She wasn’t going to give in until she absolutely had to. She never lacked in doing a great job in the office. It wasn’t until early May of 2006 when I witnessed her fall in the office, that I felt I could do something to try and help. That day after falling, she couldn’t use her legs and get up. Dr. Baier (staff Optometrist) and myself assisted her up into a chair, and I refused to take no for an answer. The two of us drove her home, helping her into her home. I did not allow her back into the office until she obtained a doctor’s note releasing her for work. She gave me that on May 10, 2006 and returned.Another letter, from Dr. Baier, noted that, in August 2006, “Ms. Gross finally succumbed to the advice of her physicians, family, friends and co-workers and terminated her employment.”

30. The current version of the fact sheet appears at http:// www.ninds.nih. gov/di sorders/reflex_sympathetic_dystrophy/detail_reflex_ sympathetic_ dystrophy.htm# 241003282 (“NINDS Fact Sheet”) (last visited Aug. 7, 2013).

31. The current NINDS fact sheet lists psychotherapy as one form of treatment for relieving the symptoms of CRPS. It states:CRPS and other painful and disabling conditions often are associated with profound psychological symptoms for affected individuals and their families. People with CRPS may develop depression, anxiety, or post-traumatic stress disorder, all of which heighten the perception of pain and make rehabilitation efforts more difficult. Treating these secondary conditions is important for helping people cope and recover from CRPS.NINDS Fact Sheet, supra.

32. Gross reported to two different doctors in March 2007 that she retained at least some use of her right arm. She told Dr. Coates that she could lift her arm slightly after changing her pain medication patch, and she told Dr. Bhupalam that she felt the “right upper extremity” is “almost useless almost 95% of the time .”

33. Relatedly, we note that Dr. Neuren’s assertion that the physical abnormalities affecting Gross’s right arm could have been self-induced is unexplained and thus provides dubious support for his conclusion that Gross likely exaggerated her symptoms. This gap, too, can be explored in future proceedings.

LIPEZ, Circuit Judge.

by Cody Allison

A Great Federal Register Article / New Regulations

Below is an article about new regulations that relate to ERISA claims.  As with any area of the law, ERISA changes from time to time.  If you have a problem or have questions regarding filing your long-term disability claim, contact us — we’re here to help!

AGENCY:

Employee Benefits Security Administration, Department of Labor.
ACTION:

Final rule.
SUMMARY:

This document contains a final regulation revising the claims procedure regulations under the Employee Retirement Income Security Act of 1974 (ERISA) for employee benefit plans providing disability benefits. The final rule revises and strengthens the current rules primarily by adopting certain procedural protections and safeguards for disability benefit claims that are currently applicable to claims for group health benefits pursuant to the Affordable Care Act. This rule affects plan administrators and participants and beneficiaries of plans providing disability benefits, and others who assist in the provision of these benefits, such as third-party benefits administrators and other service providers.
DATES:

Effective Date: This rule is effective January 18, 2017.

Applicability Date: This regulation applies to all claims for disability benefits filed on or after January 1, 2018.
FOR FURTHER INFORMATION CONTACT:

Frances P. Steen, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693-8500. This is not a toll free number.
SUPPLEMENTARY INFORMATION:

I. Background

Section 503 of ERISA requires every employee benefit plan, in accordance with regulations of the Department, to “provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant” and “afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.”

In 1977, the Department published a regulation pursuant to section 503, at 29 CFR 2560.503-1, establishing minimum requirements for benefit claims procedures for employee benefit plans covered by title I of ERISA (hereinafter “Section 503 Regulation”).[1] The Department revised and updated the Section 503 Regulation in 2000 by improving and strengthening the minimum requirements for employee benefit plan claims procedures.[2] As revised in 2000, the Section 503 Regulation provided new time frames and enhanced requirements for notices and disclosure with respect to decisions at both the initial claims decision stage and on review for group health and disability benefits. The regulations were designed to help reduce lawsuits over benefit disputes, promote consistency in handling benefit claims, and provide participants and beneficiaries a non-adversarial method of having a plan fiduciary review and settle claims disputes. Although the Section 503 Regulation applies to all covered employee benefit plans, including pension plans, group health plans, and plans that provide disability benefits, the more stringent procedural protections under the Section 503 Regulation apply to claims for group health benefits and disability benefits.[3]

The Department’s experience since 2000 with the Section 503 Regulation and related changes in the governing law for group health benefits led the Department to conclude that it was appropriate to re-examine the rules governing disability benefit claims. Even though fewer private-sector employees participate in disability plans than in group health and other types of plans,[4] disability cases dominate the ERISA litigation landscape today. An empirical study of ERISA employee benefits litigation from 2006 to 2010 concluded that cases involving long-term disability claims accounted for 64.5% of benefits litigation whereas lawsuits involving health care plans and pension plans accounted for only 14.4% and 9.3%, respectively.[5] Insurers and plans looking to contain disability benefit costs may be motivated to aggressively dispute disability claims.[6] Concerns exist regarding conflicts of interest impairing the objectivity and fairness of the process for deciding claims for group health benefits. Those concerns resulted in the Affordable Care Act recognizing the need to enhance the Section 503 Regulation with added procedural protections and consumer safeguards for claims for group health benefits.[7] The Departments of Health and Human Services, Labor, and the Department of the Treasury issued regulations improving the internal claims and appeals process and establishing rules for the external review processes required under the Affordable Care Act (“ACA”).[8] These additional protections for a fair process include the right of claimants to respond to new and additional evidence and rationales and the requirement for independence and impartiality of the persons involved in making benefit determinations.

The Department’s independent ERISA advisory group also urged the Start Printed Page 92317Department to re-examine the disability claims process. Specifically, in 2012, the ERISA Advisory Council undertook a study on issues relating to managing disability in an environment of individual responsibility. The Council concluded based on the public input it received that “[n]ot all results have been positive for the participant under ERISA-covered plans and the implementing claim procedures regulations, even though these rules were intended to protect participants” and noted that “[t]he Council was made aware of reoccurring issues and administrative practices that participants and beneficiaries face when appealing a claim that may be inconsistent with the existing regulations.” The Advisory Council’s report included the following recommendation for the Department:

Review current claims regulations to determine updates and modifications, drawing upon analogous processes described in health care regulations where appropriate, for disability benefit claims including: (a) Content for denials of such claims; (b) rule regarding full and fair review, addressing what is an adequate opportunity to develop the record and address retroactive rescission of an approved benefit; (c) alternatives that would resolve any conflict between the administrative claims and appeals process and the participants’ ability to timely bring suit; (d) the applicability of the ERISA claim procedures to offsets and eligibility determinations.

2012 ERISA Advisory Council Report, Managing Disability Risks in an Environment of Individual Responsibility, available at www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​about-us/​erisa-advisory-council/​2012ACreport2.pdf.

The Department agreed that the amendments to the claims regulation for group health plans could serve as an appropriate model for improvements to the claims process for disability claims. Those amendments aimed to ensure full and fair consideration of health benefit claims by giving claimants ready access to the relevant evidence and standards; ensuring the impartiality of persons involved in benefit determinations; giving claimants notice and a fair opportunity to respond to the evidence, rationales, and guidelines for decision; and making sure that the bases for decisions are fully and fairly communicated to the claimant. In the Department’s view, these basic safeguards are just as necessary for a full and fair process in the disability context as in the health context. Moreover, as in the group health plan context, disability claims are often reviewed by a court under an abuse of discretion standard based on the administrative record. Because the claimant may have limited opportunities to supplement the record, the Department concluded that it is particularly important that the claimant be given a full opportunity to develop the record that will serve as the basis for review and to respond to the evidence, rationales, and guidelines relevant to the decision.

The Department’s determination to revise the claims procedures was additionally affected by the aggressive posture insurers and plans can take to disability claims as described above coupled with the judicially recognized conflicts of interest insurers and plans often have in deciding benefit claims.[9] In light of these concerns, the Department concluded that enhancements in procedural safeguards and protections similar to those required for group health plans under the Affordable Care Act were as important, if not more important, in the case of claims for disability benefits.

The Department decided to start by proposing to amend the current standards applicable to the processing of claims and appeals for disability benefits so that they included improvements to certain basic procedural protections in the current Section 503 Regulation, many of which already apply to ERISA-covered group health plans pursuant to the Department’s regulations implementing the requirements of the Affordable Care Act.

On November 18, 2015, the Department published in the Federal Register a proposed rule revising the claims procedure regulations for plans providing disability benefits under ERISA.[10] The Department received 145 public comments in response to the proposed rule from plan participants, consumer groups representing disability benefit claimants, employer groups, individual insurers and trade groups representing disability insurance providers. The comments were posted on the Department’s Web site at www.dol.gov/​agencies/​ebsa/​laws-and-regulations/​rules-and-regulations/​public-comments/​1210-AB39. After careful consideration of the issues raised by the written public comments, the Department decided to adopt the improvements in procedural protections and other safeguards largely as set forth in the November 2015 proposal. The Department revised some of the requirements in response to public comments as part of its overall effort to strike a balance between improving a claimant’s reasonable opportunity to pursue a full and fair review and the attendant costs and administrative burdens on plans providing disability benefits.

The Department believes that this action is necessary to ensure that disability claimants receive a full and fair review of their claims, as required by ERISA section 503, under the more stringent procedural protections that Congress established for group health care claimants under the ACA and the Department’s implementing regulation at 29 CFR 2590.715-2719 (“ACA Claims and Appeals Final Rule”).[11] This final rule will promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans by ensuring they receive benefits that otherwise might have been denied by plan administrators in the absence of the fuller protections provided by this final regulation. The final rule also will help alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.
II. Overview of Final Rule
A. Comments on Overall Need To Improve Claims Procedure Rules for Disability Benefits

Numerous disabled claimants and their representatives submitted comments stating general support for the proposed rule. For example, some commenters described the proposal as reinforcing the integrity of disability benefit plan administration and markedly improving the claims process by strengthening notice and disclosure protections, prescribing more exacting standards of conduct for review of denied claims, ensuring claimants’ more effective access to the claims process, and providing safeguards to ensure full court review of adverse benefit determinations. Some commenters supported the proposed amendments as “good first steps” towards providing more transparency and accountability, but advocated additional steps to strengthen, improve, and update the current rules. Some commenters emphasized that disability and lost earnings impose severe hardship on many individuals, arguing that disability claimants have a “poor” prospect of fair review under the current Start Printed Page 92318regulation primarily because of the economic incentive for insurance companies to deny otherwise valid claims and because plans are often able to secure a deferential standard of review in court.

Commenters, primarily disability insurers and benefit providers, commented that the disability claims regulation should not mirror Affordable Care Act requirements because unlike disability claims: (i) The vast majority of medical claims are determined electronically with little or no human involvement, i.e., no reviewers studying materials and consulting with varied professionals; (ii) medical claims typically involve only a limited treatment over a relatively short period of time, whereas disability claims require a series of determinations over a period of several years; (iii) medical claims rarely involve a need to consult with outside professionals; (iv) medical claims involve an isolated issue, whereas disability claims involve a more complex, multi-layered analysis; and (v) medical claim files may consist of only a few pages of materials, whereas disability claim files can consist of hundreds, sometimes thousands of pages of information. As a result of these factors, the commenters stressed that it can take significant time to review and render a decision. Some of those commenters argued that applying ACA protections to disability benefit claims was contrary to Congressional intent because disability plans were not subject to the ACA’s group health plan provisions. Some claimed that the proposed rules in their current form will have unintended consequences (undue delay and increased costs and litigation), and will result in expenses and burdens that will increase the cost of coverage and discourage employers from sponsoring disability benefit plans. Finally, some claimed that the increased protections and transparency that would be required under the proposal would weaken protection against disability fraud and were unnecessary because the current regulations provide ample protections for claimants, are written to benefit the insured, and have worked well for more than a decade as evidenced by the asserted fact that the vast majority of disability claims incurred by insurers are paid, and, of the claims denied, only a very small percentage are ultimately litigated. Some argued that technological advances that have expedited processing of health care claims do not apply to disability claims adjudication, contended that the Department had not properly quantified or qualified the benefits associated with the proposed regulations or provided a sufficient cost analysis associated with the proposed regulations, and commented that the Department should withdraw the proposal until better data is collected.

After careful consideration of the issues raised by the written comments, the Department does not agree with the commenters’ assertion that the ACA changes for group health plans are not an appropriate model for improving claims procedures for disability benefits. The enactment of the ACA, and the issuance of the implementing regulations, has resulted in disability benefit claimants receiving fewer procedural protections than group health plan participants even though litigation regarding disability benefit claims is prevalent today. As noted above, the Department’s Section 503 Regulation imposes more stringent procedural protections on claims for group health and disability benefits than on claims for other types of benefits. The Department believes that disability benefit claimants should continue to receive procedural protections similar to those that apply to group health plans, and that it makes sense to model the final rule on the procedural protections and consumer safeguards that Congress and the President established for group health care claimants under the ACA. These protections and safeguards will allow some participants to receive benefits that might have been incorrectly denied in the absence of the fuller protections provided by the regulation. It will also help alleviate the financial and emotional hardship suffered by many individuals when they lose earnings due to their becoming disabled.

Moreover, the Department carefully selected among the ACA amendments to the claims procedures for group health plans, and incorporated into the proposal only certain of the basic improvements in procedural protections and consumer safeguards. The proposal, and final rule, also include several adjustments to the ACA requirements to account for the different features and characteristics of disability benefit claims.

The Department agrees with the commenters who supported the proposed changes who emphasized that disability and lost earnings impose severe hardship on many individuals. Under those circumstances, and considering the judicially recognized economic incentive for insurance companies to deny otherwise valid claims, the Department views enhancements in procedural safeguards and protections similar to those required for group health plans under the Affordable Care Act as being just as important, if not more important, in the case of claims for disability benefits. This view was supported by the assertions by some plans and disability insurance providers that disability claims processing involves more human involvement, with reviewers studying pages of materials and consulting with varied professionals on claims that involve a more complex, multi-layered analysis. Even assuming the characteristics cited by the commenter fairly describe a percentage of processed disability claims, the Department does not believe those characteristics support a decision to treat the processing of disability benefits more leniently than group health benefits. The Department believes there is potential for error and opportunity for the insurer’s conflict of interest to inappropriately influence a benefit determination under highly automated claims processing, as well as claims processing with more human involvement.[12] Increased transparency and accountability in all claims processes is important if claimants of disability benefits are to have a reasonable opportunity to pursue a full and fair review of a benefit denial, as required by ERISA section 503. Also, and as more fully discussed in the Regulatory Impact Analysis section of this document, the Department does not agree that the adoption of these basic procedural protections will cause excessive increases in costs and litigation, or result in expenses and burdens that will discourage employers from sponsoring plans providing disability benefits. In fact, comments from some industry groups support the conclusion that the protections adopted in the final rule reflect best practices that many insurers and benefit providers already follow on a voluntary basis.

Thus, while the Department has made some changes and clarifications in response to comments, the final rule, described below, is substantially the same as the proposal. Specifically, the major provisions in the final rule Start Printed Page 92319require that: (1) Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination; (2) benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision, including the basis for disagreeing with the views of health care professionals, vocational professionals, or with disability benefit determinations by the Social Security Administration (SSA); (3) claimants must be given timely notice of their right to access to their entire claim file and other relevant documents and be guaranteed the right to present evidence and testimony in support of their claim during the review process; (4) claimants must be given notice and a fair opportunity to respond before denials at the appeals stage are based on new or additional evidence or rationales; (5) plans cannot prohibit a claimant from seeking court review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements unless the violation was the result of a minor error; (6) certain rescissions of coverage are to be treated as adverse benefit determinations triggering the plan’s appeals procedures; and (7) required notices and disclosures issued under the claims procedure regulation must be written in a culturally and linguistically appropriate manner.
B. Comments on Major Provisions of Final Rule
1. Independence and Impartiality—Avoiding Conflicts of Interest

Consistent with the ACA Claims and Appeals Final Rule governing group health plans, paragraph (b)(7) of this final rule explicitly provides that plans providing disability benefits “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.” Therefore, 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. For example, a plan cannot provide bonuses based on the number of denials made by a claims adjudicator. Similarly, a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases, rather than based on the expert’s professional qualifications. These added criteria for disability benefit claims address practices and behavior which cannot be reconciled with the “full and fair review” guarantee in section 503 of ERISA, and with the basic fiduciary standards that must be followed in implementing the plan’s claims procedures. For the reasons described below, paragraph (b)(7) of the final rule therefore remains largely unchanged from the proposal.

The Department received numerous comments either generally supporting or not objecting to the idea that the independence and impartiality requirements for claims procedures for disability claims should be consistent with the ACA’s claims procedures requirements for group health plans. Several commenters pointed out that even prior to the proposal, many disability plans had already taken affirmative steps to ensure the independence and impartiality of the persons involved in the decision-making process. Other commenters who opposed the provision as unnecessary similarly cited the fact that the proposed amendments reflect current industry practice and argued that issues regarding the independence and impartiality of the appeal process is already the subject of the well-developed body of case law. Although the Department agrees that the proposal was intended to be consistent with industry best practice trends and developing case law in the area, the Department does not believe that industry trends or court decisions are an acceptable substitute for including these provisions in a generally applicable regulation.

Several commenters suggested that the examples of individuals covered by this provision should include vocational experts. The commenters pointed out that vocational experts are often actively involved in the decision-making process for disability claims and play a role in the claims process similar to the role of a medical or health care professional. They noted that opinions of vocational experts are often relied on in making determinations on eligibility for and the amount of disability benefits. Although the list in the proposed provision was intended to merely reflect examples, not be an exhaustive list, the Department nonetheless agrees that it would be appropriate to add vocational experts to avoid disputes regarding their status under this provision of the final rule. This clarification of the provision from its proposed form is also consistent with the current regulation’s express acknowledgement of the important role of vocational experts in the disability claims process. Specifically, paragraph (h)(3)(iv) of the current regulation already requires that the claims procedure for disability benefit claims must provide for the identification of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination. Accordingly, the final rule adds “vocational expert” to the examples of persons involved in the decision-making process who must be insulated from the plan’s or issuer’s conflicts of interest. Decisions regarding hiring, compensation, termination, promotion, or other similar matters must not be based upon the likelihood that the individual will support the denial of benefits.

Commenters also asked the Department to clarify whether “consulting experts” are “involved in making the decision” for purposes of the independence and impartiality requirements. Some commenters were concerned that consulting experts would fall outside of these requirements because plans or claims administrators might assert that consulting experts merely supply information and do not decide claims. In the Department’s view, the text of paragraph (b)(7) is clear that the independence and impartiality requirements are not limited to persons responsible for making the decision. For example, paragraph (b)(7) of the final rule, as in the proposal, refers to a “medical expert” as an example of a person covered by the provision. The text also refers to individuals who may “support the denial of benefits.” Thus, in the Department’s view, the independence and impartiality requirements apply to plans’ decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to consulting experts. Although some commenters suggested that the Department expand the regulatory text to expressly include “consulting experts,” in the Department’s view, the regulatory text is sufficiently clear to address commenters’ concerns especially with the inclusion of “vocational experts” in this provision of the final rule as described above. The Department also believes that it should avoid creating differences in the text of parallel provisions in the rules for group health benefits under the ACA Claims and Appeals Final Rule and disability benefits absent a reason that addresses a specific issue for disability claims Start Printed Page 92320(like the vocational expert issue discussed above).

Several commenters asked the Department to clarify that the independence and impartiality requirements apply even where the plan does not directly hire or compensate the individuals “involved in making the decision” on a claim. The text of the rule does not limit its scope to individuals that the plan directly hires. Rather, the rule’s coverage extends to individuals hired or compensated by third parties engaged by the plan with respect to claims. Thus, for example, if a plan’s service provider is responsible for hiring, compensating, terminating, or promoting an individual involved in making a decision, this final rule requires the plan to take steps (e.g., in the terms of its service contract and ongoing monitoring) to ensure that the service provider’s policies, practices, and decisions regarding hiring, compensating, terminating, or promoting covered individuals are not based upon the likelihood that the individual will support the denial of benefits.

One commenter, who supported applying independence and impartiality requirements, expressed concern about a statement in the preamble to the proposed rule that a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases rather than based on the expert’s professional qualifications. The commenter did not object to the prohibition on hiring a medical expert based on a reputation for denying claims, but expressed concern that the statement in the preamble might result in claimants requesting statistics and other information on cases in which the medical expert expressed opinions in support of denying rather than granting a disability benefit claims. Another commenter who opposed the provision also expressed concern about court litigation and discovery regarding “reputation” issues arising from the text in the preamble. In the Department’s view, the preamble statement accurately describes one way that the independence and impartiality standard could be violated. That said, the independence and impartiality requirements in the rule do not modify the scope of “relevant documents” subject to the disclosure requirements in paragraphs (g)(1(vii)(C) and (h)(2)(iii) of the Section 503 Regulation, as amended by this rule. Nor do the independence and impartiality requirements in the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination.

Several commenters urged the Department to implement the independence and impartiality requirements with specific quantifiable limitations on the relationship between plans and consultants. For example, one commenter suggested a medical consultant be required to certify that no more than 20% of the consultant’s income is derived from reviewing files for insurance companies and/or self-funded disability benefit plans. Several commenters recommended that plans be required to disclose to claimants a range of quantifiable information regarding its relationship with certain consultants (e.g., number of times a plan has relied upon the third-party vendor who hired the expert in the past year). A few commenters suggested that the Department establish rules on the qualifications, credentials, or licensing of an expert and the nature and type of such expert’s professional practice. For example, one commenter suggested that the rule provide that when a fiduciary relies on a physician or psychologist or other professional, such as a vocational specialist, the person must be licensed in the same jurisdiction where the plan beneficiary resides. Although the Department agrees that more specific quantifiable or other standards relating to the nature and type of an expert’s professional practice might provide additional protections against conflicts of interest, the parallel provisions in the claims procedure rule for group health plans under the ACA Claims and Appeals Final Rule do not contain such provisions. Moreover, an attempt to establish specific measures or other standards would benefit from a further proposal and public input. Accordingly, the final rule does not adopt the commenters’ suggestions.
2. Improvements to Disclosure Requirements

The Department proposed to improve the disclosure requirements for disability benefit claims in three respects. First, the proposal included a provision that expressly required adverse benefit determinations on disability benefit claims to contain a “discussion of the decision,” including the basis for disagreeing with any disability determination by the SSA or other third party disability payer, or any views of health care professionals treating a claimant to the extent the determination or views were presented by the claimant to the plan. Second, notices of adverse benefit determinations must contain the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist). Third, consistent with the current rule applicable to notices of adverse benefit determinations at the review stage, a notice of adverse benefit determination at the initial claims stage must contain a statement that the claimant is entitled to receive, upon request, relevant documents.

In the Department’s view, the existing claims procedure regulation for disability claims already imposes a requirement that denial notices include a reasoned explanation for the denial.[13] For example, the rule requires that the notice must be written in a manner calculated to be understood by the claimant, must include any specific reasons for the adverse determination, must reference the specific provision in governing plan documents on which the determination is based, must include a description of any additional information required to perfect the claim, must include a description of the internal appeal process, and must include the plan’s rules, if any, that were used in denying the claim (or a statement that such rules are available upon request).

The Department’s experience in enforcing the claims procedure requirements and its review of litigation activity, however, leads it to conclude that some plans are providing disability claim notices that are not consistent with the letter or spirit of the Section 503 Regulation. Accordingly, the Department believes that expressly setting forth additional requirements in the regulation, even if some may already apply under the current rule, is an appropriate way of reinforcing the need for plan fiduciaries to administer the plan’s claims procedure in a way that is transparent and that encourages an appropriate dialogue between a claimant and the plan regarding adverse benefit determinations that ERISA and the current claims procedure regulation contemplate.

Commenters generally either supported or did not object to the requirement to explain a disagreement with a treating health care professional in adverse benefit determinations. The Start Printed Page 92321Department, accordingly, is adopting this provision from the proposal. This provision in the final rule would not be satisfied merely by stating that the plan or a reviewing physician disagrees with the treating physician or health care professional. Rather, the rule requires that the adverse benefit determination must include a discussion of the basis for disagreeing with the health care professional’s views. Several commenters suggested, similar to their comments described above on the need to subject vocational experts to the independence and impartiality requirements, that this disclosure provision should also apply to vocational professionals. As noted above, the commenters pointed out that vocational experts have a role somewhat similar to the role of a medical or health care professional in the claims determination process. The Department agrees, and, accordingly, added “vocational professional” to this provision.

An issue raised in the comments related to whether the plan is required to address only third party views presented to the plan by the claimant. The concern was that plans may not know whether other third party views even exist so that any requirement to address third party views should be limited to third party findings where they are presented by the claimant. Although the Department does not believe it would be appropriate to require plans to address views that they were not aware of and had no obligation to discover, the Department’s consideration of this comment led it to conclude that the provision needed to be revised to include medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination. The Department’s experience enforcing the current regulation has revealed circumstances where claims adjudicators may consult several experts and deny a claim based on the view of one expert when advice from other experts who were consulted supported a decision to grant the claim. Some of these cases may have involved intentional “expert shopping.” Requiring plans to explain the basis for disagreeing with experts whose advice the plan sought would not present the problem raised in the comments of addressing third party views the plan does not know even exist, but it would be consistent with and enhance the requirement in paragraph (h)(3)(iv) of the current regulation which already requires that the claims procedure for disability benefit claims must provide for the identification of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination. In fact, the Department believes that a request for relevant documents under the current regulation would require the plan to disclose materials related to such a consultation. The plan would also be required under the current regulation to explain its basis for not adopting views of an expert the plan consulted who supported granting the claim if the claimant raised the expert’s views as part of an appeal of an adverse benefit determination. In the Department’s view, this is not a new substantive element of the requirement that plans explain the reasons for a denial, but rather is a process enhancement that removes unnecessary procedural steps for claimants to get an explanation of the reasons the plan disagrees with the views of its own consulting experts.

Accordingly, the final rule revises paragraphs (g)(1)(vii)(A) and (j)(6)(i) to require that adverse benefit determinations on disability benefit claims contain a discussion of the basis for disagreeing with the views of health care professionals who treated the claimant or vocational professionals who evaluated the claimant, when the claimant presents those views to the plan. The final rule also revises paragraphs (g)(1)(vii)(A) and (j)(6)(i) to clarify that adverse benefit determinations on disability benefit claims must contain a discussion of the basis for disagreeing with the views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination.

One commenter suggested that references to the “views” of treating health care professionals is very broad and that it is not clear what is intended to be covered by this reference. The commenter argued that “views” is not synonymous with an opinion or conclusion about whether a claimant is disabled, and that, in many cases, health care professionals do not provide an opinion on the claimant’s disability at all, and if they do, they are not providing an opinion on disability as defined by the plan. Another commenter asserted that a health care professional’s focus is on the patient’s diagnosis and treatment and that the claims adjudicator considers the long-term effect of the individual’s condition on their ability to work. These commenters argued that claims adjudicators are not necessarily agreeing or disagreeing with medical findings by a treating health care provider, rather they are considering if the claimant’s disease or illness significantly impairs their work skills. The commenters said that to require a plan to discuss why it did not agree with the views expressed by a myriad of health care professionals does nothing to help explain why a claims administrator found that the claimant was not disabled under the terms of the plan.

The Department does not believe it is appropriate to limit the scope of the final rule to opinions or conclusions about whether a claimant is disabled. Medical and vocational professionals provide views that may be important to the ultimate determination of whether a person is disabled. In the Department’s view, to the extent the claims adjudicator disagrees with foundational information in denying a claim, the claimant has a right to know that fact to the same extent the claimant should be made aware that the claims adjudicator disagrees with an opinion from a medical or vocational expert that the claimant is disabled. Further, it is part of the fiduciary role of the ERISA claims adjudicator to weigh input from medical and vocational experts in reaching a conclusion on a benefit claim. When the claims adjudicator acting in a fiduciary capacity disagrees with the judgments of medical and vocational professionals in denying a claim, the claims adjudicator as a matter of basic fiduciary accountability should be able to identify those circumstances and explain the basis for that decision. The Department also notes that the final rule requires this explanation in cases where the plan or claims adjudicator disagrees with the views of the medical or vocational expert. There is no disagreement to explain if, as the commenter posed, a treating health care consultant expresses a view only on a diagnosis or treatment which the plan fully accepts in evaluating the question of whether the claimant meets the definition of a disability under the plan. Rather, in such a case, the plan would be under the same obligation that exists under the current regulation to explain why it reached the conclusion that the diagnosed illness or treatment did not impair the claimant’s work skills or ability to work or otherwise failed to satisfy the plan’s definition of disability. In summary, the Department believes that an explanation of the basis for disagreement with the judgments of Start Printed Page 92322health care and vocational professionals is required in order to be responsive to the information submitted by the claimant or developed during evaluation of the claim, and is also necessary for a reasoned explanation of a denial.

With respect to the requirement to explain the basis for disagreeing with or not following disability determinations by the SSA and other payers of disability benefits, several commenters who supported the requirement pointed out that reviewing courts in evaluating whether a plan’s adverse benefit determination was arbitrary and capricious have found an SSA determination to award benefits to be a factor that the plan fiduciary deciding a benefit should consider. Courts have criticized the failure to consider the SSA determination, especially if a plan’s administrator operates under a conflict of interest and if the plan requires or encourages claimants to pursue SSA decisions in order to offset any SSA award against the amount they pay in disability benefits. See, e.g., Montour v. Hartford Life and Accident Ins. Co., 588 F.3d 623, 637 (9th Cir. 2009) (“failure to explain why it reached a different conclusion than the SSA is yet another factor to consider in reviewing the administrator’s decision for abuse of discretion, particularly where, as here, a plan administrator operating with a conflict of interest requires a claimant to apply and then benefits financially from the SSA’s disability finding.”); Brown v. Hartford Life Ins. Co., 301 F. App’x 772, 776 (10th Cir. 2008) (insurer’s discussion was “conclusory” and “provided no specific discussion of how the rationale for the SSA’s decision, or the evidence the SSA considered, differed from its own policy criteria or the medical documentation it considered”). Other commenters, however, urged the Department to remove the requirement to discuss the basis for disagreeing with the disability determinations of the SSA or other payers of benefits. Those commenters argued that it would not be reasonable to require an ERISA plan fiduciary to go outside the plan’s governing document and make a judgment about a disability determination made by some other party that is based upon another plan or program’s definition of disability, which may have entirely different or inconsistent definitions of disability or conditions. The commenters further argued that the plan fiduciary might not be able to get from the SSA or other payer of benefits the documents, case file or other information necessary even to try to conduct such an evaluation. Those commenters also requested that, if such a requirement was to be included in the final rule, then the rule should allow plans to take into account in the discussion of its decision the extent to which the claimant provided the plan, or gave the plan a way to obtain, sufficient documentation from the SSA or other third party to allow a meaningful review of such third-party findings.

The Department is persuaded that the final rule should limit the category of “other payers of benefits” to disability benefit determinations by the SSA. The Department accepts for purposes of this final rule that claims adjudicators generally are trained to understand their own plan or insurance policy requirements and apply those standards to claims in accordance with the internal rules, guidelines, policies, and procedures governing the plan. The Department also agrees that a determination that an individual is entitled to benefits under another employee benefit plan or other insurance coverage may not be governed by the same definitions or criteria, and that it may be difficult for the adjudicator to obtain a comprehensive explanation of the determination or relevant underlying information that was relied on by the other payer in making its determination.

The Department does not believe, however, that those same difficulties are involved in the case of SSA determinations. SSA determinations may include a written decision from an ALJ, and the definitions and presumptions are set forth in publicly available regulations and SSA guidance. Accordingly, the final rule revises paragraphs (g)(1)(vii)(A) and (j)(6)(i) to require that adverse benefit determinations on disability benefit claims contain a discussion of the basis for disagreeing with an SSA disability determination regarding the claimant presented by the claimant to the plan. Although the plan’s claims procedures may place the burden on the claimant to submit any SSA determination that the claimant wants the plan to consider, claims administrators working with an apparently deficient administrative record must inform claimants of the alleged deficiency and provide them with an opportunity to resolve the stated problem by furnishing missing information. It also would not be sufficient for the benefit determination merely to include boilerplate text about possible differences in applicable definitions, presumptions, or evidence. A discussion of the actual differences would be necessary. Further, although the final rule does not, as some commenters requested, require that plans defer to a favorable SSA determination, a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan.

Several commenters requested that the Department adopt a rule requiring deference to a treating physician’s opinion for disability determinations, with some commenters suggesting a rule identical to the one applied under the SSA disability program. Nothing in ERISA or the Department’s regulations mandates that a plan administrator give special weight to the opinions of a claimant’s treating physician when rendering a benefit determination. The Department also does not believe the public record on this rulemaking supports the Department imposing such a rule. In the Department’s view, a treating physician rule is not necessary to guard against arbitrary decision-making by plan administrators. In addition to the various improvements in safeguards and procedural protections being adopted as part of this final rule, courts can review adverse benefit determinations to determine whether the claims adjudicator acted unreasonably in disregarding evidence of a claimant’s disability, including the opinions of treating physicians. Nor does the Department believe it would be appropriate to adopt the treating physician rule applicable under the Social Security disability program. That rule was adopted by the Commissioner of Social Security in regulations issued in 1991, to bring nationwide uniformity to a vast statutory benefits program and to address varying decisions by courts of appeals addressing the question. ERISA, by contrast, governs a broad range of private benefit plans to which both the statute and implementing regulations issued by the Secretary of Labor permit significant flexibility in the processing of claims. Moreover, the SSA’s treating physician rule has not been uniformly or generally applied even under statutory disability programs other than Social Security. See Brief for the United States as amicus curiae supporting petitioner, Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003).

Under the current Section 503 Regulation, if a claim is denied based on a medical necessity, experimental treatment, or similar exclusion or limit, the adverse benefit determination must include either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such Start Printed Page 92323explanation will be provided free of charge upon request. These requirements in paragraphs (g)(1)(v)(B) and (j)(5)(ii) apply to notices of adverse benefit determinations for both group health and disability claims. In proposing new paragraphs (g)(1)(vii) and (j)(6) applicable to disability claims, these requirements were intended to be subsumed in the general requirement in the proposal that adverse benefit determinations include a “discussion of the decision.” The Department is concerned, however, that removing the explicit requirement in the disability claims procedure to explain a denial based on medical necessity, experimental treatment, or similar exclusion may be misinterpreted by some as eliminating that requirement (especially with the group health plan claims procedures continuing to have that explicit requirement). That clearly was not the Department’s intention, and, accordingly, the final rule expressly sets forth in paragraphs (g)(1)(vii)(B) and (j)(6)(ii) the requirement of an explanation of the scientific or clinical judgment for such denials.[14]

The Department received numerous comments in favor of the disclosure requirement in paragraphs (g)(1)(vii)(B) and (j)(6)(ii) of the proposal that notices of adverse benefit determinations include the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist). Commenters who supported the proposal noted that the proposed requirement should not be onerous given that adverse benefit determinations are already required to include the reasons for the denial and the applicable plan terms, and also argued that this further level of transparency would promote the dialogue between claimant and plan regarding adverse benefit determinations that ERISA contemplates. These commenters also pointed out that this requirement would address a problem confronted by some claimants where a plan or claims adjudicator says it is relying on an internal rule in denying a claim, and then refuses to disclose it to the claimant based on an assertion that the internal rule is confidential or proprietary. Commenters who opposed the provision argued that the proposal would be overly burdensome for plans and insurers. They read the provision as requiring disclosure of “details of internal processes that are irrelevant to the claim decision and that would provide little in the way of useful information to claimants.” The comments included concerns about the time and cost to review claims manuals and other internal documents that may include rules, guidelines, protocols, standards or other similar criteria to determine that no provision has any application to a claim in order to make the statement that such internal rules, etc. do not exist.

The final rule, like the proposal, provides that internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making an adverse benefit determination must be provided with the adverse benefit determination. The Department does not agree with commenters who asserted that the requirement will be overly burdensome to plans. Even under the existing claims procedure regulation, internal rules, guidelines, protocols, standards or similar criteria relied upon in denying the claim already must be provided to the claimant upon request. Although the additional requirement to affirmatively include them in the adverse benefit determination adds an incremental paperwork burden, where a plan utilizes a specific internal rule or protocol, understanding the terms of the specific protocol may be crucial to a claimant’s ability to successfully contest the denial on review. With respect to the comments about disclosing an internal process that is irrelevant to the claim decision, it is hard to see how something that is in fact “irrelevant” can be something that was “relied upon” in denying the claim. Furthermore, the Department does not agree that it should change the proposed text based on expressed concerns about the time and cost to review claims manuals and other internal documents to determine that nothing in those materials have application to a claim. Aside from the fact that this provision of the final rule requires the plan to affirmatively include only rules, guidelines, protocols, standards or other similar criteria that were relied on in denying the claim, in the Department’s view, it would present substantial questions about whether the plan or claims adjudicator complied with ERISA’s fiduciary standards if a claim was denied without the claims adjudicator having considered a rule, guideline, protocol or standard that was intended to govern the determination of the claim. Moreover, the current Section 503 regulation for disability plans gives claimants the right to reasonable access to and copies of documents, records, and other information “relevant” to the claimant’s claim for benefits. In addition to capturing documents, records, and other information “relied upon” in making the benefit determination, the definition of “relevant” also captures information submitted, considered or generated in the course of making the benefit determination or that demonstrates compliance with the administrative processes and safeguards designed to ensure and verify that benefit claim determinations have been made in accordance with governing plan documents and that those provisions have been applied consistently with respect to similarly situated claimants. In the case of plans providing group health or disability benefits, “relevant” also includes documents, records, or other information that constitutes a statement of policy or guidance with respect to the plan concerning the denied treatment option or benefit, without regard to whether such advice or statement was relied upon in making the benefit determination. Such a statement of policy or guidance would include any policy or guidance generated or commissioned by the plan or issuer concerning the denied benefit that would or should contribute to deciding generally whether to pay the claim (e.g., studies, surveys or assessments generated or commissioned by the plan or issuer that implicate a denied treatment option or benefit but do not relate specifically to the plan itself). Thus, in the Department’s view, even under the current rule, plans would be required, on request, to verify that the plan has produced all the internal rules, guidelines, protocols, standards or other similar criteria concerning the denied claim that were or should have been considered in deciding the claim.

Another commenter argued that it did not make sense to require plans to Start Printed Page 92324affirmatively state in an adverse benefit determination that plans did not rely on any rule or guideline. They argued that, if the adverse benefit determination failed to cite reliance on such a rule or guideline, the claimant could ask and the plan would respond with a statement that none were relied on. They argued that such a process gives the claimant the ability to obtain that information in cases where the claimant believes that information is important to understanding or contesting the basis for the denial. It is the Department’s view, however, that an affirmative statement would be helpful to the claimant by providing certainty about the existence of any applicable rule or guideline. The Department also does not believe the absence of a statement of reliance in an adverse benefit statement fairly puts a claimant on notice to request confirmation that no rule or guideline was relied upon. Further, the Department does not believe merely requiring such an affirmative statement is burdensome on plans because the plan should know whether it relied on a rule or guideline in denying a claim.

Finally, the existing Section 503 regulation already requires that rules, guidelines, protocols, standards or other similar criteria that were relied on in denying the claim must be disclosed to claimants on request. Nothing in the current regulation allows a plan fiduciary to decline to comply with that requirement based on an assertion that the information is proprietary or confidential. Indeed, the Department has taken the position that internal rules, guidelines, protocols, or similar criteria would constitute instruments under which a plan is established or operated within the meaning of section 104(b)(4) of ERISA and, as such, must be disclosed to participants and beneficiaries. See FAQs About The Benefit Claims Procedure Regulation, C-17 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf).[15] Similarly, this final rule does not permit a plan to conceal such information from the claimant under an assertion that the information is proprietary or constitutes confidential business information.

The third new disclosure requirement, set forth in paragraph (g)(1)(vii)(C) of the proposal, adds a requirement that an adverse benefit determination at the initial claims stage must include a statement that the claimant is entitled to receive, upon request, documents relevant to the claim for benefits. Although the current Section 503 Regulation provides that claimants challenging an initial denial of a claim have a right to request relevant documents, a statement advising claimants of their right to relevant documents currently is required only in notices of an adverse benefit determination on appeal. No commenters objected to the addition of this statement to the adverse benefit determination at the initial claims stage. The Department believes such a statement in the initial denial notice simply confirms rights claimants already have under the current claims regulation and will help ensure claimants understand their right of access to the information needed to understand the reasons for the denial and decide whether and how they may challenge the denial on appeal. Accordingly, this provision was adopted without change in the final rule.
3. Right To Review and Respond to New Information Before Final Decision

The Department continues to believe that a full and fair review requires that claimants have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal and have the opportunity to fully and fairly present his or her case at the administrative appeal level, as opposed merely to having a right to review such information on request only after the claim has already been denied on appeal. Accordingly, the final rule adopts those provisions of the proposal with certain modifications described below.

Paragraph (h)(4) of the final rule, consistent with the proposal, requires that plans provide claimants, free of charge, with new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) during the pendency of the appeal in connection with the claim. Consistent with the proposal, paragraph (h)(4) also provides a similar disclosure requirement for an adverse benefit determination based on a new or additional rationale. The evidence or rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided to give the claimant a reasonable opportunity to address the evidence or rationale prior to that date. These requirements already apply to claims involving group health benefits under the ACA Claims and Appeals Final Rule. Further, the Department has interpreted ERISA section 503 and the current Section 503 Regulation as already requiring that plans provide claimants with new or additional evidence or rationales upon request and provide them an opportunity to respond in at least certain circumstances.[16]

The objective of these provisions is to ensure the claimant’s ability to obtain a full and fair review of denied disability claims by explicitly providing that claimants have a right to review and respond to new or additional evidence or rationales developed by the plan during the pendency of the appeal, as opposed merely to having a right to such information on request only after the claim has already been denied on appeal, as some courts have held under the Section 503 Regulation. These protections are direct imports from the ACA Claims and Appeals Final Rule, and they would correct procedural problems evidenced in litigation even predating the ACA.[17] It was and continues to be the view of the Department that claimants are deprived of a full and fair review, as required by Start Printed Page 92325section 503 of ERISA, when they are prevented from responding, at the administrative stage level, to all evidence and rationales.[18]

As an example of how these new provisions would work, assume the plan denies a claim at the initial stage based on a medical report generated by the plan administrator. Also assume the claimant appeals the adverse benefit determination and, during the 45-day period the plan has to make its decision on appeal, the plan administrator causes a new medical report to be generated. The proposal and the final rule would require the plan to automatically furnish to the claimant any new or additional evidence in the second report. The obligation applies to any new or additional evidence, including, in particular, evidence that may support granting the claim. The plan would have to furnish the new or additional evidence to the claimant before the expiration of the 45-day period. The evidence would have to be furnished as soon as possible and sufficiently in advance of the applicable deadline (including an extension if available) in order to give the claimant a reasonable opportunity to address the new or additional evidence. The plan would be required to consider any response from the claimant. If the claimant’s response happened to cause the plan to generate a third medical report containing new or additional evidence, the plan would have to automatically furnish to the claimant any new or additional evidence in the third report. The new or additional evidence would have to be furnished as soon as possible and sufficiently in advance of the applicable deadline to allow the claimant a reasonable opportunity to respond to the new or additional evidence in the third report.

Several commenters asked for clarification regarding the application of the rights in paragraph (h)(4)(i) of the proposal which would have required that the plan’s claims procedures must allow a claimant to review the claim file and to present evidence and testimony as part of the “disability benefit claims and appeals process.” The commenters noted that, although subsection (h) deals with the appeals portion of the claim process, use of the phrase “claims and appeals process” could cause confusion as to whether the requirements of that subsection are intended to apply only to the appeals portion of the process or also to the initial stage of the claim process. Those commenters also suggested that this provision be deleted in its entirety because it was redundant and unnecessary. They pointed out that paragraph (g)(1)(vii)(C) of the proposal already added a requirement that claimants be notified as part of a denial at the initial claims stage of their right to review copies of documents and other information relevant to the claim for benefits. They pointed to the definition of “relevant” in the current regulation at paragraph (m)(8), which includes documents, records or other information that were relied upon in making the benefit determination, submitted, considered or generated in the course of making the benefit determination, demonstrates compliance with the certain administrative safeguards and requirements required under the regulation, or constitutes a statement of policy or guidance with respect to the plan concerning a denied treatment option or benefit or the claimant’s diagnosis. The commenters also noted that paragraph (h)(2)(ii) of the regulation currently gives claimants the right to “submit written comments, documents, records, and other information” as part of an initial claim. Consequently, they asserted that a provision stating that they can also submit “evidence” and “testimony” does not appear to add to the current requirements.

The text in paragraph (h)(4)(i) was intended to parallel text in the regulation for group health plans under the ACA Claims and Appeals Final Rule. The ACA Claims and Appeals Final Rule specifically addressed rights to review and respond to new or additional evidence or rationales during the appeal stage. The Department agrees with the commenters that the provision is intended to be limited to the appeal stage. The Department also agrees that the new text in proposed paragraph (h)(4)(i) on rights to review the claims file and to present evidence is unnecessary in the disability claims procedure regulation because those rights already exist under the current Section 503 regulation. Accordingly, because that provision in the proposal would not have added new substantive requirements, the Department has deleted the provision from the final rule. In light of the deletion of proposed paragraph (h)(4)(i) from the final rule, the definition in the proposal of “claim file” is also unnecessary, and, accordingly, the Department is not including that definitional provision in the final rule. The changes from the proposal should not be viewed, however, as in any way restricting claimant’s rights to documents, records, or other information under the regulation, or to restrict claimant’s rights to present evidence. For example, in the Department’s view, if the plan or claims adjudicator maintains a claims file or other similar compilation of documents, records, and other information, such a file by definition would constitute relevant materials and be subject to mandatory disclosure under the final rule.

In response to the paragraph (h)(4)(i) as drafted in the proposal, several commenters expressed concern that some plans would have read the language as imposing courtroom evidentiary standards for claimants submitting proof of their claim. Others expressed concern about a statement in the proposal’s preamble that referenced “written” testimony because they thought some plans might rely on that reference to prohibit claimants from submitting audio or video evidence. The Department did not intend that the provision be read to limit the types of evidence that claimants can submit or otherwise put claimants in a worse position than they face under the current regulation. For example, the Department does not believe that plans could refuse to accept evidence submitted in the form of video, audio or other electronic media. Further, in the Department’s view, even under the current regulation, it would not be permissible for a plan to impose courtroom evidentiary standards in determining whether the plan will accept or consider information or materials submitted by a claimant.

Several commenters argued that giving claimants new or additional evidence or rationales developed during the pendency of the appeal and requiring plans to consider and address claimant submissions regarding the new or additional evidence or rationale would set up an unnecessary cycle of review and re-review leading to delay and increased costs. The Department is not persuaded by this argument. The requirement conforms the disability claims regulation to the group health plan claims process requirements under the ACA Claims and Appeals Final Rule. Granting both parties (the claimant and the plan) the opportunity to address the other side’s evidence has not resulted in an endless loop of submissions in group health claims under the ACA Claims and Appeals Final Rule, and there is no reason to believe that this would occur in the disability claims administrative process. The Department also has previously stated its view that the supposed “endless loop” is necessarily limited by claimants’ ability to generate new or Start Printed Page 92326additional evidence requiring further review by the plan. Such submissions ordinarily become repetitive in short order, and are further circumscribed by the limited financial resources of most claimants. If a claimant’s assertions do not include new factual information or medical diagnoses, a plan need not generate report after report rather than relying on the reports it already has in hand merely because a claimant objects to or disagrees with the evidence or rationale. The process also necessarily resolves itself when the plan decides it has enough evidence to properly decide the claim and does not generate new or additional evidence or rationales to support its decision.[19] The fiduciary obligation to pay benefits in accordance with the terms of the plan does not require a fiduciary to endlessly rebut credible evidence supplied by a claimant that, if accepted, would be sufficient to justify granting the claim. In fact, an aggressive claims processing practice of routinely rejecting or seeking to undermine credible evidence supplied by a claimant raises questions about whether a fiduciary, especially one operating under a conflict of interest, is violating the fiduciary’s loyalty obligation under ERISA to act solely in the interest of the plan’s participants and beneficiaries.

Several commenters complained about the possibility of claimants arguing that plans failed to comply with the claims procedure whenever any additional evidence was relied on to support a rationale that was already used as a basis for denying a claim. They expressed similar concerns about determining whether a rationale relied on in denying a claim on review was a “new” or “additional” rationale. They asked the Department to include in the final rule a definition of what constitutes “new or additional” evidence or a “new or additional” rationale. They asserted that the rule might be read to permit a claimant to receive and rebut medical opinion reports generated in the course of an administrative appeal, even when those reports contain no new factual information and deny benefits on the same basis as the initial decision.

The Department does not believe it is necessary or appropriate to include definitions of the terms “new evidence” or “new rationale” in the final rule. Those same terms exist in the parallel claims procedure requirement applicable to group health plans under the ACA Claims and Appeals Final Rule, and have been part of the claims procedure requirements for those plans for several years. The Department does, however, intend that the terms be applied broadly so that claimants have the opportunity to respond at the administrative stage level to all evidence and rationales. Many federal courts have held that in reviewing a plan administrator’s decision for abuse of discretion, the courts are limited to the “administrative record”—the materials compiled by the administrator in the course of making his or her decision. See Miller v. United Welfare Fund, 72 F.3d 1066, 1071 (2d Cir.1995) (compiling cases and stating that “[m]ost circuits have declared that, in reviewing decisions of plan fiduciaries under the arbitrary and capricious standard, district courts may consider only the evidence that the fiduciaries themselves considered”). While some courts have held that when conducting a de novo review, any party may be free to submit additional evidence outside the administrative record,[20] most circuits have adopted rules allowing the admission of additional evidence in de novo cases only in limited circumstances. In addition to requiring the deciding fiduciary to consider the claimant’s response to new or additional evidence or rationales, the Department believes it is important that the claimant have the right and opportunity to ensure that a full administrative record is before a reviewing court when new or additional evidence or rationales are introduced into the record by the plan or deciding fiduciary.[21]

The Department requested comments on whether, and to what extent, modifications to the existing timing rules are needed to ensure that disability benefit claimants and plans will have ample time to engage in the back-and-forth dialogue that is contemplated by these new review and response rights. The current Section 503 Regulation requires that the plan must decide claims and appeals within a reasonable period, taking into account all circumstances. The following timeframes reflect the maximum period by which a plan must make a determination: (1) Initial claim: 45 days after submission; additional 30 days with prior notice for circumstances beyond control of the plan; and (2) Appeal: 45 days after receipt of appeal; additional 45 days with prior notice for “special circumstances.” A special deadline for deciding appeals applies when the named fiduciary is a board or committee of a multiemployer plan that meets at least quarterly. The Department received several comments with suggestions on possible new timing requirements for the claimant to respond to the new evidence and a time deadline for the claims administrator to make its final decision. Other commenters asserted that the current regulations are sufficient for the needs of consumers covered under this final regulation and provide “ample” time for plans and claimants to engage in the necessary dialogue. One commenter raised an issue concerning this rule and its impact on the prompt administration of disability claims. The commenter described, by way of example, that the plan would have to send claimants new or additional evidence before the plan may have determined whether and how the evidence may contribute to an adverse appeal decision, claimants would receive new or additional evidence piecemeal as the appeals process continues and claimants could be required to provide comments back without necessarily knowing how that information may, if at all, affect the decision. The Department does not believe that the rule envisions this kind of process. This provision by its terms does not apply if a plan grants the claim on appeal. Instead, when the plan has decided that it is going to deny the claim on appeal, that is the point at which the rule requires new or additional evidence must be provided to the claimant, sufficiently in advance of final decision so that the claimant can address such evidence. The provision does not require that the plan provide the claimant with information in a piecemeal fashion without knowing whether, and if so how, that information may affect the decision.

The Department noted in the preamble to the proposal that the group health plan claims regulation provides that if the new or additional evidence or rationale is received by a plan so late that it would be impossible to provide it to the claimant in time for the Start Printed Page 92327claimant to have a reasonable opportunity to respond, the period for providing a notice of final internal adverse benefit determination is tolled until such time as the claimant has a reasonable opportunity to respond. The Department did not include this special tolling provision in the proposed amendments because the current disability claims regulation, as described above, already permits plans to take extensions at the appeals stage. In the Department’s view, the current disability claims regulation “special circumstances” provision permits the extension and tolling expressly added to the group health plan rule under the ACA Claims and Appeals Final Rule.[22] Although the Department is not including special timing provisions in the final rule, the Department is open to considering comments on whether sub-regulatory guidance regarding the current provisions on extensions and tolling would be helpful in the context of the new review and response rights.

Commenters asked the Department to confirm that a plan could satisfy the new review and response requirements through a current procedure, which was described as “universal and a result of established case law.” Specifically the commenters stated that some plans currently provide claimants with a voluntary opportunity to appeal any rationale raised for the first time in an appeal denial letter. They contended that this process works well because it gives the claimant a choice of whether to appeal and supplement the administrative record based on a challenge to the new evidence or rationale. They also asserted that the procedure would address commenters’ concern that this requirement may conflict with claims administrator’s obligation to meet the requisite time requirements for deciding claims and appeals. In fact, a few other commenters specifically asked that the new requirement not apply to plans that currently offer a voluntary additional level of appeal. The Department does not agree that a voluntary additional level of appeal provides the same rights to claimants because the additional level of appeal is not subject to the rule’s provisions on timing of notification of benefit determinations on appeal. In the Department’s view, it would not be appropriate to condition a claimant’s right to review and respond to new evidence on the claimant effectively being required to give up rights to a timely review and decision at the appeal stage.

Finally, the Department’s experience enforcing the current regulation for group health plans has revealed circumstances where claims adjudicators assert that they are satisfying this requirement by providing claimants with a notice informing them that the plan relied on new or additional evidence or a new or additional rationale in denying the claim, and offering to provide the new evidence or rationale on request. As the Department explained in the preamble to the ACA Claims and Appeals Final Rule for group health plans,[23] in order to comply with this requirement, a plan or issuer must send the new or additional evidence or rationale automatically to the claimant as soon as it becomes available to the plan. Merely sending a notice informing claimants of the availability of such information fails to satisfy the requirement, and if a plan’s claims procedure says the plan will send a notice of the availability of such information, the responsible plan fiduciary similarly would fail to have met the requirement under ERISA section 503 for the plan to establish and maintain a reasonable procedure governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations.
4. Deemed Exhaustion of Claims and Appeals Processes

The final rule tracks the proposal and provides that if a plan fails to adhere to all the requirements in the claims procedure regulation, the claimant would be deemed to have exhausted administrative remedies, with a limited exception where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. The rule thus mirrors the existing standard applicable to group health plans under the ACA Claims and Appeals Final Rule and is stricter than a mere “substantial compliance” requirement.

The Department received a number of generally favorable comments regarding the deemed exhaustion provisions in paragraphs (l)(1) and (2) of the proposal. Those commenters argued that claimants should not have to follow a claims and appeals process that is less than full, fair, and timely. Some of those commenters expressed concern that the language in proposed paragraph (l)(2)(i) was potentially inconsistent with language in the preamble. The commenters noted that the preamble stated that “in those situations when the minor errors exception does not apply, the proposal clarifies that the reviewing tribunal should not give special deference to the plan’s decision, but rather should review the dispute de novo.” By contrast, they point out that proposed paragraph (l)(2)(i) provides that “[i]f a claimant chooses to pursue remedies under section 502(a) of ERISA under such circumstances, the claim or appeal is deemed denied on review without the exercise of discretion by an appropriate fiduciary.” According to the commenters, plans could argue that the language in proposed paragraph (l)(2)(i) does not go far enough and suggested that the regulation should expressly require de novo review.

The Department does not intend to establish a general rule regarding the level of deference that a reviewing court may choose to give a fiduciary’s decision interpreting benefit provisions in the plan’s governing documents. However, the cases reviewing a plan fiduciary’s decision under a deferential arbitrary or capricious standard are based on the idea that the plan Start Printed Page 92328documents give the fiduciary discretionary authority to interpret the plan documents. By providing that the claim is deemed denied without the exercise of fiduciary discretion, the regulation relies on the regulatory authority granted the Department in ERISA sections 503 and 505 and is intended to define what constitutes a denial of a claim. The legal effect of the definition may be that a court would conclude that de novo review is appropriate because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.

A number of commenters expressed concern with proposed paragraph (l)(2)(i), arguing that the proposal encourages claimants to circumvent a plan’s claims and appeals process, to seek remedies in court in the case of insignificant missteps in claims management practices that have no impact on claim outcomes, and, therefore, will result in increased litigation. One commenter asked that the proposal be deleted. A few commenters suggested alternative approaches to the proposal. For example, they suggested that the Department consider a rule which first requires claimants to notify the plan that they intend to pursue judicial review based upon the plan’s procedural error, and provide plans with a reasonable period of time to cure the error before the claimant can dispense with further administrative review. The Department does not believe that the typical participant pursuing a disability benefit claim in the context of a fair and timely review process will, as the commenters claimed, seek remedies in court in the case of insignificant missteps in claims management processes that have no impact on the ultimate decision on the claim. Further, the Department does not believe it would be appropriate to create a rule that could create incentives for plans and insurers to violate procedural requirements designed to protect claimants and ensure transparency in the decision-making process knowing that before the claimant could seek redress that the claimant would have to identify the violation, notify the plan of the violation, and give the plan time to cure the error. Rather, after careful consideration of these comments, the Department continues to believe that claimants should not have to follow a claims and appeals process that is less than full, fair, and timely. Accordingly, the Department decided to retain the deemed exhaustion provisions as proposed, including the exception to the strict compliance standard for errors that are minor and that meet certain other specified conditions.[24] 5. Coverage Rescissions—Adverse Benefit Determinations

Paragraph (m)(4) of the final rule amends the definition of an adverse benefit determination to include, for plans providing disability benefits, a rescission of disability benefit coverage that has a 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 Department did not receive any comments objecting to this provision in the proposed rule, and, accordingly, the provision is adopted without change in the final rule.

Several commenters suggested that the provision be expanded to expressly include situations, particularly in cases involving mental health and substance use disorder claims, where a plan approves treatment for a period less than that requested, but defers the right to appeal until the date the approved benefits end. The Department did not make such a modification to paragraph (m)(4) in the final rule because the Department does not agree that such cases should be addressed as rescissions.

Rather, it appears that the commenters were making a more general point that the claims procedure regulation should expressly define an adverse benefit determination to include instances in which such a limitation is invoked. In that regard, the current regulation provides that the term “adverse benefit determination” includes any denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit. The Department issued a set of FAQs under the current regulation explaining the application of that definition to various situations. One FAQ stated that if a plan provides for the payment of disability benefits for a pre-determined, fixed period (e.g., a specified number of weeks or months or until a specified date), the termination of benefits at the end of the specified period would not constitute an adverse benefit determination under the regulation. Rather, the Department concluded that any request by a claimant for payment of disability benefits beyond the specified period would constitute a new claim.[25] Another FAQ, however, addressed the different situation where the plan pays less than the total amount of expenses submitted with regard to a post-service claim. We explained that, while the plan is paying out the benefits to which the claimant is entitled under its terms, the claimant is nonetheless receiving less than full reimbursement of the submitted expenses. Therefore, in order to permit the claimant to challenge the plan’s calculation of how much it is required to pay, that decision is required to be treated as an adverse benefit determination under the regulation.[26] Whether the situation presented by the commenters should be treated more like the former or latter FAQ will depend on the terms of the plan and the particular facts and circumstances.

One commenter asked whether the proposed rule regarding rescissions of coverage applies to adjustments or suspensions of benefits that reduce or eliminate a disability pension benefit under section 305 of ERISA, which corresponds to section 432 of the Internal Revenue Code of 1986 (Code). It is the Department’s view that a retroactive reduction or elimination of disability pension benefits pursuant to section 305 of ERISA is not a rescission of coverage under paragraph (m)(4)(ii) of the final rule. However, a retroactive reduction or elimination of disability pension benefits, that results from a finding by the plan that the claimant was not disabled within the meaning of the plan when the disability pension benefits were reduced or eliminated under ERISA section 305, would be an adverse benefit determination under the claims procedure regulation. If the claims adjudicator must make a determination of disability in order to decide a claim, the claim must be treated as a disability claim for purposes of the Section 503 Regulation.[27] Start Printed Page 92329
6. Culturally & Linguistically Appropriate Notices

Paragraphs (g)(1)(vii)(C), (j)(7) and (o) of the final rule require plans to provide notice to claimants in a culturally and linguistically appropriate manner. The final rule adopts the standards already applicable to group health plans under the ACA Claims and Appeals Final Rule. Specifically, if a claimant’s address is in a county where ten percent or more of the population residing in that county are literate only in the same non-English language as determined in guidance based on American Community Survey data published by the United States Census Bureau, notices of adverse benefit determinations to the claimant would have to include a statement prominently displayed in the applicable non-English language clearly indicating how to access language services provided by the plan. In addition, plans must provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon request.[28]

A few commenters requested clarification that the culturally and linguistically appropriate standards (CLAS) requirements in the regulation apply only to notices of adverse benefit determinations and not to other communications regarding disability claims. In the Department’s view, the text of paragraphs (g)(1)(vii)(C) and (j)(7) is clear that the CLAS requirements are applicable to notices of adverse benefit determinations. The final rule does not address whether, and under what circumstances, the fiduciary duty or other provisions in ERISA would require plans to provide plan participants and beneficiaries with access to language services (see, for example, the discussion below regarding summary plan description (SPD) requirements).

A few commenters requested that the Department remove the CLAS standards. Other commenters supported the CLAS requirements but requested that the Department provide a reasonable time for compliance with this provision, citing operational changes and costs associated with the CLAS requirements. Other commenters requested that the threshold percentage that triggers the CLAS requirements be reduced to a lower percentage to capture a greater number of counties or to reflect a percentage of plan participants as opposed to the population of a relevant county. One commenter suggested that the Department may have unintentionally reduced protections for non-English speaking participants. The commenter pointed out that although a particular county may not meet the threshold under this rule, particular workforces may meet the Department’s thresholds under section § 2520.102-2(c).

In light of all the comments received, this final rule retains the CLAS requirements as set forth in the proposal. The Department believes that the CLAS requirements impose reasonable language access requirements on plans and appropriately balance the objective of protecting claimants by providing reasonable language assistance to individuals who communicate in languages other than English with the goal of mitigating administrative burdens on plans. The Department continues to believe that it is important to provide claims denial notices in a culturally and linguistically appropriate manner to ensure that individuals get the important information needed to properly evaluate the decision denying a claim and to allow for an informed decision on options for seeking review of a denial. Therefore, the final rule adopts the requirements in the proposal without change.

The Department does not agree that the final rule supersedes the summary plan description foreign language rules in § 2520.102-2(c) which include a requirement to offer assistance (which could include language services) calculated to provide participants with a reasonable opportunity to become informed as to their rights and obligations under the plan. Non-English speaking participants could be eligible for language services under either this final rule or § 2520.102-2(c), depending on the circumstances.

Finally, one commenter asked that the Department clarify that the English version of the notices takes precedence in the event of any conflict with the translated documents. Another commenter asked for clarification that the requirement to provide “assistance with filing claims and appeals in any applicable non-English language” is limited to procedural, not substantive, assistance. The Department was not persuaded that including such provisions in the final rule is necessary or appropriate. Notices provided to participants or beneficiaries should be complete and accurate notwithstanding the language used. Further, a “substantive versus procedural” distinction between the type of assistance required is not, in the Department’s view, particularly meaningful or helpful. Rather, the final rule requires plan fiduciaries to provide disability benefit claimants with the requisite level and amount of assistance necessary to assist the claimants in understanding their rights and obligations so that they can effectively file claims and appeals in pursuing a claim for disability benefits.
7. Miscellaneous
a. Technical Correction

The Department determined that a minor technical fix to the Section 503 Regulation is required with respect to disability claims. The Department proposed to clarify that the extended time frames for deciding disability claims, provided by the quarterly meeting rule found in the current regulation at 29 CFR 2560.503-1(i)(1)(ii), are applicable only to multiemployer plans. The Department did not receive any adverse comments on the proposed technical fix, and, accordingly, the final rule amends paragraph (i)(3) to correctly refer to the appropriate subparagraph in (i)(1) of the Section 503 Regulation.
b. Contractual Limitations Periods for Challenging Benefit Denials

In the proposal, the Department asked for comments on whether the claims procedure rule should address limitations periods in plans that govern the period after a final adverse benefit determination within which a civil action may be filed under section 502(a)(1)(B) of ERISA. We pointed out that ERISA does not specify that period and noted that the federal courts have generally looked to analogous state laws to determine an appropriate limitations period. Analogous state law limitations periods vary, but they generally start with the same event, the plan’s final benefit determination. We acknowledged that the Supreme Court recently upheld the use of contractual limitations periods in plan documents and insurance contracts which may override analogous state laws so long as they are reasonable. See Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S.Ct. 604, 611 (2013). We pointed out that contractual limitations periods are not uniform, the events that trigger the clock vary, and the documents in which the limitations periods are embedded may be difficult for claimants to obtain and understand. We also highlighted a Start Printed Page 92330separate issue, not before the Supreme Court in Heimeshoff, of whether plans must provide participants notice with respect to contractual limitations periods in adverse benefit determinations on review. Although many federal courts have held that plans should provide such notice under the Section 503 Regulation, the court decisions are not uniform.[29] Accordingly, the Department solicited comments on whether the final regulation should require plans to provide claimants with a clear and prominent statement of any applicable contractual limitations period and its expiration date for the claim at issue in the final notice of adverse benefit determination on appeal and with an updated notice of that expiration date if tolling or some other event causes that date to change.

In response, the Department received many comments from claimants and participant advocates supporting a contractual limitations period notice requirement. Numerous commenters further requested that any required notice include the date on which the relevant contractual limitations period expires. They also asked the Department to include a definition of a “reasonable limitations period.” One commenter argued to the contrary that a rule requiring inclusion of a specific date would create confusion for claimants and carries a risk that the insurer or other administrative entity is seen as providing legal advice. Another commenter urged that such a rule should not be adopted because the date by which suit must be filed may be subject to dispute in litigation. A commenter expressed concern that such a notice requirement is largely unnecessary as the information is generally already included in plan documents, (e.g., the summary plan description), and that it could impose significant administrative burden. The commenter suggested that a more appropriate rule would be to require that the notice of adverse benefit determination on review include a statement alerting participants that they should review the terms of the applicable plan documents to determine any deadline by which they must file a civil action. Finally, a number of commenters asked the Department to specifically address whether it is allowable for a contractual limitations period to be structured so that it could actually expire before the plan’s appeals process is completed.

In light of the issues identified regarding contractual limitations periods, the Department concluded that it was appropriate in this final rule to address certain basic points.

First, section 503 of ERISA requires that a plan afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review of that decision by an appropriate named fiduciary. The Department does not believe that a claims procedure would satisfy the statutory requirement if the plan included a contractual limitations period that expired before the review was concluded. In the Department’s view, this is clear from the Supreme Court’s holding in Heimeshoff. In that case, the Supreme Court held that an ERISA disability plan’s three-year limitations period, running from the date of proof of loss, was enforceable even though the statute of limitations began to run before the participant’s cause of action accrued. The Court pointed out that there was nothing to suggest the 3-year contractual limitations period was not “reasonable” in light of the Department’s regulation that would require the internal claims and appeals process to be completed well inside a three-year period. Heimeshoff, 134 S.Ct. at 612 (citing Order of United Commercial Travelers of America v. Wolfe, 67 S.Ct. 1355 (1947)). A limitations period that expires before the conclusion of the plan’s internal appeals process on its face violates ERISA section 503’s requirement of a full and fair review process. A process that effectively requires the claimant to forego the right to judicial review and thereby insulates the administrator from impartial judicial review falls far short of the statutory fairness standard and undermines the claims administrator’s incentives to decide claims correctly.

Further, in rejecting the challenge to the contractual limitations period at issue in Heimeshoff, the Court emphasized that the claimant was allowed a year or more to bring suit after the close of the internal claims review process.[30] A contractual limitations period that does not allow such a reasonable period after the conclusion of the appeal in which to bring a lawsuit is unenforceable.[31] Moreover, as the Start Printed Page 92331Supreme Court also recognized in Heimeshoff, even in cases with an otherwise enforceable contractual limitations period, traditional doctrines, such as waiver and estoppel, may apply if a plan’s internal review prevents a claimant from bringing section 502(a)(1)(B) actions within the contractual period. Heimeshoff, 134 S.Ct. at 615. In addition to such traditional remedies, plans that offer appeals or dispute resolution beyond what is contemplated in the claims procedure regulations must agree to toll the limitations provision during that time. See 29 CFR 2560.503-1(c)(3)(ii).

Second, the Department agrees with the conclusion of those federal courts that have found that the current regulation fairly read requires some basic disclosure of contractual limitations periods in adverse benefit determinations. In fact, in the Department’s view, the statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review would be incomplete and potentially misleading if it failed to include limitations or restrictions in the documents governing the plan on the right to bring such a civil action. Accordingly, this final rule includes in new paragraph (j)(4)(ii) a requirement that the notice of an adverse benefit determination on review must include a description of any applicable contractual limitations period and its expiration date.

The Department is not persuaded that inclusion in the notice of adverse benefit determination on review of any applicable contractual limitations period and its expiration date will result in confusion. The Department also does not agree that a statement of the plan’s view as to the exact date the limitations period expires will somehow inappropriately foreclose or otherwise prejudice legitimate arguments about application of the limitations period in individual cases. Nor does the Department believe that disclosure of a contractual limitations period requires the plan to provide legal advice. Additionally, as described below, the Department does not believe that including a description of any contractual limitations period, including the date by which the claimant must bring a lawsuit, would impose more than a minimal additional burden. Although the final rule provision is technically applicable only to disability benefit claims, as explained above, the Department believes that notices of adverse benefit determinations on review for other benefit types would be required to include some disclosure about any applicable contractual limitations period. What would be sufficient will depend on the controlling judicial precedent and the individual facts and circumstances, but the Department would consider the inclusion of the information in paragraph (j)(4)(ii) to be an appropriate disclosure for all plan types.

Several comments raised other issues pertaining to the disclosure of contractual and statutory limitations on a claimant’s right to bring a civil action under section 502(a) of ERISA. Issues beyond this final rule may be addressed in a future regulatory action or other guidance by the Department.
c. Comments Beyond the Scope of the Rulemaking

Some commenters raised disability claims procedure issues pertaining to matters that the Department considers to be beyond the scope of this rulemaking. For example, one commenter suggested that the Department amend its Model Statement of ERISA Rights for SPDs for disability plans to include notification of eligibility for language services. Other commenters requested that the Department propose a rule requiring that adverse benefit determinations on review notify disability benefit claimants of the ERISA venue provisions. Other issues raised by some commenters relate to substantive limitations on recoupment of benefit overpayments, rights to supplement the administrative record for court review, and the validity of discretionary clauses in plans that are used as a basis for seeking a deferential “arbitrary or capricious” standard for court review of benefit denials. Although the Department agrees that the issues raised by the commenters may merit an evaluation of additional regulatory actions on procedural safeguards and protections, those subjects are beyond the scope of this rulemaking. As the Department noted in the preamble to the proposal, this rulemaking was a start to improving the current standards applicable to the processing of claims and appeals for disability benefits so that they include improvements to certain basic procedural protections in the current Section 503 Regulation. Issues beyond this final rule may be addressed in a future regulatory action or other guidance by the Department.
III. Economic Impact and Paperwork Burden
A. Background and Need for Regulatory Action

As discussed in Section I of this preamble, the final amendments would revise and strengthen the current rules regarding claims and appeals applicable to ERISA-covered plans providing disability benefits primarily by adopting several of the new procedural protections and safeguards made applicable to ERISA-covered group health plans by the Affordable Care Act. Before the enactment of the ACA, group health plan sponsors and sponsors of ERISA-covered plans providing disability benefits were required to implement claims and appeal processes that complied with the Department’s regulation establishing minimum requirements for benefit claims procedures for employee benefit plans covered by Title I of ERISA.[32] The enactment of the ACA and the issuance of the implementing interim final regulations in 2010 resulted in disability benefit claimants receiving fewer procedural protections than group health plan participants even though disputes and litigation regarding disability benefit claims are more prevalent than health care benefit claims.[33] In order to ensure fundamental fairness in the claim and appeals procedure process, health and disability plan claimants are entitled to receive the same procedural protections as they did when the 2000 regulation was issued.

The Department believes this action is necessary to ensure that disability claimants receive a full and fair review of their claims under the more stringent procedural protections that Congress established for group health care claimants under the ACA. The final rule will promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans by ensuring they receive benefits that otherwise might have been denied by plan administrators in the absence of the fuller protections provided by this final regulation. The final rule also will help alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.

As stated earlier in this preamble, this action also is necessary to correct Start Printed Page 92332procedural problems evidenced in litigation under the 2000 regulation predating the ACA, which in the Department’s view, resulted in claimants not receiving a full and fair review as required by ERISA section 503. Specifically, some courts held that under the 2000 regulation, claimants only have the right to review and respond to new evidence or rationales developed during the pendency of an appeal after the claim has been denied on appeal. The final rule levels the playing field by explicitly requiring plan administrators to provide claimants, free of charge, with any new evidence or rationale relied upon, considered, or generated by the plan in connection with the claim and a reasonable opportunity for the claimant to respond.

The Department disagrees with commenters’ assertion that disability plan claim procedures should not mirror the ACA group health plan amendments because of the difference between health and disability claims. For reasons discussed earlier in this preamble, after careful consideration, the Department incorporated into the final rule only certain of the ACA group health plan claims procedure amendments to ensure that disability plan claimants receive the same opportunity to pursue a full and fair review of their claims as required by ERISA section 503 with the procedural safeguards and consumer protections that are aligned with those required by group health plans under the ACA and the Department’s implementing regulation at 29 CFR 2590.715-2719. This final rule aligns the disability claims procedures with the ACA procedural safeguards and consumer protections for group health plans. The Department did not amend other provisions of the 2000 regulation that affect how disability plan claims are processed or the timing requirements. Therefore, as discussed more fully below, the Department does not expect that the final rule will lead to delays and significant increased cost for disability claims and appeals processes. The Department considered comments asserting that some of its cost estimates in the proposed Regulatory Impact Analysis (“RIA”) were underestimated and made adjustments where appropriate.

The Department has crafted these final regulations to secure the protections of those submitting disability benefit claims. In accordance with OMB Circular A-4, the Department has quantified the costs where possible and provided a qualitative discussion of the benefits that are associated with these final regulations.
B. Executive Order 12866 and 13563

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects; distributive impacts; and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

Under Executive Order 12866 (58 FR 51735), “significant” regulatory actions are subject to review by the Office of Management and Budget (OMB). Section 3(f) of the Executive Order defines a “significant regulatory action” as an action that is likely to result in a rule (1) having an annual effect on the economy of $100 million or more in any one year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”); (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. It has been determined that this rule is significant within the meaning of section 3(f) (4) of the Executive Order. Therefore, OMB has reviewed the final rule pursuant to the Executive Order. The Department provides an assessment of the potential costs and benefits of the final rule below, as summarized in Table 1, below. The Department concludes that the economic benefits of these final regulations justify their costs.

Table 1—Accounting Table
Category Estimate Year dollar Discount rate Period covered
Benefits—Qualitative The Department expects that these final regulations will improve the procedural protections for workers who become disabled and make claims for disability benefits from ERISA-covered employee benefit plans. This would result in some participants receiving benefits they might otherwise have been denied absent the fuller protections provided by the final regulation. Greater certainty and consistency in the handling of disability benefit claims and appeals and improved access to information about the manner in which claims and appeals are adjudicated will be achieved. Fairness and accuracy will increase as fuller and fairer disability claims processes provide claimants with sufficient information to evaluate the claims process and defend their rights under their plan.
Costs:
Annualized $15,806,000 2016 7% 2018-2027
Monetized 15,806,000 2016 3% 2018-2027
Qualitative The Department believes that these requirements have modest costs associated with them, since many chiefly clarify provisions of the current DOL claims procedure regulation. As discussed in detail in the cost section below, the Department quantified the costs associated with two provisions of the final regulations for which it had sufficient data: The requirements to provide (1) additional information to claimants in the appeals process and (2) information in a culturally and linguistically appropriate manner.
1. Estimated Number of Affected Entities

The Department does not have complete data on the number of plans providing disability benefits or the total number of participants covered by such plans. ERISA-covered welfare benefit plans with more than 100 participants generally are required to file the Form 5500 Annual Return/Report. Currently, only a small number of ERISA-covered welfare benefit plans with less than 100 participants are required to file the form. Based on current trends in the establishment of pension and health plans, there are many more small plans than large plans, but the majority of participants are covered by the large plans.

Data from the 2014 Form 5500 Schedule A indicates that there are 39,135 plans reporting a code indicating they provide temporary disability benefits covering 40.1 million participants, and 26,171 plans reporting a code indicating they provide long-term disability benefits covering 22.4 million participants.[34] To put the number of large and small plans in perspective, the Department estimates that there are 150,000 large group health plans and 2.1 million small group health plans using 2016 Medical Expenditure Panel Survey-Insurance Component. While most plans are small plans most participants are in large plans.
2. Benefits

In developing these final regulations, the Department closely considered their potential economic effects, including both benefits and costs. The Department does not have sufficient data to quantify the benefits associated with these final regulations due to data limitations and a lack of effective measures. Therefore, the Department provides a qualitative discussion of the benefits below.

These final regulations implement a more uniform, rigorous, and fair disability claims and appeals process as required by ERISA section 503 that conforms to a carefully selected set of the requirements applicable to group health plans under the ACA Claims and Appeals Final Rule. In general, the Department expects that these final regulations will improve the procedural protections for disabled workers who make claims for disability benefits from ERISA-covered employee benefit plans. This will cause some participants to receive benefits that, absent the fuller protections of the regulation, they might otherwise have been incorrectly denied. In other circumstances, expenditures in the claims process incurred by plans may be reduced as a fuller and fairer system of claims and appeals processing helps facilitate participant acceptance of cost management efforts. The Department expects that greater certainty and consistency in the handling of disability benefit claims and appeals and improved access to information about the manner in which claims and appeals are adjudicated will lead to efficiency gains in the system, both in terms of the allocation of spending at a macro-economic level as well as operational efficiencies among individual plans. This certainty and consistency also are expected to benefit, to varying degrees, all parties within the system and lead to broader social welfare gains, particularly for disability benefit plan claimants.

The Department expects that these final regulations also will improve the efficiency of disability benefit plans by improving their transparency and fostering participants’ confidence in their fairness. The enhanced disclosure and notice requirements contained in these final regulations will help ensure that benefit participants and beneficiaries have a clear understanding of the reasons underlying adverse benefit determinations and their appeal rights.

For example, the final regulations require all adverse benefit determinations to contain a discussion of the decision, including an explanation of the basis for disagreeing with the views of a treating health care professional or vocational professional who evaluated the claimant or any disability determination regarding the claimant made by the Social Security Administration and presented to the plan by the claimant. This provision would address the confusion often experienced by claimants when there is little or no explanation provided for their plan’s determination and/or their plan’s determination is contrary to their treating professional’s opinion or their SSA award of disability benefits.

The final rule also requires adverse benefit determinations to contain the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that these do not exist), and a notice of adverse benefit determination at the claims stage must contain a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s benefit claim. These provisions will benefit claimants by ensuring that they fully understand the reasons why their claim was denied so they are able to meaningfully evaluate the merits of pursuing an appeal or litigation.

The requirement to include a discussion of the decision, as well as the requirement to include specific internal rules, guideline, protocols, standards, or similar criteria relied upon by the plan will improve the accuracy of claims determinations. The process of documenting and explaining the reasoning of the decision will help ensure that plans’ terms are followed and accurate information is used, and will enable plan participants to challenge inadequate or faulty evidence or reasoning.

Under the final rule, adverse benefit determinations must be provided in a culturally and linguistically appropriate manner for certain participants and beneficiaries that are not fluent in Start Printed Page 92334English. Specifically, if a claimant’s address is in a county where 10 percent or more of the population residing in that county, as determined based on American Community Survey (ACS) data published by the United States Census Bureau, are literate only in the same non-English language, notices of adverse benefit determinations to the claimant would have to include a prominent one-sentence statement in the relevant non-English language about the availability of language services. This provision will ensure that certain disability claimants that are not fluent in English understand the notices received from the plan regarding their disability claims and their right to appeal denied claims.

These important protections would benefit participants and beneficiaries by correcting procedural wrongs evidenced in the litigation even predating the ACA.

The voluntary nature of the employment-based benefit system in conjunction with the open and dynamic character of labor markets make explicit as well as implicit negotiations on compensation a key determinant of the prevalence of employee benefits coverage. The prevalence of benefits is therefore largely dependent on the efficacy of this exchange. If workers perceive that there is the potential for inappropriate denial of benefits or handling of appeals, they will discount the value of such benefits to adjust for this risk. This discount drives a wedge in compensation negotiation, limiting its efficiency. If workers undervalue the full benefit of disability coverage, fewer employers will provide such coverage or fewer participants will enroll. To the extent that workers perceive that the final rule, supported by the Department’s enforcement authority, will reduce the risk of inappropriate denials of disability benefits, the differential between the employers’ costs and workers’ willingness to accept wage offsets is minimized.

These final regulations would reduce the likelihood of inappropriate benefit denials by requiring all disability claims and appeals to be adjudicated by persons that are independent and impartial. Specifically, the final rule would prohibit hiring, compensation, termination, promotion, or other similar decisions with respect to any individual (such as a claims adjudicator or a medical or vocational expert) to be made based upon the likelihood that the individual will support the plan’s benefits denial. This will ensure that all disability benefit plan claims and appeals processes are adjudicated in a manner designed to ensure the independence and impartiality of persons involved in making the decisions and enhance participants’ perception that their disability plan’s claims and appeals processes are operated in a fair manner.

As stated above, the final rule requires claimants to have the right to review and respond to new evidence or rationales developed by the plan during the pendency of an appeal, as opposed merely to having a right to such information upon request only after the claim has already been denied on appeal, as some courts have held under the Section 503 Regulation. These provisions will benefit claimants by correcting certain procedural flaws that currently occur when disability benefit claims are litigated and ensuring that they have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal.

In summary, the final rules provide more uniform standards for handling disability benefit claims and appeals that are comparable to the rules applicable to group health plans under the ACA Claims and Appeals Final Rule. These rules will reduce the incidence of inappropriate denials, averting serious financial hardship and emotional distress for participants and beneficiaries that are impacted by a disability. They also would enhance participants’ confidence in the fairness of their plans’ claims and appeals processes. Finally, by improving the transparency and flow of information between plans and claimants, the final regulations will enhance the efficiency of labor and insurance markets.
3. Costs and Transfers

The Department has quantified the costs related to the final regulations’ requirements to (1) provide the claimant free of charge with any new or additional evidence considered, and (2) to providing notices of adverse benefit determinations in a culturally and linguistically appropriate manner. These requirements and their associated costs are discussed below

Provision of new or additional evidence or rationale: As stated earlier in this preamble, before a plan providing disability benefits can issue an adverse benefit determination on review on a disability benefit claim, these final regulations require such plans to provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan or any new or additional rationale upon which the adverse determination is based as soon as possible and sufficiently in advance of the date the notice of adverse benefit determination on review is required to be provided. This requirement may increase the administrative burden on plans to prepare and deliver the enhanced information to claimants. The Department is not aware of a data source substantiating how often plans rely on new or additional evidence or rationale during the appeals process or the volume of materials that comprise the new evidence or rationale. Based on comments and discussions with the regulated community, the Department understands that few plans base adverse benefit determinations on appeal on new evidence or rationales. The Department also understands that the most critical new information relied on by plans when issuing adverse benefit determinations on review are new independent medical reports, and that at least some plans and insurers have a practice of providing claimants with rights to a voluntary additional level of appeal to respond to the new independent medical report if they disagree with its findings.

These final rules further require adverse benefit determinations on review for disability benefit plans to include a description of any contractual limitations period, including the date by which the claimant must bring a lawsuit. In the regulatory impact analysis for the proposal, the Department estimated these costs by assuming that compliance will require medical office staff, or other similar staff for another service provider with a labor rate of $30, five minutes [35] to collect and distribute the additional evidence or rationale considered, relied upon, or generated by (or at the direction of) the plan during the appeals process. Additionally, including a description of any contractual limitations period, including the date by which the claimant must bring a lawsuit would have minimal additional burden as plans already maintain such information in the ordinary course of their claims administration process and would just need to add it to the notice.

One commenter questioned the Department’s assumption asserting that it does not account for time to identify the additional or new information or rationale and for staff to respond. Commenters also asserted that providing the information will trigger a response by the claimant to which they Start Printed Page 92335will have to respond. The commenter provided no alternative estimates or data supporting their assertions that the Department could use to revise its cost estimate.

In the absence of such data, the Department disagrees with the comments. While some effort is required to provide claimants with the new information or rationale, the Department does not find the commenters’ assertion of significant burden to be credible. As part of its customary and usual business practices, the insurer or TPA should have an existing system in place to track any new information or rationale it relies on in making an adverse benefit determination in order to identify, document, and evaluate the information during its claim adjudication process. The Department acknowledges, however, that an average of five minutes may be inadequate time to collect the information and provide it to the claimants; therefore, it has increased the estimate to an average of 30 minutes, which should provide a reasonable amount of time to perform this task.

The Department also agrees that making the new or additional information or rationale available to the claimant may trigger a response from the claimant. However, the Department does not have sufficient data to estimate the number of claimants that will respond with information that the insurer or TPA will need to evaluate or how much time will be required to evaluate the information. Moreover, the Department’s consultations with EBSA field investigators that investigate disability plan issues indicate that many disability plans already allow claimants to respond to the new information or rationale in a back-and-forth process. The requirement imposes no new costs on these plans, insurers, and TPAs. The requirement does impose an additional burden on plans that do not allow claimants to respond to the new information or rationale, but the Department does not have sufficient data to estimate the increased costs. One industry commenter agreed that that it would be difficult to estimate the burden associated with responding to claimants.

Commenters also raised concern regarding a potentially endless cycle of appeals, responses, and reconsiderations that would extend the claim determination process and substantially increase costs. As discussed elsewhere in the preamble, the Department also does not find this claim to be credible. The requirement only requires action if the insurer or TPA produces new or additional information or rationale after reviewing the new information submitted by the claimant, not if it just evaluates the information submitted by the claimant, and the Department’s consultations with its investigators indicated that this occurs infrequently.

Additionally, while a plan fiduciary has a responsibility to ensure the accurate evaluation of all claims, that responsibility does not require the fiduciary to rebut every piece of evidence submitted or seek to deny every claim. Indeed, an endless effort to rebut every piece of evidence submitted by the claimant would call into question whether the fiduciary was impartially resolving claims as required by the duties of prudence and loyalty.

Furthermore, the Department has interpreted ERISA section 503 and the current Section 503 Regulation as already requiring that plans provide claimants with new or additional evidence or rationales upon request and an opportunity to respond in certain circumstances. See Brief of the Secretary of Labor, Hilda L. Solis, as Amicus Curiae in Support of Plaintiff-Appellant’s Petition for Rehearing, Midgett v. Washington Group Int’l Long Term Disability Plan, 561 F.3d 887 (8th Cir. 2009) (No. 08-2523), (expressing disagreement with cases holding that there is no such requirement). The supposed “endless loop” is necessarily limited by claimants’ ability to generate new evidence requiring further review by the plan. Such submissions ordinarily become repetitive in short order, and are further circumscribed by the limited financial resources of most claimants.

For purposes of this regulatory impact analysis, the Department assumes, as an upper bound, that all appealed claims will involve a reliance on additional evidence or rationale. Based on that assumption, the Department assumes that this requirement will impose an annual aggregate cost of $14.5 million. The Department estimates this cost by assuming that compliance will require medical office staff, or another service providers’ similar staff with a labor rate of $42.08, thirty minutes [36] to collect and distribute the additional evidence considered, relied upon, or generated by (or at the direction of) the plan during the appeals process. The Department estimates that on average, material, printing and postage costs will total $2.15 per mailing (20 pages * 0.05 cents per copy + $1.15 postage). The Department further assumes that 30 percent of all mailings will be distributed electronically with no associated material, printing or postage costs.[37]

The Department does not have sufficient data on the number of disability claims that are filed or denied. Therefore, the Department estimates the number of short- and long-term disability claims based on the percentage of private sector employees (122 million) [38] that participate in short- and long-term disability programs (approximately 39 and 33 percent respectively).[39] The Department estimates the number of claims per covered life for long-term disability benefits based on the percentage of covered individuals that file claims under the Social Security Disability Insurance Program (SSDI) (two percent of covered individuals). The Department notes that SSDI uses a standard for disability determinations that is stricter than the standard used in many long-term disability plans offered by private employers. However, the number of claims filed with the SSDI is an acceptable proxy as most employer plans require claimants to file with the SSDI as a condition of receiving benefits from the plan as they offset the benefits paid by plan with the amount received from SSDI.

The Department does not have sufficient data to estimate the percentage of covered individuals that file short-term disability claims. Therefore, for purposes of this analysis, the Department estimates, as it did in Start Printed Page 92336the proposal, that six percent of covered lives file such claims, because it believes that short-term disability claims rates are higher than long-term disability claim rates. The Department received no comments regarding this assumption.

The Department estimates the number of denied claims that would be covered by the rule in the following manner: For long-term disability, the percent of claims denied is estimated using the percent of denied claims for the SSDI Program (75 percent). This estimate may overstate the denial rates for ERISA-covered long-term disability plans, because as discussed above, many plans require claimants to file for SSDI benefits as a requirement to receive benefits from their plan. Plans often have a lower benefit determination standard, at least initially, than the SSDI Program resulting in less denied claims. Therefore, using the SSDI denied claims rate as a proxy for the ERISA-covered plan claims denial rate may overstate the number of private long-term disability plan denied claims. For short-term disability, the estimate of denied claims (three percent) is an assumption based on previous regulations and feedback. The estimates are provided in the table below.

Table 2—Fair and Full Review Burden

[In thousands] Short-term Long-term Total
Electronic Paper Electronic Paper Electronic Paper All
Denied Claims and lost Appeals with Additional Information 26 60 168 391 193 451 644
Mailing cost per event $0.00 $2.15 $0.00 $2.15 $0.00 $2.15
Total Mailing Cost $0.00 $129 $0.00 $841 $0.00 $969 $969
Preparation Cost per event $21.04 $21.04 $21.04 $21.04 $21.04 $21.04 $21.04
Total Preparation cost $540 $1,260 $3,526 $8,227 $4,066 $9,487 $13,553
Total $540 $1,388 $3,526 $9,068 $4,066 $10,456 $14,522

Adverse benefit determinations on disability benefit claims would have to contain a discussion of the decision, including the basis for disagreeing with SSA Disability Determination and Views of Treating Physician: Commenters on the proposal noted that costs were not quantified for the added burden of including in the benefit determination a discussion of why the plan did not follow the determination of the SSA or views of health care professionals that treated the claimant. Commenters did not provide data or information that would provide the Department with sufficient data to quantify such costs. Thus, while the Department agrees that there could be added burden imposed on plans to provide this discussion in adverse benefit determinations, the Department is unable to estimate the burden because it does not have sufficient data on the number or percent of claims that would need to contain this discussion.

Departmental investigators reviewing disability claims report that if the plan deviates from an attending physician’s recommendation, a review is conducted by a supervisor, nurse, medical director or a consultant. This additional review usually generates documentation in the claim file. While this documentation may not be adequate in its current form to satisfy the requirement, the incremental costs to comply could be small, because it appears that deviations from physician’s recommendations are documented currently. Plans or insurers may still need to prepare a response using the already available information. The Department does not know how many claim determinations would require this discussion. The average hourly labor rate of a nurse is $46.02 and that of a physician is $157.80, and the Department estimates that preparing a report with information already available should not take more than one hour.

Adverse benefit determination would have to contain the internal rules, guidelines, protocols, standards, or other similar criteria of the plan used in denying the claim. The Department believes that this requirement will have minimal costs. In the process of determining a claim, plans will know, or should know, the internal rules, guidelines or protocols that were used to make a benefit determination. A commenter was concerned about the time and costs that would be required to comb through hundreds of pages of a claim manual to determine that no provision has any conceivable application to a particular claim in order to substantiate this requirement. The Department believes that neither the proposal nor the final rule requires this type of costly and time consuming process. The rule requires only the inclusion of those items that were relied upon and that should already be documented in the claim file at the time it was used to make a determination.

A notice of adverse benefit determination at the claims stage would have to contain a statement that the claimant is entitled to receive relevant documents upon request. The Department believes that this requirement will have a negligible cost impact, because an insignificant amount of time will be required to add the statement to the notice. Although the current claims procedure regulation provides claimants with the right to request relevant documents when challenging an initial claims denial, a statement was required to be included only in notices of adverse benefit determinations on appeal. Including the statement in the initial denial notice as required by the final rule, in the Department’s view, merely confirms claimants’ rights under the current claims procedure regulation and will help ensure that they understand their right to receive such information to help them understand the reasons for the denial and to make informed decisions regarding whether and how they challenge a denial on appeal. The Department acknowledges that it is likely that more claimants will request this information when they are informed of their right to receive it; however, the Department does not have sufficient data to estimate the number of requests that will be made.

Culturally and Linguistically Appropriate Notices: The final regulations require notices of adverse benefit determinations with respect to disability benefits to be provided in a culturally and linguistically appropriate manner in certain situations. This requirement is satisfied if plans provide oral language services including Start Printed Page 92337answering questions and providing assistance with filing claims and appeals in any applicable non-English language. The final regulations also require each notice sent by a plan to which the requirement applies to include a one-sentence statement in the relevant non-English language that translation services are available. The Department believes that this requirement will have a negligible cost impact. Plans also must provide, upon request, a notice in any applicable non-English language.

Although, one commenter reported that oral translation services are not provided by plans, the Department’s conversations with the regulated community indicate that oral translation services generally are offered as a standard service. Based on this information, the Department assumes that only a small number of plans will need to begin offering oral translation services for the first time upon the issuance of the final rule. Therefore, the Department assumes that this requirement will impose minimal additional costs.

The Department expects that the largest cost associated with the requirement is for plans to provide notices in the applicable non-English language upon request. Based on 2014 ACS data, the Department estimates that there are about 22.7 million individuals living in covered counties that are literate only in a covered non-English Language.[40] To estimate the number of these individuals that might request a notice in a non-English language, the Department estimated the number of workers in each county (total population in county * state labor force participation rate * (1—state unemployment rate)) [41 42] and calculated the number with access to short-term and long-term disability insurance by multiplying those estimates by the estimates of the share of workers participating in disability benefit programs (39 percent for short-term and 33 percent for long term disability.) [43] It should be noted that the sums in the right two columns are all workers in the county with disability insurance, not just workers with disability insurance that are eligible to receive notices in the applicable non-English language, because the calculation for the number of requests for translation is based on workers with insurance.

Table 3—Workers in Affected Counties by State
Pop in the county Total effected foreign language pop in county State labor force participation rate (2015) (%) State unemployment rate (2015) (%) Workers with short-term disability coverage Workers with long-term disability coverage
Alabama 29,519 3,979 56 6 6,097 5,159
Alaska 8,634 2,677 67.1 6.5 2,113 1,788
Arizona 296,362 160,492 59.8 6.1 64,901 54,917
Arkansas 15,864 4,598 57.9 5.2 3,396 2,874
California 26,248,619 8,845,211 62.2 6.2 5,972,612 5,053,748
Colorado 513,177 122,183 66.7 3.9 128,287 108,550
Florida 3,166,261 1,785,759 59.3 5.4 692,719 586,147
Georgia 284,282 72,578 61.3 5.9 63,953 54,114
Idaho 87,012 21,145 63.9 4.1 20,795 17,596
Illinois 484,509 126,443 64.7 5.9 115,043 97,344
Iowa 35,029 7,861 69.9 3.7 9,196 7,781
Kansas 254,997 72,446 67.9 4.2 64,690 54,737
Missouri 6,170 919 65.6 5.0 1,500 1,269
Nebraska 106,532 26,134 70.1 3.0 28,251 23,905
Nevada 1,869,086 431,029 63.2 6.7 429,826 363,699
New Jersey 1,736,310 563,516 64.1 5.6 409,753 346,714
New Mexico 512,864 218,554 57.2 6.6 106,859 90,419
New York 4,983,647 1,472,029 61.1 5.3 1,124,613 951,596
North Carolina 55,317 10,260 61.2 5.7 12,450 10,535
Oklahoma 23,150 7,325 61.9 4.2 5,354 4,530
Oregon 31,532 8,897 61.1 5.7 7,085 5,995
Texas 12,541,167 5,304,121 63.7 4.5 2,975,400 2,517,646
Virginia 50,989 15,060 65.2 4.4 12,395 10,488
Washington 437,583 164,140 63.0 5.7 101,386 85,788
Puerto Rico 3,433,930 3,252,314 39.8 11.2 473,317 400,499
Total 57,212,542 22,699,670 12,825,893 10,852,679

The Department’s discussions with the regulated community indicate that in California, which has a State law requirement for providing translation services for health benefit claims, requests for translations of written documents averages 0.098 requests per 1,000 members (note that requirement applies to all members not just foreign language speaking) for health claims. While the requirements of California differ from those contained in these final regulations and the demographics for California do not match those of covered counties, for purposes of this Start Printed Page 92338analysis, the Department used this percentage to estimate the number of translation service requests that plans could expect to receive. The Department believes that this estimate significantly overstates the number of translation requests that will be received, because there are fewer disability claims than health claims. Industry experts also told the Department that while the cost of translation services varies, $500 per document is a reasonable approximation of translation cost, and the Department used this amount in its cost estimate for the final rule. This number was provided to the Department in 2010; therefore, for purposes of this analysis, the Department has adjusted this amount to $553 to account for inflation.[44]

Based on the foregoing, the Department estimates that the cost to provide translation services pursuant to the final rule will be approximately $1,283,840 annually (23,678,572 lives * 0.098/1000 * $553).

Commenters questioned the data the Department used in the regulatory impact analysis for the proposed rule to estimate the costs incurred by TPAs and insurers to provide culturally and linguistically appropriate notices. One commenter questioned whether the $500 per document translation cost accurately reflects the costs to comply with this provision. The commenter, however, failed to explain its rationale or provide any alternative information the Department could use to refine its estimate.

Another commenter questioned whether it was valid to rely on cost estimates to translate a notice into a non-English language based on data used by the Department to quantify the costs of complying with the a similar ACA requirement for group health plans. The Department believes that its experience with ACA group health plan claims and appeals regulations is directly applicable to this final regulation regarding disability claims and appeals. Contrary to the commenter’s assertion that disability claims are so different from health claims that information about one cannot inform the other, the Department believes that translation of a notice into a different language is very similar for health and disability benefits, particularly as the same translation companies offer services for both types of notices. Also, while commenters argue that disability claims files are much larger than medical claim files, the distinction is not relevant here, because the claim file is not required to be translated; only the notice is.

Another comment received was that there would be additional costs due to privacy issues arising from sharing personal information with a third-party. The same privacy issues arise in the health claims context. Pricing for translation services used in the analysis, therefore already have the costs for privacy issues built into the estimates.

The Department did not have sufficient data to quantify other costs associated with the final rule; and therefore, has provided a qualitative discussion of these costs below and a response to cost-related comments received in response to the regulatory impact analysis for the proposed regulation.

Independence and Impartiality-Avoiding Conflicts of Interest: The Department’s claims and appeals regulation required certain standards of independence for persons making claims decisions before the final rules were issued. These final rules add new criteria for avoiding conflicts that require plans providing disability benefits to 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 decisions.” Also decisions regarding hiring, compensation, termination, promotion, or other similar matters must not be made based on the likelihood that the individual will support the denial of benefits.

These requirements provide protections to claimants by ensuring that their claims are processed impartially and already are considered best practice by many plan administrators who comply with this standard. Some plans and insurers may need to evaluate their policies and procedures to ensure they are compliant with this this requirement. The Department did not have sufficient data to quantify the costs of these requirements.

One commenter, who supported applying independence and impartiality requirements, expressed concern about a statement in the preamble to the proposed rule where the Department explained, as an example, that a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases rather than based on the expert’s professional qualifications. The commenter expressed concern that the statement in the preamble might result in claimants requesting statistics and other information on cases in which the medical expert expressed opinions in support of denying versus granting a disability benefit claims.

In the Department’s view, the preamble statement is an accurate example of one way that the independence and impartiality standard would be violated, and, accordingly, does not believe it would be appropriate to disclaim or caveat the statement in the final rule. That said, the independence and impartiality requirements in the rule do not modify the scope of what would be “relevant documents” subject to the disclosure requirements in paragraphs (g)(1)(vii)(C) and (h)(2)(iii) of the Section 503 Regulation, as amended by this rule. Nor does the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination. Thus, the Department acknowledges that plans may incur costs to respond to claimants’ requests for statistics and other information described by the commenter. However, the commenter provided no evidence or data to support their assertion and did not quantify the additional cost, thus the Department does not have sufficient data to quantify such costs.

Deemed Exhaustion of Claims and Appeals Process: The final rule tracks the proposal and provides that if a plan fails to adhere to all the requirements in the claims procedure regulation, the claimant would be deemed to have exhausted administrative remedies, with a limited exception where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. Litigation costs are the primary cost related to this requirement, because claimants may proceed directly to court after a deemed exhaustion. Pursing litigation is more expensive than the plan appeals process, however, it may be the only option claimants have available to obtain denied benefits. Deemed exhaustion is available for the situations when plans are not following the procedural rules of the regulation. At times it may still be in a claimant’s best interest to pursue an appeal inside the plan due to cost and time to resolve issues instead of using the court system. Commenters raised a concern the Start Printed Page 92339claimants would be hurt by the higher costs and delay in obtaining a resolution if they sought resolution through litigation. However, this provision allows claimants to decide if the added costs and time of litigation are offset by the cost to them of remaining in an appeals process that is in violation of the procedural rules.

Some commenters maintained that their liability exposure increases when claimants’ ability to go to court is enhanced. These commenters expressed concern about the expense of discovery to even determine if the procedural requirements have not been followed and asserted that claimants will allege that plans have violated their procedures and go to court to force a settlement.

While all of these scenarios are possible, the Department does not know of, nor did commenters provide, any data or information that would even be suggestive of, the frequency of these events, or the added expense resulting from their occurrence. The Department is not aware of systematic abuses or complaints of abuse with respect to a similar deemed exhaustion requirement contained in the ACA and the Departments’ implementing regulation at 29 CFR 2590.715.2719. Thus, the Department believes these occurrences will be infrequent.

Covered Rescissions-Adverse Benefit Determinations: The final rule adds a new provision to address coverage rescissions. Specifically, the 2000 regulation already covered a rescission if it is the basis, in whole or in part, of an adverse benefit determination. The final regulation amends the definition of adverse benefit determination to include a rescission of disability benefit coverage that has a retroactive effect, whether or not there is an adverse effect on a benefit at that time.

The Department understands that this situation occurs infrequently. When it does occur, plans will incur the cost of providing an appeal of the rescission. The Department does not have sufficient data to estimate the cost to review and appeal a rescission of coverage. However, the Department expects that it would be less than the cost to appeal other disability benefit denials because medical or vocation professionals are not needed to review the claim. Instead, the facts of the coverage situation are required. When a rescission is reversed, the provision of future benefits would be considered a transfer from the plan to the claimant whose rescission was reversed.
C. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are likely to have a significant economic impact on a substantial number of small entities. Unless an agency determines that a final rule is not likely to have a significant economic impact on a substantial number of small entities, section 604 of the RFA requires the agency to present a final regulatory flexibility analysis (FRFA) of the final rule describing the rule’s impact on small entities and explaining how the agency made its decisions with respect to the application of the rule to small entities. Pursuant to section 605(b) of the RFA, the Assistant Secretary of the Employee Benefits Security Administration hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The Department discusses the impacts of the final rule and the basis for its certification below.

Need for and Objectives of the Rule: As discussed in section II above, the final rule will revise and strengthen the current rules regarding claims and appeals applicable to ERISA-covered plans providing disability benefits primarily by adopting several of the new procedural protections and safeguards made applicable to ERISA-covered group health plans by the Affordable Care Act. Before the enactment of the Affordable Care Act, group health plan sponsors and sponsors of ERISA-covered plans providing disability benefits were required to implement internal claims and appeal processes that complied with the Section 503 Regulation. The enactment of the Affordable Care Act and the issuance of the implementing interim final regulations resulted in disability plan claimants receiving fewer procedural protections than group health plan participants even though litigation regarding disability benefit claims is prevalent today.

The Department believes this action is necessary to ensure that disability claimants receive the same protections that Congress and the President established for group health care claimants under the Affordable Care Act. This will result in some participants receiving benefits they might otherwise have been incorrectly denied in the absence of the fuller protections provided by the final regulation. This will help alleviate the financial and emotional hardship suffered by many individuals when they lose earnings due to their becoming disabled.

Affected Small Entities: The Department does not have complete data on the number of plans providing disability benefits or the total number of participants covered by such plans. ERISA-covered welfare benefit plans with more than 100 participants generally are required to file a Form 5500. Only some ERISA-covered welfare benefit plans with less than 100 participants are required to file for various reasons, but this number is very small. Based on current trends in the establishment of pension and health plans, there are many more small plans than large plans, but the majority of participants are covered by the large plans.

Data from the 2014 Form 5500 Schedule A indicates that there are 39,135 plans reporting a code indicating they provide temporary disability benefits covering 40.1 million participants, and 26,171 plans reporting a code indicating they provide long-term disability benefits covering 22.4 million participants. To put the number of large and small plans in perspective, the Department estimates that there are 150,000 large group health plans and 2.1 million small group health plans using 2016 Medical Expenditure Panel Survey-Insurance Component.

Impact of the Rule: The Department has quantified some of the costs associated with these final regulations’ requirements to (1) provide the claimant free of charge with any new or additional evidence considered, and (2) to providing notices of adverse benefit determinations in a culturally and linguistically appropriate manner. These requirements and their associated costs are discussed in the Costs and Transfers section above. Additionally other costs are qualitatively discussed in the Costs section. Comments addressing the burden of the regulations were received and are discussed above as well.

Provision of new or additional evidence or rationale: As stated earlier in this preamble, before a plan can issue a notice of adverse benefit determination on review, the final rule requires plans to provide disability benefit claimants, free of charge, with any new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan as soon as possible and sufficiently in advance of the date the notice of adverse benefit determination on review is required to be provided and any new or additional Start Printed Page 92340rationale sufficiently in advance of the due date of the response to an adverse benefit determination on review.

The Department is not aware of data suggesting how often plans rely on new or additional evidence or rationale during the appeals process or the volume of materials that are received. The Department estimated the cost per claim by assuming that compliance will require medical office staff, or other similar staff in other service setting with a labor rate of $30, 30 minutes to collect and distribute the additional evidence considered, relied upon, or generated by (or at the direction of) the plan during the appeals process. The Department estimates that on average, material, printing and postage costs will total $2.50 per mailing. The Department further assumes that 30 percent of all mailings will be distributed electronically with no associated material, printing or postage costs.

Providing Notices in a Culturally and Linguistically Appropriate Manner: The final rule would require notices of adverse benefit determinations with respect to disability benefits to be provided in a culturally and linguistically appropriate manner in certain situations. This requirement is satisfied if plans provide oral language services including answering questions and providing assistance with filing claims and appeals in any applicable non-English language. The final rule also requires such notices of adverse benefit determinations sent by a plan to which the requirement applies to include a one-sentence statement in the relevant non-English language about the availability of language services. Plans also must provide, upon request, such notices of adverse benefit determinations in the applicable non-English language.

The Department expects that the largest cost associated with the requirement for culturally and linguistically appropriate notices will be for plans to provide notices in the applicable non-English language upon request. Industry experts also told the Department that while the cost of translation services varies, $553 per document is a reasonable approximation of translation cost.

In discussions with the regulated community, the Department found that experience in California, which has a State law requirement for providing translation services, indicates that requests for translations of written documents averages 0.098 requests per 1,000 members for health claims. While the California law is not identical to the final rule, and the demographics for California do not match other counties, for purposes of this analysis, the Department used this percentage to estimate of the number of translation service requests plans could expect to receive. Based on the low number of requests per claim, the Department expects that translation costs would be included as part of a package of services offered to a plan, and that the costs of actual requests will be spread across multiple plans.

Duplication, Overlap, and Conflict With Other Rules and Regulations: The Department does not believe that the final rule will conflict with any relevant regulations, federal or other.
D. Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the Department submitted an information collection request (ICR) to OMB regarding the ICRs contained in the final rule in accordance with 44 U.S.C. 3507(d), for OMB’s review. OMB approved the ICR under OMB Control Number 1210-0053, which currently is scheduled to expire on November 30, 2019.

As discussed earlier in this preamble, the Department’s final amendments to its claims and appeals procedure regulation would revise and strengthen the current rules regarding claims and appeals applicable to ERISA-covered plans providing disability benefits primarily by adopting several of the procedural protections and safeguards made applicable to ERISA-covered group health plans by the ACA. Some of these amendments revise disclosure requirements under the current rule that are information collections covered by the PRA. For example, benefit denial notices must contain a full discussion of why the plan denied the claim, and to the extent the plan did not follow or agree with the views presented by the claimant to the plan or health care professional treating the claimant or vocational professionals who evaluated the claimant, or a disability determination regarding the claimant presented by the claimant to the plan made by the SSA, the discussion must include an explanation of the basis for disagreeing with the views or disability determination. The notices also must include either (1) the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination or, alternatively, or (2) a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist.

A copy of the ICR may be obtained by contacting the PRA addressee shown below or at http://www.RegInfo.gov. PRA ADDRESSEE: G. Christopher Cosby, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW., Room N- 5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free numbers.

After the implementation of the ACA claims regulations, disability plans claimants received fewer procedural protections than group health plan participants even though disability plan claimants experience more issues with the claims review process. These final regulations will reduce the inconsistent procedural rules applied to health and disability benefit plan claims and provide similar procedural protections to claimants of both types of plans.

The burdens associated with the regulatory requirements of the ICRs contained in the final rule are summarized below.

Type of Review: Revised collection.

Agencies: Employee Benefits Security Administration, Department of Labor.

Title: ERISA Claims Procedures.

OMB Number: 1210-0053.

Affected Public: Business or other for-profit; not-for-profit institutions.

Total Respondents: 5,808,000.

Total Responses: 311,790,000.

Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours: 516,000.

Estimated Total Annual Burden Cost: $814,450,000.
IV. Congressional Review Act

The final rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the Comptroller General for review. The final rule is not a “major rule” as that term is defined in 5 U.S.C. 804, because it is not likely to result in an annual effect on the economy of $100 million or more.
V. Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.), as well as Executive Order 12875, this final rule does not include any federal mandate that may result in expenditures by state, local, or tribal governments, or the private sector, which may impose an annual burden of $100 million or more (as adjusted for inflation).
VI. Federalism Statement

Executive Order 13132 outlines fundamental principles of federalism, Start Printed Page 92341and requires the adherence to specific criteria by Federal agencies in the process of their formulation and implementation of policies that have “substantial direct effects” on the States, the relationship between the national government and States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have federalism implications must consult with State and local officials and describe the extent of their consultation and the nature of the concerns of State and local officials in the preamble to the final regulation.

In the Department of Labor’s view, these final regulations have federalism implications because they would have direct effects on the States, the relationship between the national government and the States, or on the distribution of power and responsibilities among various levels of government to the extent states have enacted laws affecting disability plan claims and appeals that contain similar requirements to the final rule. The Department believes these effects are limited, because although section 514 of ERISA supersedes State laws to the extent they relate to any covered employee benefit plan, it preserves State laws that regulate insurance, banking, or securities. In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have federalism implications or limit the policy making discretion of the States, the Department solicited input from affected States, including the National Association of Insurance Commissioners and State insurance officials, regarding this assessment at the proposed rule stage but did not receive any comments.
List of Subjects in 29 CFR Part 2560

Claims
Employee benefit plans

For the reasons stated in the preamble, the Department of Labor amends 29 CFR part 2560 as set forth below:
PART 2560—RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT

1. The authority citation for part 2560 is revised to read as follows:

Authority: 29 U.S.C. 1132, 1135, and Secretary of Labor’s Order 1-2011, 77 FR 1088 (Jan. 9, 2012). Section 2560.503-1 also issued under 29 U.S.C. 1133. Section 2560.502c-7 also issued under 29 U.S.C. 1132(c)(7). Section 2560.502c-4 also issued under 29 U.S.C. 1132(c)(4). Section 2560.502c-8 also issued under 29 U.S.C. 1132(c)(8).

2. Section 2560.503-1 is amended by:

a. Adding paragraph (b)(7).

b. Revising paragraph (g)(1)(v).

c. Adding paragraphs (g)(1)(vii) and (viii).

d. Revising paragraphs (h)(4) and (i)(3)(i).

e. Revising paragraphs (j)(4) and (j)(5) introductory text.

f. Adding paragraphs (j)(6) and (7).

g. Revising paragraphs (l) and (m)(4).

i. Redesignating paragraph (o) as (p), and adding new paragraph (o).

j. Revising newly redesignated paragraph (p).

The revisions and additions read as follows:
§ 2560.503-1
Claims procedure.
* * * * *

(b) * * *

(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.
* * * * *

(g) * * * (1) * * *

(v) In the case of an adverse benefit determination by a group health plan—
* * * * *

(vii) In the case of an adverse benefit determination with respect to disability benefits—

(A) A discussion of the decision, including an explanation of the basis for disagreeing with or not following:

(i) The views presented by the claimant to the plan of health care professionals treating the claimant and vocational professionals who evaluated the claimant;

(ii) The views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and

(iii) A disability determination regarding the claimant presented by the claimant to the plan made by the Social Security Administration;

(B) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request;

(C) Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist; and

(D) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits. Whether a document, record, or other information is relevant to a claim for benefits shall be determined by reference to paragraph (m)(8) of this section.

(viii) In the case of an adverse benefit determination with respect to disability benefits, the notification shall be provided in a culturally and linguistically appropriate manner (as described in paragraph (o) of this section).
* * * * *

(h) * * *

(4) Plans providing disability benefits. The claims procedures of a plan providing disability benefits will not, with respect to claims for such benefits, be deemed to provide a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination unless, in addition to complying with the requirements of paragraphs (h)(2)(ii) through (iv) and (h)(3)(i) through (v) of this section, the claims procedures—

(i) Provide that before the plan can issue an adverse benefit determination on review on a disability benefit claim, the plan administrator shall provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) in connection with the claim; such evidence must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided under paragraph (i) of this section to give the claimant a reasonable opportunity to respond prior to that date; and

(ii) Provide that, before the plan can issue an adverse benefit determination on review on a disability benefit claim based on a new or additional rationale, the plan administrator shall provide the Start Printed Page 92342claimant, free of charge, with the rationale; the rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided under paragraph (i) of this section to give the claimant a reasonable opportunity to respond prior to that date.
* * * * *

(i) * * *

(3) Disability claims. (i) Except as provided in paragraph (i)(3)(ii) of this section, claims involving disability benefits (whether the plan provides for one or two appeals) shall be governed by paragraph (i)(1)(i) of this section, except that a period of 45 days shall apply instead of 60 days for purposes of that paragraph.
* * * * *

(j) * * *

(4)(i) A statement describing any voluntary appeal procedures offered by the plan and the claimant’s right to obtain the information about such procedures described in paragraph (c)(3)(iv) of this section, and a statement of the claimant’s right to bring an action under section 502(a) of the Act; and,

(ii) In the case of a plan providing disability benefits, in addition to the information described in paragraph (j)(4)(i) of this section, the statement of the claimant’s right to bring an action under section 502(a) of the Act shall also describe any applicable contractual limitations period that applies to the claimant’s right to bring such an action, including the calendar date on which the contractual limitations period expires for the claim.

(5) In the case of a group health plan—
* * * * *

(6) In the case of an adverse benefit decision with respect to disability benefits—

(i) A discussion of the decision, including an explanation of the basis for disagreeing with or not following:

(A) The views presented by the claimant to the plan of health care professionals treating the claimant and vocational professionals who evaluated the claimant;

(B) The views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and

(C) A disability determination regarding the claimant presented by the claimant to the plan made by the Social Security Administration;

(ii) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of change upon request; and

(iii) Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination or, alternatively, a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist.

(7) In the case of an adverse benefit determination on review with respect to a claim for disability benefits, the notification shall be provided in a culturally and linguistically appropriate manner (as described in paragraph (o) of this section).
* * * * *

(l) Failure to establish and follow reasonable claims procedures. (1) In general. Except as provided in paragraph (l)(2) of this section, in the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

(2) Plans providing disability benefits. (i) In the case of a claim for disability benefits, if the plan fails to strictly adhere to all the requirements of this section with respect to a claim, the claimant is deemed to have exhausted the administrative remedies available under the plan, except as provided in paragraph (l)(2)(ii) of this section. Accordingly, the claimant is entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim. If a claimant chooses to pursue remedies under section 502(a) of the Act under such circumstances, the claim or appeal is deemed denied on review without the exercise of discretion by an appropriate fiduciary.

(ii) Notwithstanding paragraph (l)(2)(i) of this section, the administrative remedies available under a plan with respect to claims for disability benefits will not be deemed exhausted based on de minimis violations that do not cause, and are not likely to cause, prejudice or harm to the claimant so long as the plan demonstrates that the violation was for good cause or due to matters beyond the control of the plan and that the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant. This exception is not available if the violation is part of a pattern or practice of violations by the plan. The claimant may request a written explanation of the violation from the plan, and the plan must provide such explanation within 10 days, including a specific description of its bases, if any, for asserting that the violation should not cause the administrative remedies available under the plan to be deemed exhausted. If a court rejects the claimant’s request for immediate review under paragraph (l)(2)(i) of this section on the basis that the plan met the standards for the exception under this paragraph (l)(2)(ii), the claim shall be considered as re-filed on appeal upon the plan’s receipt of the decision of the court. Within a reasonable time after the receipt of the decision, the plan shall provide the claimant with notice of the resubmission.
* * * * *

(m) * * *

(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 Start Printed Page 92343of 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.
* * * * *

(o) Standards for culturally and linguistically appropriate notices. A plan is considered to provide relevant notices in a “culturally and linguistically appropriate manner” if the plan meets all the requirements of paragraph (o)(1) of this section with respect to the applicable non-English languages described in paragraph (o)(2) of this section.

(1) Requirements. (i) The plan must provide oral language services (such as a telephone customer assistance hotline) that include answering questions in any applicable non-English language and providing assistance with filing claims and appeals in any applicable non-English language;

(ii) The plan must provide, upon request, a notice in any applicable non-English language; and

(iii) The plan must include in the English versions of all notices, a statement prominently displayed in any applicable non-English language clearly indicating how to access the language services provided by the plan.

(2) Applicable non-English language. With respect to an address in any United States county to which a notice is sent, a non-English language is an applicable non-English language if ten percent or more of the population residing in the county is literate only in the same non-English language, as determined in guidance published by the Secretary.

(p) Applicability dates and temporarily applicable provisions. (1) Except as provided in paragraphs (p)(2), (p)(3) and (p)(4) of this section, this section shall apply to claims filed under a plan on or after January 1, 2002.

(2) This section shall apply to claims filed under a group health plan on or after the first day of the first plan year beginning on or after July 1, 2002, but in no event later than January 1, 2003.

(3) Paragraphs (b)(7), (g)(1)(vii) and (viii), (j)(4)(ii), (j)(6) and (7), (l)(2), (m)(4)(ii), and (o) of this section shall apply to claims for disability benefits filed under a plan on or after January 1, 2018, in addition to the other paragraphs in this rule applicable to such claims.

(4) With respect to claims for disability benefits filed under a plan from January 18, 2017 through December 31, 2017, this paragraph (p)(4) shall apply instead of paragraphs (g)(1)(vii), (g)(1)(viii), (h)(4), (j)(6) and (j)(7).

(i) In the case of a notification of benefit determination and a notification of benefit determination on review by a plan providing disability benefits, the notification shall set forth, in a manner calculated to be understood by the claimant—

(A) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such a rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of such rule, guideline, protocol, or other criterion will be provided free of charge to the claimant upon request; and

(B) If the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request.

(ii) The claims procedures of a plan providing disability benefits will not, with respect to claims for such benefits, be deemed to provide a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination unless the claims procedures comply with the requirements of paragraphs (h)(2)(ii) through (iv) and (h)(3)(i) through (v) of this section.

Signed at Washington, DC, this 9th day of December, 2016.

Phyllis C. Borzi,

Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor.
Footnotes

1.  42 FR 27426 (May 27, 1977).
Back to Citation

2.  65 FR 70246 (Nov. 21, 2000), amended at 66 FR 35887 (July 9, 2001).
Back to Citation

3.  A benefit is a disability benefit, subject to the special rules for disability claims under the Section 503 Regulation, if the plan conditions its availability to the claimant upon a showing of disability. If the claims adjudicator must make a determination of disability in order to decide a claim, the claim must be treated as a disability claim for purposes of the Section 503 Regulation, and it does not matter how the benefit is characterized by the plan or whether the plan as a whole is a pension plan or a welfare plan. On the other hand, when a plan, including a pension plan, provides a benefit the availability of which is conditioned on a finding of disability made by a party other than the plan, (e.g., the Social Security Administration or the employer’s long-term disability plan), then a claim for such benefits is not treated as a disability claim for purposes of the Section 503 Regulation. See FAQs About The Benefit Claims Procedure Regulation, A-9 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf).
Back to Citation

4.  BLS National Compensation Survey, March 2014, at www.bls.gov/​ncs/​ebs/​benefits/​2014/​ebbl0055.pdf.
Back to Citation

5.  See Sean M. Anderson, ERISA Benefits Litigation: An Empirical Picture, 28 ABA J. Lab. & Emp. L. 1 (2012).
Back to Citation

6.  See, e.g., Salomaa v. Honda Long Term Disability Plan, 642 F.3d 666, 678 (9th Cir. 2011) (“The plan’s reasons for denial were shifting and inconsistent as well as illogical. . . . Failing to pay out money owed based on a false statement of reasons for denying is cheating, every bit as much as making a false claim.”); Lauder v. First Unum Life Ins. Co., 76 F. App’x 348, 350 (2d Cir. 2003) (reversing district court’s denial of attorneys’ fees to plaintiff-insured and describing “ample demonstration of bad faith on First Unum’s part, including . . . the frivolous nature of virtually every position it has advocated in the litigation.”); Schully v. Continental Cas. Co., 634 F. Supp. 2d 663, 687 (E.D. La. 2009) (“In concluding that plaintiff was not disabled, the Hartford not only disregarded considerable objective medical evidence, but it also relied heavily on inconclusive and irrelevant evidence . . . Hartford’s denial of coverage results from its preferential and predetermined conclusions.”); Rabuck v. Hartford Life and Accident Ins. Co., 522 F. Supp. 2d 844, 882 (W.D. Mich. 2007) (insurer “obviously motivated by its own self-interest, engaged in an unprincipled and overly aggressive campaign to cut off benefits for a gravely ill insured who could not possibly have endured the rigors of his former occupation on a full-time basis.”); Curtin v. Unum Life Ins. Co. of America, 298 F. Supp. 2d 149, 159 (D. Me. 2004) (“[T]his Court finds that Defendants exhibited a low level of care to avoid improper denial of claims at great human expense.”).
Back to Citation

7.  The Patient Protection and Affordable Care Act, Public Law 111-148, was enacted on March 23, 2010, and the Health Care and Education Reconciliation Act, Public Law 111-152, was enacted on March 30, 2010. (These statutes are collectively known as the “Affordable Care Act.”)
Back to Citation

8.  80 FR 72192 (Nov. 18, 2015).
Back to Citation

9.  Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) (insurance company plan administrator of an ERISA long-term disability plan that both evaluates and pays claims for the employer has a conflict of interest that courts must consider in reviewing denials of benefit claims).
Back to Citation

10.  80 FR 72014.
Back to Citation

11.  80 FR 72192 (Nov. 18, 2015).
Back to Citation

12.  While commenters contended that disability claim files are larger than health benefit claim files, in the Department’s view, this is not a reason for denying claimants the same procedural protections and safeguards that the ACA provided for group health benefit claims. Furthermore, in the 2000 claims regulation, the Department already accommodated differences between health and disability claims by allowing more time for decisions on disability claims. See 29 CFR 2560.503-1(f)(2)(iii)(B) (up to 30 days after receipt of claim with up to 15 days for an extension for post-service health claims); id. § 2560.503-1(f)(3) (up to 45 days after receipt of claim with two possible 30-day extensions for disability claims).
Back to Citation

13.  For example, the Department noted in the preamble to the proposed rule the fact that several federal courts concluded that a failure to provide a discussion of the decision or the specific criteria relied upon in making the adverse benefit determination could make a claim denial arbitrary and capricious.
Back to Citation

14.  The current Section 503 Regulation in paragraph (j)(5)(iii) requires a statement concerning voluntary dispute resolution options in notices of adverse benefit determinations on review for both group health and disability claims. The Department previously issued an FAQ on that provision noting that information on the specific voluntary appeal procedures offered under the plan must be provided under paragraph (j)(4) of the regulation in the notice of adverse benefit determination, along with a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA. The Department, therefore, stated in the FAQ that, pending further review, it will not seek to enforce compliance with the requirements of paragraph (j)(5)(iii). See FAQs About The Benefit Claims Procedure Regulation, D-13 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf). In light of the fact that this proposal was limited to disability benefit claims, the Department does not believe it would be appropriate to modify the requirement in paragraph (j)(5)(iii) as part of this final rule. Accordingly, the Department will continue the enforcement position articulated in FAQ D-13.
Back to Citation

15.  FAQ C-17 states: “It is the view of the department that where a rule, guideline, protocol, or similar criterion serves as a basis for making a benefit determination, either at the initial level or upon review, the rule, guideline, protocol, or criterion must be set forth in the notice of adverse benefit determination or, following disclosure of reliance and availability, provided to the claimant upon request. However, the underlying data or information used to develop any such rule, guideline, protocol, or similar criterion would not be required to be provided in order to satisfy this requirement. The department also has taken the position that internal rules, guidelines, protocols, or similar criteria would constitute instruments under which a plan is established or operated within the meaning of section 104(b)(4) of ERISA and, as such, must be disclosed to participants and beneficiaries. See § § 2560.503-1(g)(v) (A) and (j)(5)(i); 65 FR at 70251. Also see § § 2560.503-1(h)(2)(iii) and 2560.503-1(m)(8)(i); Advisory Opinion 96-14A (July 31, 1996).
Back to Citation

16.  As a practical matter, these requirements to provide claimants with evidence or rationales that were relied on or used as a basis for an adverse benefit determination largely conforms the rule to the existing process by which benefits claims should be handled in such cases. E.g., Saffon v. Wells Fargo & Co. Long Term Disability Plan, 511 F.3d 1206, 1215 (9th Cir. 2008) (finding that a full and fair review requires a plan administrator to disclose the reasons for denial in the administrative process); 75 FR at 43333 n.7 (noting the DOL’s position that the existing claims procedure regulation already requires plans to provide claimants with new or additional evidence or rationale upon request and an opportunity to respond in certain circumstances).
Back to Citation

17.  See, e.g., Metzger v. Unum Life Ins. Co. of America, 476 F.3d 1161, 1165-67 (10th Cir. 2007) (holding that “subsection (h)(2)(iii) does not require a plan administrator to provide a claimant with access to the medical opinion reports of appeal-level reviewers prior to a final decision on appeal.”). Accord Glazer v. Reliance Standard Life Ins. Co., 524 F.3d 1241 (11th Cir. 2008); Midgett v. Washington Group Int’l Long Term Disability Plan, 561 F.3d 887 (8th Cir. 2009).
Back to Citation

18.  Brief of the Secretary of Labor, Hilda L. Solis, as Amicus Curiae in Support of Plaintiff-Appellant’s Petition for Rehearing, Midgett v. Washington Group Int’l Long Term Disability Plan, 561 F.3d 887 (8th Cir. 2009) (No. 08-2523).
Back to Citation

19.  Brief of the Secretary of Labor, Hilda L. Solis, as Amicus Curiae in Support of Plaintiff-Appellant’s Petition for Rehearing, Midgett v. Washington Group Int’l Long Term Disability Plan, 561 F.3d 887 (8th Cir. 2009) (No. 08-2523), p. 13.
Back to Citation

20.  S ee Moon v. Am. Home Assurance Co., 888 F.2d 86, 89 (11th Cir.1989).
Back to Citation

21.  Some commenters suggested that the Department define “new or additional evidence” to be “new and additional medical reviews, including independent medical reports.” As noted above, these requirements already apply to claims involving group health benefits under the ACA Claims and Appeals Final Rule and we do not think that it is appropriate to restrict this rule to medical reviews since other types of evidence, if new, would clearly need to be provided to claimants to ensure the full and fair review as described above. For example, if a plan were to obtain video evidence of a disability benefit claimant during the pendency of the appeal, but only provide the claimant with a portion of that video evidence, e.g., the portion that supports the denial of benefits, while withholding the portions that favor the claimant, that would be a failure by the plan to provide new evidence developed to the claimant.
Back to Citation

22.  In connection with the ACA Claims and Appeals Final Rule, the Department explained the process as follows: “To address the narrow circumstance raised by some comments that the new or additional information could be first received so late that it would be impossible to provide it, these final regulations provide that if the new or additional evidence is received so late that it would be impossible to provide it to the claimant in time for the claimant to have a reasonable opportunity to respond, the period for providing a notice of final internal adverse benefit determination is tolled until such time as the claimant has a reasonable opportunity to respond. After the claimant responds, or has a reasonable opportunity to respond but fails to do so, the plan or issuer must notify the claimant of the benefit determination as soon as a plan or issuer acting in a reasonable and prompt fashion can provide the notice, taking into account the medical exigencies.”
Back to Citation

23.  That rulemaking notice (at 80 FR 72207) included the following explanation in responding to public comments on that rule: “Commenters requested additional guidance related to the timing and amount of information required to be provided in order to satisfy this requirement. Specifically, individuals asked whether such information actually must be provided automatically to participants and whether or not it would be sufficient to send participants a notice informing them of the availability of new or additional evidence or rationale. The Departments retain the requirement that plans and issuers provide the new or additional evidence or rationale automatically. In the Departments’ view, fundamental fairness requires that participants and beneficiaries have an opportunity to rebut or respond to any new or additional evidence upon which a plan or issuer may rely. Therefore, plans and issuers that wish to rely on any new or additional evidence or rationale in making a benefit determination must send such new or additional evidence or rationale to participants as soon as it becomes available to the plan or issuer. In order to comply with this requirement, a plan or issuer must send the new or additional evidence or rationale to the participant. Merely sending a notice informing participants of the availability of such information fails to satisfy this requirement.” This same explanation applies with equal force to the identical requirement in this final rule applicable to disability benefit claims.
Back to Citation

24.  The provisions in this final rule supersede any and all prior Departmental guidance with respect to disability benefit claims to the extent such guidance is contrary to this final rule, including but not limited to the deemed exhaustion discussion in FAQ F-2 in FAQs About The Benefit Claims Procedure Regulation. (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf).
Back to Citation

25.  See FAQs About The Benefit Claims Procedure Regulation, C-18 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf).
Back to Citation

26.  See FAQs About The Benefit Claims Procedure Regulation, C-12 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf).
Back to Citation

27.  See footnote 3, supra, and FAQs About The Benefit Claims Procedure Regulation, A-9 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf) discussing when a benefit is a disability benefit, subject to the special rules for disability claims under the Section 503 Regulation.
Back to Citation

28.  Each year the U.S. Census Bureau publishes a list of counties that meet the 10% threshold. For 2016, the applicable languages are Chinese, Tagalog, Navajo and Spanish. A complete list of counties is available at www.dol.gov/​agencies/​ebsa/​laws-and-regulations/​laws/​affordable-care-act/​for-employers-and-advisers/​internal-claims-and-appeals.
Back to Citation

29.  See Moyer v. Metropolitan Life Ins. Co., 762 F.3d 503, 505 (6th Cir. 2014) (“The claimant’s right to bring a civil action is expressly included as a part of those procedures for which applicable time limits must be provided” in the notice of adverse benefit determination on review) and Kienstra v. Carpenters’ Health & Welfare Trust Fund of St. Louis, 2014 WL 562557, at *4 (E.D. Mo. Feb. 13, 2014), aff’d sub nom. Munro-Kienstra v. Carpenters’ Health & Welfare Trust Fund of St. Louis, 790 F.3d 799 (8th Cir. 2015) (“an adverse benefit determination must include [a] description of the plan’s review procedures and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under section 502(a) of [ERISA] following an adverse benefit determination on review.”); Ortega Candelaria v. Orthobiologics LLC, 661 F.3d 675, 680 (1st Cir.2011) (“[The employer] was required by [29 CFR 2560.503-1(g)(1)(iv) ] to provide [the employee] with notice of his right to bring suit under ERISA, and the time frame for doing so, when it denied his request for benefits.”); McGowan v. New Orleans Empl’rs Int’l Longshoremen’s Ass’n, 538 F. App’x 495, 498 (5th Cir.2013) (finding that a benefit termination letter substantially complied with 29 CFR 2560.503-1(g)(1)(iv) because, in addition to enclosing the benefit booklet and specifying the pages containing the review procedures and time limits, the letter “mentioned McGowan’s right to file suit under § 502(a) of ERISA, as well as the one-year time limit”); White v. Sun Life Assurance Co. of Canada, 488 F.3d 240, 247 n. 2 (4th Cir.2007) (emphasizing that the right to bring a civil action is an integral part of a full and fair benefit review and that the adverse benefit determination letter must include the relevant information related to that right) (abrogated on other grounds by Heimeshoff v. Hartford Life & Acc. Ins. Co., 134 S.Ct. 604, 612 (2013)); Novick v. Metropolitan Life Ins. Co., 764 F.Supp.2d 653, 660-64 (S.D.N.Y.2011) (concluding that 29 CFR 2560.503-1(g) requires that the adverse benefit determination letter include the time limits for judicial review); Solien v. Raytheon Long Term Disability Plan # 590, 2008 WL 2323915, at 8 (D.Ariz. June 2, 2008) (holding that “[j]udicial review is an appeal procedure for an adverse benefit determination and is therefore a part of the claim procedures covered by these regulations, especially when the time limit for filing a judicial action is established contractually by the Plan”). But see Wilson v. Standard Ins. Co., 613 F. App’x 841, 844 n.3 (11th Cir. 2015) (unpublished) (finding that 29 CFR 2560.503-1(g)(1)(iv) “can also be reasonably read to mean that notice must be given of the time limits applicable to the `plan’s review procedures,’ and the letter must also inform the claimant of her right to bring a civil action without requiring notice of the time period for doing so”); Scharff v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899, 907-08 (9th Cir. 2009) (declining to supplement ERISA’s comprehensive scheme for regulating disclosures to participants with a California law requiring the express disclosure of a statute of limitations). In an unpublished decision, the Tenth Circuit similarly interpreted language in a plan that was virtually identical to section 2560.503-1(g)(1)(iv) as only requiring denial letters to include time limits applicable to internal review procedures. See Young v. United Parcel Services, 416 F. App’x 734, 740 (10th Cir. 2011) (unpublished) (concluding that requiring a notification of the time limit for filing suit “conflates the internal appeals process, and its associated deadlines, with the filing of a legal action after that process has been fully exhausted”).
Back to Citation

30.  Heimeshoff, 134 S.Ct. at 612 (“Neither Heimeshoff nor the United States claims that the Plan’s 3-year limitations provision is unreasonably short on its face. And with good reason: the United States acknowledges that the regulations governing internal review mean for `mainstream’ claims to be resolved in about one year, Tr. of Oral Arg. 22, leaving the participant with two years to file suit. Even in this case, where the administrative review process required more time than usual, Heimeshoff was left with approximately one year in which to file suit. Heimeshoff does not dispute that a hypothetical 1-year limitations period commencing at the conclusion of internal review would be reasonable. Id., at 4”) (footnote omitted).
Back to Citation

31.  The Department also believes that additional public input beyond the public record for this rulemaking would be needed for the Department to define a minimum period of time necessary for such a period to constitute a reasonable period in which to bring an action under ERISA section 502(a).
Back to Citation

32.  65 FR 70246 (Nov. 21, 2000), amended at 66 FR 35877 (July 9, 2001).
Back to Citation

33.  See Sean M. Anderson, ERISA Benefits Litigation: An Empirical Picture, 28 ABA J. Lab. & Emp. L. 1(2012).
Back to Citation

34.  Almost all plans reporting this code are welfare plans.
Back to Citation

35.  For a description of the Department’s methodology for calculating wage rates, see https://www.dol.gov/​sites/​default/​files/​ebsa/​laws-and-regulations/​rules-and-regulations/​technical-appendices/​labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-august-2016.pdf.
Back to Citation

36.  For a description of the Department’s methodology for calculating wage rates, see https://www.dol.gov/​sites/​default/​files/​ebsa/​laws-and-regulations/​rules-and-regulations/​technical-appendices/​labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-august-2016.pdf.
Back to Citation

37.  Commenters disagreed in general with the estimates of the burden for providing the notice in a culturally and linguistically appropriate manner. Their concern was that most notices would be delivered on paper and not electronically. While one commenter did not provide any supporting evidence for this assertion, another commenter reported that a large company’s past experience was that 30 percent of the claims filed under its disability plan were electronic. For purposes of this regulatory impact analysis, the Department accepted the suggestion posited in the comment that a significant percentage of disability benefit claimants are at home without access to an electronic means of communication at work that is required by the Department’s electronic disclosure rule. Therefore, the Department assumes that a higher percentage of notices will be transmitted via mail even though data was provided only for a single company.
Back to Citation

38.  BLS Employment, Hours, and Earnings from the Current Employment Statistics survey (National) Table B-1, May 2016. It should be noted that this estimate differs from the estimates from the Form 5500 reported in the affected entities section. The Form 55000 numbers only include large plans, and some filings could combine estimates for both short and long term disability.
Back to Citation

39.  “Beyond the Numbers: Disability Insurance Plans Trends in Employee Access and Employer Cost,” February 2015 Vol. 4 No. 4. http://www.bls.gov/​opub/​btn/​volume-4/​disability-insurance-plans.htm.
Back to Citation

40.  http://www.cms.gov/​CCIIO/​Resources/​Fact-Sheets-and-FAQs/​Downloads/​2009-13-CLAS-County-Data.pdf.
Back to Citation

41.  Labor force Participation rate: http://www.bls.gov/​lau/​staadata.txt. Unemployment rate: http://www.bls.gov/​lau/​lastrk14.htm.

42.  Please note that using state estimates of labor participation rates and unemployment rates could lead to an over estimate as those reporting in the ACS survey that they speak English less than “very well” are less likely to be employed. Also, this estimate includes both private and public workers, instead of just private workers leading to an overestimate of the costs.
Back to Citation

43.  “Beyond the Numbers: Disability Insurance Plans Trends in Employee Access and Employer Cost,” February 2015 Vol. 4 No. 4. http://www.bls.gov/​opub/​btn/​volume-4/​disability-insurance-plans.htm.
Back to Citation

44.  The 2010 and 2016 GDP Deflator was 100.056 in 2010 and 110.714 in 2016. The adjustment is $500 * (110.714/100.056) = $553. https://fred.stlouisfed.org/​series/​GNPDEF.
Back to Citation

[FR Doc. 2016-30070 Filed 12-16-16; 8:45 am]

BILLING CODE 4510-29-P
Published Document

by Cody Allison

ERISA Claim Procedure – Published By The Federal Register

Below is an article which appeared in the Federal Register and discusses the procedure for filing an ERISA claim.  For those of you who are thinking of doing this, this article should be helpful.  However, as you can see, the procedure itself can be confusing.  If you are thinking of filing a claim, contact us — we can help!

Start Printed Page 92316

AGENCY:

Employee Benefits Security Administration, Department of Labor.

ACTION:

Final rule.

SUMMARY:

This document contains a final regulation revising the claims procedure regulations under the Employee Retirement Income Security Act of 1974 (ERISA) for employee benefit plans providing disability benefits. The final rule revises and strengthens the current rules primarily by adopting certain procedural protections and safeguards for disability benefit claims that are currently applicable to claims for group health benefits pursuant to the Affordable Care Act. This rule affects plan administrators and participants and beneficiaries of plans providing disability benefits, and others who assist in the provision of these benefits, such as third-party benefits administrators and other service providers.

DATES:

Effective Date: This rule is effective January 18, 2017.

Applicability Date: This regulation applies to all claims for disability benefits filed on or after January 1, 2018.

FOR FURTHER INFORMATION CONTACT:

Frances P. Steen, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693-8500. This is not a toll free number.

SUPPLEMENTARY INFORMATION:

I. Background

Section 503 of ERISA requires every employee benefit plan, in accordance with regulations of the Department, to “provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant” and “afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.”

In 1977, the Department published a regulation pursuant to section 503, at 29 CFR 2560.503-1, establishing minimum requirements for benefit claims procedures for employee benefit plans covered by title I of ERISA (hereinafter “Section 503 Regulation”).^[1] The Department revised and updated the Section 503 Regulation in 2000 by improving and strengthening the minimum requirements for employee benefit plan claims procedures.^[2] As revised in 2000, the Section 503 Regulation provided new time frames and enhanced requirements for notices and disclosure with respect to decisions at both the initial claims decision stage and on review for group health and disability benefits. The regulations were designed to help reduce lawsuits over benefit disputes, promote consistency in handling benefit claims, and provide participants and beneficiaries a non-adversarial method of having a plan fiduciary review and settle claims disputes. Although the Section 503 Regulation applies to all covered employee benefit plans, including pension plans, group health plans, and plans that provide disability benefits, the more stringent procedural protections under the Section 503 Regulation apply to claims for group health benefits and disability benefits.^[3]

The Department’s experience since 2000 with the Section 503 Regulation and related changes in the governing law for group health benefits led the Department to conclude that it was appropriate to re-examine the rules governing disability benefit claims. Even though fewer private-sector employees participate in disability plans than in group health and other types of plans,^[4] disability cases dominate the ERISA litigation landscape today. An empirical study of ERISA employee benefits litigation from 2006 to 2010 concluded that cases involving long-term disability claims accounted for 64.5% of benefits litigation whereas lawsuits involving health care plans and pension plans accounted for only 14.4% and 9.3%, respectively.^[5] Insurers and plans looking to contain disability benefit costs may be motivated to aggressively dispute disability claims.^[6] Concerns exist regarding conflicts of interest impairing the objectivity and fairness of the process for deciding claims for group health benefits. Those concerns resulted in the Affordable Care Act recognizing the need to enhance the Section 503 Regulation with added procedural protections and consumer safeguards for claims for group health benefits.^[7] The Departments of Health and Human Services, Labor, and the Department of the Treasury issued regulations improving the internal claims and appeals process and establishing rules for the external review processes required under the Affordable Care Act (“ACA”).^[8] These additional protections for a fair process include the right of claimants to respond to new and additional evidence and rationales and the requirement for independence and impartiality of the persons involved in making benefit determinations.

The Department’s independent ERISA advisory group also urged the Start Printed Page 92317Department to re-examine the disability claims process. Specifically, in 2012, the ERISA Advisory Council undertook a study on issues relating to managing disability in an environment of individual responsibility. The Council concluded based on the public input it received that “[n]ot all results have been positive for the participant under ERISA-covered plans and the implementing claim procedures regulations, even though these rules were intended to protect participants” and noted that “[t]he Council was made aware of reoccurring issues and administrative practices that participants and beneficiaries face when appealing a claim that may be inconsistent with the existing regulations.” The Advisory Council’s report included the following recommendation for the Department:

Review current claims regulations to determine updates and modifications, drawing upon analogous processes described in health care regulations where appropriate, for disability benefit claims including: (a) Content for denials of such claims; (b) rule regarding full and fair review, addressing what is an adequate opportunity to develop the record and address retroactive rescission of an approved benefit; (c) alternatives that would resolve any conflict between the administrative claims and appeals process and the participants’ ability to timely bring suit; (d) the applicability of the ERISA claim procedures to offsets and eligibility determinations.

2012 ERISA Advisory Council Report, Managing Disability Risks in an Environment of Individual Responsibility, available at www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​about-us/​erisa-advisory-council/​2012ACreport2.pdf.

The Department agreed that the amendments to the claims regulation for group health plans could serve as an appropriate model for improvements to the claims process for disability claims. Those amendments aimed to ensure full and fair consideration of health benefit claims by giving claimants ready access to the relevant evidence and standards; ensuring the impartiality of persons involved in benefit determinations; giving claimants notice and a fair opportunity to respond to the evidence, rationales, and guidelines for decision; and making sure that the bases for decisions are fully and fairly communicated to the claimant. In the Department’s view, these basic safeguards are just as necessary for a full and fair process in the disability context as in the health context. Moreover, as in the group health plan context, disability claims are often reviewed by a court under an abuse of discretion standard based on the administrative record. Because the claimant may have limited opportunities to supplement the record, the Department concluded that it is particularly important that the claimant be given a full opportunity to develop the record that will serve as the basis for review and to respond to the evidence, rationales, and guidelines relevant to the decision.

The Department’s determination to revise the claims procedures was additionally affected by the aggressive posture insurers and plans can take to disability claims as described above coupled with the judicially recognized conflicts of interest insurers and plans often have in deciding benefit claims.^[9] In light of these concerns, the Department concluded that enhancements in procedural safeguards and protections similar to those required for group health plans under the Affordable Care Act were as important, if not more important, in the case of claims for disability benefits.

The Department decided to start by proposing to amend the current standards applicable to the processing of claims and appeals for disability benefits so that they included improvements to certain basic procedural protections in the current Section 503 Regulation, many of which already apply to ERISA-covered group health plans pursuant to the Department’s regulations implementing the requirements of the Affordable Care Act.

On November 18, 2015, the Department published in the Federal Register a proposed rule revising the claims procedure regulations for plans providing disability benefits under ERISA.^[10] The Department received 145 public comments in response to the proposed rule from plan participants, consumer groups representing disability benefit claimants, employer groups, individual insurers and trade groups representing disability insurance providers. The comments were posted on the Department’s Web site at www.dol.gov/​agencies/​ebsa/​laws-and-regulations/​rules-and-regulations/​public-comments/​1210-AB39. After careful consideration of the issues raised by the written public comments, the Department decided to adopt the improvements in procedural protections and other safeguards largely as set forth in the November 2015 proposal. The Department revised some of the requirements in response to public comments as part of its overall effort to strike a balance between improving a claimant’s reasonable opportunity to pursue a full and fair review and the attendant costs and administrative burdens on plans providing disability benefits.

The Department believes that this action is necessary to ensure that disability claimants receive a full and fair review of their claims, as required by ERISA section 503, under the more stringent procedural protections that Congress established for group health care claimants under the ACA and the Department’s implementing regulation at 29 CFR 2590.715-2719 (“ACA Claims and Appeals Final Rule”).^[11] This final rule will promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans by ensuring they receive benefits that otherwise might have been denied by plan administrators in the absence of the fuller protections provided by this final regulation. The final rule also will help alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.

II. Overview of Final Rule

A. Comments on Overall Need To Improve Claims Procedure Rules for Disability Benefits

Numerous disabled claimants and their representatives submitted comments stating general support for the proposed rule. For example, some commenters described the proposal as reinforcing the integrity of disability benefit plan administration and markedly improving the claims process by strengthening notice and disclosure protections, prescribing more exacting standards of conduct for review of denied claims, ensuring claimants’ more effective access to the claims process, and providing safeguards to ensure full court review of adverse benefit determinations. Some commenters supported the proposed amendments as “good first steps” towards providing more transparency and accountability, but advocated additional steps to strengthen, improve, and update the current rules. Some commenters emphasized that disability and lost earnings impose severe hardship on many individuals, arguing that disability claimants have a “poor” prospect of fair review under the current Start Printed Page 92318regulation primarily because of the economic incentive for insurance companies to deny otherwise valid claims and because plans are often able to secure a deferential standard of review in court.

Commenters, primarily disability insurers and benefit providers, commented that the disability claims regulation should not mirror Affordable Care Act requirements because unlike disability claims: (i) The vast majority of medical claims are determined electronically with little or no human involvement, i.e., no reviewers studying materials and consulting with varied professionals; (ii) medical claims typically involve only a limited treatment over a relatively short period of time, whereas disability claims require a series of determinations over a period of several years; (iii) medical claims rarely involve a need to consult with outside professionals; (iv) medical claims involve an isolated issue, whereas disability claims involve a more complex, multi-layered analysis; and (v) medical claim files may consist of only a few pages of materials, whereas disability claim files can consist of hundreds, sometimes thousands of pages of information. As a result of these factors, the commenters stressed that it can take significant time to review and render a decision. Some of those commenters argued that applying ACA protections to disability benefit claims was contrary to Congressional intent because disability plans were not subject to the ACA’s group health plan provisions. Some claimed that the proposed rules in their current form will have unintended consequences (undue delay and increased costs and litigation), and will result in expenses and burdens that will increase the cost of coverage and discourage employers from sponsoring disability benefit plans. Finally, some claimed that the increased protections and transparency that would be required under the proposal would weaken protection against disability fraud and were unnecessary because the current regulations provide ample protections for claimants, are written to benefit the insured, and have worked well for more than a decade as evidenced by the asserted fact that the vast majority of disability claims incurred by insurers are paid, and, of the claims denied, only a very small percentage are ultimately litigated. Some argued that technological advances that have expedited processing of health care claims do not apply to disability claims adjudication, contended that the Department had not properly quantified or qualified the benefits associated with the proposed regulations or provided a sufficient cost analysis associated with the proposed regulations, and commented that the Department should withdraw the proposal until better data is collected.

After careful consideration of the issues raised by the written comments, the Department does not agree with the commenters’ assertion that the ACA changes for group health plans are not an appropriate model for improving claims procedures for disability benefits. The enactment of the ACA, and the issuance of the implementing regulations, has resulted in disability benefit claimants receiving fewer procedural protections than group health plan participants even though litigation regarding disability benefit claims is prevalent today. As noted above, the Department’s Section 503 Regulation imposes more stringent procedural protections on claims for group health and disability benefits than on claims for other types of benefits. The Department believes that disability benefit claimants should continue to receive procedural protections similar to those that apply to group health plans, and that it makes sense to model the final rule on the procedural protections and consumer safeguards that Congress and the President established for group health care claimants under the ACA. These protections and safeguards will allow some participants to receive benefits that might have been incorrectly denied in the absence of the fuller protections provided by the regulation. It will also help alleviate the financial and emotional hardship suffered by many individuals when they lose earnings due to their becoming disabled.

Moreover, the Department carefully selected among the ACA amendments to the claims procedures for group health plans, and incorporated into the proposal only certain of the basic improvements in procedural protections and consumer safeguards. The proposal, and final rule, also include several adjustments to the ACA requirements to account for the different features and characteristics of disability benefit claims.

The Department agrees with the commenters who supported the proposed changes who emphasized that disability and lost earnings impose severe hardship on many individuals. Under those circumstances, and considering the judicially recognized economic incentive for insurance companies to deny otherwise valid claims, the Department views enhancements in procedural safeguards and protections similar to those required for group health plans under the Affordable Care Act as being just as important, if not more important, in the case of claims for disability benefits. This view was supported by the assertions by some plans and disability insurance providers that disability claims processing involves more human involvement, with reviewers studying pages of materials and consulting with varied professionals on claims that involve a more complex, multi-layered analysis. Even assuming the characteristics cited by the commenter fairly describe a percentage of processed disability claims, the Department does not believe those characteristics support a decision to treat the processing of disability benefits more leniently than group health benefits. The Department believes there is potential for error and opportunity for the insurer’s conflict of interest to inappropriately influence a benefit determination under highly automated claims processing, as well as claims processing with more human involvement.^[12] Increased transparency and accountability in all claims processes is important if claimants of disability benefits are to have a reasonable opportunity to pursue a full and fair review of a benefit denial, as required by ERISA section 503. Also, and as more fully discussed in the Regulatory Impact Analysis section of this document, the Department does not agree that the adoption of these basic procedural protections will cause excessive increases in costs and litigation, or result in expenses and burdens that will discourage employers from sponsoring plans providing disability benefits. In fact, comments from some industry groups support the conclusion that the protections adopted in the final rule reflect best practices that many insurers and benefit providers already follow on a voluntary basis.

Thus, while the Department has made some changes and clarifications in response to comments, the final rule, described below, is substantially the same as the proposal. Specifically, the major provisions in the final rule Start Printed Page 92319require that: (1) Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination; (2) benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision, including the basis for disagreeing with the views of health care professionals, vocational professionals, or with disability benefit determinations by the Social Security Administration (SSA); (3) claimants must be given timely notice of their right to access to their entire claim file and other relevant documents and be guaranteed the right to present evidence and testimony in support of their claim during the review process; (4) claimants must be given notice and a fair opportunity to respond before denials at the appeals stage are based on new or additional evidence or rationales; (5) plans cannot prohibit a claimant from seeking court review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements unless the violation was the result of a minor error; (6) certain rescissions of coverage are to be treated as adverse benefit determinations triggering the plan’s appeals procedures; and (7) required notices and disclosures issued under the claims procedure regulation must be written in a culturally and linguistically appropriate manner.

B. Comments on Major Provisions of Final Rule

1. Independence and Impartiality—Avoiding Conflicts of Interest

Consistent with the ACA Claims and Appeals Final Rule governing group health plans, paragraph (b)(7) of this final rule explicitly provides that plans providing disability benefits “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.” Therefore, 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. For example, a plan cannot provide bonuses based on the number of denials made by a claims adjudicator. Similarly, a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases, rather than based on the expert’s professional qualifications. These added criteria for disability benefit claims address practices and behavior which cannot be reconciled with the “full and fair review” guarantee in section 503 of ERISA, and with the basic fiduciary standards that must be followed in implementing the plan’s claims procedures. For the reasons described below, paragraph (b)(7) of the final rule therefore remains largely unchanged from the proposal.

The Department received numerous comments either generally supporting or not objecting to the idea that the independence and impartiality requirements for claims procedures for disability claims should be consistent with the ACA’s claims procedures requirements for group health plans. Several commenters pointed out that even prior to the proposal, many disability plans had already taken affirmative steps to ensure the independence and impartiality of the persons involved in the decision-making process. Other commenters who opposed the provision as unnecessary similarly cited the fact that the proposed amendments reflect current industry practice and argued that issues regarding the independence and impartiality of the appeal process is already the subject of the well-developed body of case law. Although the Department agrees that the proposal was intended to be consistent with industry best practice trends and developing case law in the area, the Department does not believe that industry trends or court decisions are an acceptable substitute for including these provisions in a generally applicable regulation.

Several commenters suggested that the examples of individuals covered by this provision should include vocational experts. The commenters pointed out that vocational experts are often actively involved in the decision-making process for disability claims and play a role in the claims process similar to the role of a medical or health care professional. They noted that opinions of vocational experts are often relied on in making determinations on eligibility for and the amount of disability benefits. Although the list in the proposed provision was intended to merely reflect examples, not be an exhaustive list, the Department nonetheless agrees that it would be appropriate to add vocational experts to avoid disputes regarding their status under this provision of the final rule. This clarification of the provision from its proposed form is also consistent with the current regulation’s express acknowledgement of the important role of vocational experts in the disability claims process. Specifically, paragraph (h)(3)(iv) of the current regulation already requires that the claims procedure for disability benefit claims must provide for the identification of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination. Accordingly, the final rule adds “vocational expert” to the examples of persons involved in the decision-making process who must be insulated from the plan’s or issuer’s conflicts of interest. Decisions regarding hiring, compensation, termination, promotion, or other similar matters must not be based upon the likelihood that the individual will support the denial of benefits.

Commenters also asked the Department to clarify whether “consulting experts” are “involved in making the decision” for purposes of the independence and impartiality requirements. Some commenters were concerned that consulting experts would fall outside of these requirements because plans or claims administrators might assert that consulting experts merely supply information and do not decide claims. In the Department’s view, the text of paragraph (b)(7) is clear that the independence and impartiality requirements are not limited to persons responsible for making the decision. For example, paragraph (b)(7) of the final rule, as in the proposal, refers to a “medical expert” as an example of a person covered by the provision. The text also refers to individuals who may “support the denial of benefits.” Thus, in the Department’s view, the independence and impartiality requirements apply to plans’ decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to consulting experts. Although some commenters suggested that the Department expand the regulatory text to expressly include “consulting experts,” in the Department’s view, the regulatory text is sufficiently clear to address commenters’ concerns especially with the inclusion of “vocational experts” in this provision of the final rule as described above. The Department also believes that it should avoid creating differences in the text of parallel provisions in the rules for group health benefits under the ACA Claims and Appeals Final Rule and disability benefits absent a reason that addresses a specific issue for disability claims Start Printed Page 92320(like the vocational expert issue discussed above).

Several commenters asked the Department to clarify that the independence and impartiality requirements apply even where the plan does not directly hire or compensate the individuals “involved in making the decision” on a claim. The text of the rule does not limit its scope to individuals that the plan directly hires. Rather, the rule’s coverage extends to individuals hired or compensated by third parties engaged by the plan with respect to claims. Thus, for example, if a plan’s service provider is responsible for hiring, compensating, terminating, or promoting an individual involved in making a decision, this final rule requires the plan to take steps (e.g., in the terms of its service contract and ongoing monitoring) to ensure that the service provider’s policies, practices, and decisions regarding hiring, compensating, terminating, or promoting covered individuals are not based upon the likelihood that the individual will support the denial of benefits.

One commenter, who supported applying independence and impartiality requirements, expressed concern about a statement in the preamble to the proposed rule that a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases rather than based on the expert’s professional qualifications. The commenter did not object to the prohibition on hiring a medical expert based on a reputation for denying claims, but expressed concern that the statement in the preamble might result in claimants requesting statistics and other information on cases in which the medical expert expressed opinions in support of denying rather than granting a disability benefit claims. Another commenter who opposed the provision also expressed concern about court litigation and discovery regarding “reputation” issues arising from the text in the preamble. In the Department’s view, the preamble statement accurately describes one way that the independence and impartiality standard could be violated. That said, the independence and impartiality requirements in the rule do not modify the scope of “relevant documents” subject to the disclosure requirements in paragraphs (g)(1(vii)(C) and (h)(2)(iii) of the Section 503 Regulation, as amended by this rule. Nor do the independence and impartiality requirements in the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination.

Several commenters urged the Department to implement the independence and impartiality requirements with specific quantifiable limitations on the relationship between plans and consultants. For example, one commenter suggested a medical consultant be required to certify that no more than 20% of the consultant’s income is derived from reviewing files for insurance companies and/or self-funded disability benefit plans. Several commenters recommended that plans be required to disclose to claimants a range of quantifiable information regarding its relationship with certain consultants (e.g., number of times a plan has relied upon the third-party vendor who hired the expert in the past year). A few commenters suggested that the Department establish rules on the qualifications, credentials, or licensing of an expert and the nature and type of such expert’s professional practice. For example, one commenter suggested that the rule provide that when a fiduciary relies on a physician or psychologist or other professional, such as a vocational specialist, the person must be licensed in the same jurisdiction where the plan beneficiary resides. Although the Department agrees that more specific quantifiable or other standards relating to the nature and type of an expert’s professional practice might provide additional protections against conflicts of interest, the parallel provisions in the claims procedure rule for group health plans under the ACA Claims and Appeals Final Rule do not contain such provisions. Moreover, an attempt to establish specific measures or other standards would benefit from a further proposal and public input. Accordingly, the final rule does not adopt the commenters’ suggestions.

2. Improvements to Disclosure Requirements

The Department proposed to improve the disclosure requirements for disability benefit claims in three respects. First, the proposal included a provision that expressly required adverse benefit determinations on disability benefit claims to contain a “discussion of the decision,” including the basis for disagreeing with any disability determination by the SSA or other third party disability payer, or any views of health care professionals treating a claimant to the extent the determination or views were presented by the claimant to the plan. Second, notices of adverse benefit determinations must contain the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist). Third, consistent with the current rule applicable to notices of adverse benefit determinations at the review stage, a notice of adverse benefit determination at the initial claims stage must contain a statement that the claimant is entitled to receive, upon request, relevant documents.

In the Department’s view, the existing claims procedure regulation for disability claims already imposes a requirement that denial notices include a reasoned explanation for the denial.^[13] For example, the rule requires that the notice must be written in a manner calculated to be understood by the claimant, must include any specific reasons for the adverse determination, must reference the specific provision in governing plan documents on which the determination is based, must include a description of any additional information required to perfect the claim, must include a description of the internal appeal process, and must include the plan’s rules, if any, that were used in denying the claim (or a statement that such rules are available upon request).

The Department’s experience in enforcing the claims procedure requirements and its review of litigation activity, however, leads it to conclude that some plans are providing disability claim notices that are not consistent with the letter or spirit of the Section 503 Regulation. Accordingly, the Department believes that expressly setting forth additional requirements in the regulation, even if some may already apply under the current rule, is an appropriate way of reinforcing the need for plan fiduciaries to administer the plan’s claims procedure in a way that is transparent and that encourages an appropriate dialogue between a claimant and the plan regarding adverse benefit determinations that ERISA and the current claims procedure regulation contemplate.

Commenters generally either supported or did not object to the requirement to explain a disagreement with a treating health care professional in adverse benefit determinations. The Start Printed Page 92321Department, accordingly, is adopting this provision from the proposal. This provision in the final rule would not be satisfied merely by stating that the plan or a reviewing physician disagrees with the treating physician or health care professional. Rather, the rule requires that the adverse benefit determination must include a discussion of the basis for disagreeing with the health care professional’s views. Several commenters suggested, similar to their comments described above on the need to subject vocational experts to the independence and impartiality requirements, that this disclosure provision should also apply to vocational professionals. As noted above, the commenters pointed out that vocational experts have a role somewhat similar to the role of a medical or health care professional in the claims determination process. The Department agrees, and, accordingly, added “vocational professional” to this provision.

An issue raised in the comments related to whether the plan is required to address only third party views presented to the plan by the claimant. The concern was that plans may not know whether other third party views even exist so that any requirement to address third party views should be limited to third party findings where they are presented by the claimant. Although the Department does not believe it would be appropriate to require plans to address views that they were not aware of and had no obligation to discover, the Department’s consideration of this comment led it to conclude that the provision needed to be revised to include medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination. The Department’s experience enforcing the current regulation has revealed circumstances where claims adjudicators may consult several experts and deny a claim based on the view of one expert when advice from other experts who were consulted supported a decision to grant the claim. Some of these cases may have involved intentional “expert shopping.” Requiring plans to explain the basis for disagreeing with experts whose advice the plan sought would not present the problem raised in the comments of addressing third party views the plan does not know even exist, but it would be consistent with and enhance the requirement in paragraph (h)(3)(iv) of the current regulation which already requires that the claims procedure for disability benefit claims must provide for the identification of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination. In fact, the Department believes that a request for relevant documents under the current regulation would require the plan to disclose materials related to such a consultation. The plan would also be required under the current regulation to explain its basis for not adopting views of an expert the plan consulted who supported granting the claim if the claimant raised the expert’s views as part of an appeal of an adverse benefit determination. In the Department’s view, this is not a new substantive element of the requirement that plans explain the reasons for a denial, but rather is a process enhancement that removes unnecessary procedural steps for claimants to get an explanation of the reasons the plan disagrees with the views of its own consulting experts.

Accordingly, the final rule revises paragraphs (g)(1)(vii)(A) and (j)(6)(i) to require that adverse benefit determinations on disability benefit claims contain a discussion of the basis for disagreeing with the views of health care professionals who treated the claimant or vocational professionals who evaluated the claimant, when the claimant presents those views to the plan. The final rule also revises paragraphs (g)(1)(vii)(A) and (j)(6)(i) to clarify that adverse benefit determinations on disability benefit claims must contain a discussion of the basis for disagreeing with the views of medical or vocational experts whose advice was obtained on behalf of the plan in connection with a claimant’s adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination.

One commenter suggested that references to the “views” of treating health care professionals is very broad and that it is not clear what is intended to be covered by this reference. The commenter argued that “views” is not synonymous with an opinion or conclusion about whether a claimant is disabled, and that, in many cases, health care professionals do not provide an opinion on the claimant’s disability at all, and if they do, they are not providing an opinion on disability as defined by the plan. Another commenter asserted that a health care professional’s focus is on the patient’s diagnosis and treatment and that the claims adjudicator considers the long-term effect of the individual’s condition on their ability to work. These commenters argued that claims adjudicators are not necessarily agreeing or disagreeing with medical findings by a treating health care provider, rather they are considering if the claimant’s disease or illness significantly impairs their work skills. The commenters said that to require a plan to discuss why it did not agree with the views expressed by a myriad of health care professionals does nothing to help explain why a claims administrator found that the claimant was not disabled under the terms of the plan.

The Department does not believe it is appropriate to limit the scope of the final rule to opinions or conclusions about whether a claimant is disabled. Medical and vocational professionals provide views that may be important to the ultimate determination of whether a person is disabled. In the Department’s view, to the extent the claims adjudicator disagrees with foundational information in denying a claim, the claimant has a right to know that fact to the same extent the claimant should be made aware that the claims adjudicator disagrees with an opinion from a medical or vocational expert that the claimant is disabled. Further, it is part of the fiduciary role of the ERISA claims adjudicator to weigh input from medical and vocational experts in reaching a conclusion on a benefit claim. When the claims adjudicator acting in a fiduciary capacity disagrees with the judgments of medical and vocational professionals in denying a claim, the claims adjudicator as a matter of basic fiduciary accountability should be able to identify those circumstances and explain the basis for that decision. The Department also notes that the final rule requires this explanation in cases where the plan or claims adjudicator disagrees with the views of the medical or vocational expert. There is no disagreement to explain if, as the commenter posed, a treating health care consultant expresses a view only on a diagnosis or treatment which the plan fully accepts in evaluating the question of whether the claimant meets the definition of a disability under the plan. Rather, in such a case, the plan would be under the same obligation that exists under the current regulation to explain why it reached the conclusion that the diagnosed illness or treatment did not impair the claimant’s work skills or ability to work or otherwise failed to satisfy the plan’s definition of disability. In summary, the Department believes that an explanation of the basis for disagreement with the judgments of Start Printed Page 92322health care and vocational professionals is required in order to be responsive to the information submitted by the claimant or developed during evaluation of the claim, and is also necessary for a reasoned explanation of a denial.

With respect to the requirement to explain the basis for disagreeing with or not following disability determinations by the SSA and other payers of disability benefits, several commenters who supported the requirement pointed out that reviewing courts in evaluating whether a plan’s adverse benefit determination was arbitrary and capricious have found an SSA determination to award benefits to be a factor that the plan fiduciary deciding a benefit should consider. Courts have criticized the failure to consider the SSA determination, especially if a plan’s administrator operates under a conflict of interest and if the plan requires or encourages claimants to pursue SSA decisions in order to offset any SSA award against the amount they pay in disability benefits. See, e.g., Montour v. Hartford Life and Accident Ins. Co., 588 F.3d 623, 637 (9th Cir. 2009) (“failure to explain why it reached a different conclusion than the SSA is yet another factor to consider in reviewing the administrator’s decision for abuse of discretion, particularly where, as here, a plan administrator operating with a conflict of interest requires a claimant to apply and then benefits financially from the SSA’s disability finding.”); Brown v. Hartford Life Ins. Co., 301 F. App’x 772, 776 (10th Cir. 2008) (insurer’s discussion was “conclusory” and “provided no specific discussion of how the rationale for the SSA’s decision, or the evidence the SSA considered, differed from its own policy criteria or the medical documentation it considered”). Other commenters, however, urged the Department to remove the requirement to discuss the basis for disagreeing with the disability determinations of the SSA or other payers of benefits. Those commenters argued that it would not be reasonable to require an ERISA plan fiduciary to go outside the plan’s governing document and make a judgment about a disability determination made by some other party that is based upon another plan or program’s definition of disability, which may have entirely different or inconsistent definitions of disability or conditions. The commenters further argued that the plan fiduciary might not be able to get from the SSA or other payer of benefits the documents, case file or other information necessary even to try to conduct such an evaluation. Those commenters also requested that, if such a requirement was to be included in the final rule, then the rule should allow plans to take into account in the discussion of its decision the extent to which the claimant provided the plan, or gave the plan a way to obtain, sufficient documentation from the SSA or other third party to allow a meaningful review of such third-party findings.

The Department is persuaded that the final rule should limit the category of “other payers of benefits” to disability benefit determinations by the SSA. The Department accepts for purposes of this final rule that claims adjudicators generally are trained to understand their own plan or insurance policy requirements and apply those standards to claims in accordance with the internal rules, guidelines, policies, and procedures governing the plan. The Department also agrees that a determination that an individual is entitled to benefits under another employee benefit plan or other insurance coverage may not be governed by the same definitions or criteria, and that it may be difficult for the adjudicator to obtain a comprehensive explanation of the determination or relevant underlying information that was relied on by the other payer in making its determination.

The Department does not believe, however, that those same difficulties are involved in the case of SSA determinations. SSA determinations may include a written decision from an ALJ, and the definitions and presumptions are set forth in publicly available regulations and SSA guidance. Accordingly, the final rule revises paragraphs (g)(1)(vii)(A) and (j)(6)(i) to require that adverse benefit determinations on disability benefit claims contain a discussion of the basis for disagreeing with an SSA disability determination regarding the claimant presented by the claimant to the plan. Although the plan’s claims procedures may place the burden on the claimant to submit any SSA determination that the claimant wants the plan to consider, claims administrators working with an apparently deficient administrative record must inform claimants of the alleged deficiency and provide them with an opportunity to resolve the stated problem by furnishing missing information. It also would not be sufficient for the benefit determination merely to include boilerplate text about possible differences in applicable definitions, presumptions, or evidence. A discussion of the actual differences would be necessary. Further, although the final rule does not, as some commenters requested, require that plans defer to a favorable SSA determination, a more detailed justification would be required in a case where the SSA definitions were functionally equivalent to those under the plan.

Several commenters requested that the Department adopt a rule requiring deference to a treating physician’s opinion for disability determinations, with some commenters suggesting a rule identical to the one applied under the SSA disability program. Nothing in ERISA or the Department’s regulations mandates that a plan administrator give special weight to the opinions of a claimant’s treating physician when rendering a benefit determination. The Department also does not believe the public record on this rulemaking supports the Department imposing such a rule. In the Department’s view, a treating physician rule is not necessary to guard against arbitrary decision-making by plan administrators. In addition to the various improvements in safeguards and procedural protections being adopted as part of this final rule, courts can review adverse benefit determinations to determine whether the claims adjudicator acted unreasonably in disregarding evidence of a claimant’s disability, including the opinions of treating physicians. Nor does the Department believe it would be appropriate to adopt the treating physician rule applicable under the Social Security disability program. That rule was adopted by the Commissioner of Social Security in regulations issued in 1991, to bring nationwide uniformity to a vast statutory benefits program and to address varying decisions by courts of appeals addressing the question. ERISA, by contrast, governs a broad range of private benefit plans to which both the statute and implementing regulations issued by the Secretary of Labor permit significant flexibility in the processing of claims. Moreover, the SSA’s treating physician rule has not been uniformly or generally applied even under statutory disability programs other than Social Security. See Brief for the United States as amicus curiae supporting petitioner, Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003).

Under the current Section 503 Regulation, if a claim is denied based on a medical necessity, experimental treatment, or similar exclusion or limit, the adverse benefit determination must include either an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical circumstances, or a statement that such Start Printed Page 92323explanation will be provided free of charge upon request. These requirements in paragraphs (g)(1)(v)(B) and (j)(5)(ii) apply to notices of adverse benefit determinations for both group health and disability claims. In proposing new paragraphs (g)(1)(vii) and (j)(6) applicable to disability claims, these requirements were intended to be subsumed in the general requirement in the proposal that adverse benefit determinations include a “discussion of the decision.” The Department is concerned, however, that removing the explicit requirement in the disability claims procedure to explain a denial based on medical necessity, experimental treatment, or similar exclusion may be misinterpreted by some as eliminating that requirement (especially with the group health plan claims procedures continuing to have that explicit requirement). That clearly was not the Department’s intention, and, accordingly, the final rule expressly sets forth in paragraphs (g)(1)(vii)(B) and (j)(6)(ii) the requirement of an explanation of the scientific or clinical judgment for such denials.^[14]

The Department received numerous comments in favor of the disclosure requirement in paragraphs (g)(1)(vii)(B) and (j)(6)(ii) of the proposal that notices of adverse benefit determinations include the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist). Commenters who supported the proposal noted that the proposed requirement should not be onerous given that adverse benefit determinations are already required to include the reasons for the denial and the applicable plan terms, and also argued that this further level of transparency would promote the dialogue between claimant and plan regarding adverse benefit determinations that ERISA contemplates. These commenters also pointed out that this requirement would address a problem confronted by some claimants where a plan or claims adjudicator says it is relying on an internal rule in denying a claim, and then refuses to disclose it to the claimant based on an assertion that the internal rule is confidential or proprietary. Commenters who opposed the provision argued that the proposal would be overly burdensome for plans and insurers. They read the provision as requiring disclosure of “details of internal processes that are irrelevant to the claim decision and that would provide little in the way of useful information to claimants.” The comments included concerns about the time and cost to review claims manuals and other internal documents that may include rules, guidelines, protocols, standards or other similar criteria to determine that no provision has any application to a claim in order to make the statement that such internal rules, etc. do not exist.

The final rule, like the proposal, provides that internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making an adverse benefit determination must be provided with the adverse benefit determination. The Department does not agree with commenters who asserted that the requirement will be overly burdensome to plans. Even under the existing claims procedure regulation, internal rules, guidelines, protocols, standards or similar criteria relied upon in denying the claim already must be provided to the claimant upon request. Although the additional requirement to affirmatively include them in the adverse benefit determination adds an incremental paperwork burden, where a plan utilizes a specific internal rule or protocol, understanding the terms of the specific protocol may be crucial to a claimant’s ability to successfully contest the denial on review. With respect to the comments about disclosing an internal process that is irrelevant to the claim decision, it is hard to see how something that is in fact “irrelevant” can be something that was “relied upon” in denying the claim. Furthermore, the Department does not agree that it should change the proposed text based on expressed concerns about the time and cost to review claims manuals and other internal documents to determine that nothing in those materials have application to a claim. Aside from the fact that this provision of the final rule requires the plan to affirmatively include only rules, guidelines, protocols, standards or other similar criteria that were relied on in denying the claim, in the Department’s view, it would present substantial questions about whether the plan or claims adjudicator complied with ERISA’s fiduciary standards if a claim was denied without the claims adjudicator having considered a rule, guideline, protocol or standard that was intended to govern the determination of the claim. Moreover, the current Section 503 regulation for disability plans gives claimants the right to reasonable access to and copies of documents, records, and other information “relevant” to the claimant’s claim for benefits. In addition to capturing documents, records, and other information “relied upon” in making the benefit determination, the definition of “relevant” also captures information submitted, considered or generated in the course of making the benefit determination or that demonstrates compliance with the administrative processes and safeguards designed to ensure and verify that benefit claim determinations have been made in accordance with governing plan documents and that those provisions have been applied consistently with respect to similarly situated claimants. In the case of plans providing group health or disability benefits, “relevant” also includes documents, records, or other information that constitutes a statement of policy or guidance with respect to the plan concerning the denied treatment option or benefit, without regard to whether such advice or statement was relied upon in making the benefit determination. Such a statement of policy or guidance would include any policy or guidance generated or commissioned by the plan or issuer concerning the denied benefit that would or should contribute to deciding generally whether to pay the claim (e.g., studies, surveys or assessments generated or commissioned by the plan or issuer that implicate a denied treatment option or benefit but do not relate specifically to the plan itself). Thus, in the Department’s view, even under the current rule, plans would be required, on request, to verify that the plan has produced all the internal rules, guidelines, protocols, standards or other similar criteria concerning the denied claim that were or should have been considered in deciding the claim.

Another commenter argued that it did not make sense to require plans to Start Printed Page 92324affirmatively state in an adverse benefit determination that plans did not rely on any rule or guideline. They argued that, if the adverse benefit determination failed to cite reliance on such a rule or guideline, the claimant could ask and the plan would respond with a statement that none were relied on. They argued that such a process gives the claimant the ability to obtain that information in cases where the claimant believes that information is important to understanding or contesting the basis for the denial. It is the Department’s view, however, that an affirmative statement would be helpful to the claimant by providing certainty about the existence of any applicable rule or guideline. The Department also does not believe the absence of a statement of reliance in an adverse benefit statement fairly puts a claimant on notice to request confirmation that no rule or guideline was relied upon. Further, the Department does not believe merely requiring such an affirmative statement is burdensome on plans because the plan should know whether it relied on a rule or guideline in denying a claim.

Finally, the existing Section 503 regulation already requires that rules, guidelines, protocols, standards or other similar criteria that were relied on in denying the claim must be disclosed to claimants on request. Nothing in the current regulation allows a plan fiduciary to decline to comply with that requirement based on an assertion that the information is proprietary or confidential. Indeed, the Department has taken the position that internal rules, guidelines, protocols, or similar criteria would constitute instruments under which a plan is established or operated within the meaning of section 104(b)(4) of ERISA and, as such, must be disclosed to participants and beneficiaries. See FAQs About The Benefit Claims Procedure Regulation, C-17 (www.dol.gov/​sites/​default/​files/​ebsa/​about-ebsa/​our-activities/​programs-and-initiatives/​outreach-and-education/​hbec/​CAGHDP.pdf).^[15] Similarly, this final rule does not permit a plan to conceal such information from the claimant under an assertion that the information is proprietary or constitutes confidential business information.

The third new disclosure requirement, set forth in paragraph (g)(1)(vii)(C) of the proposal, adds a requirement that an adverse benefit determination at the initial claims stage must include a statement that the claimant is entitled to receive, upon request, documents relevant to the claim for benefits. Although the current Section 503 Regulation provides that claimants challenging an initial denial of a claim have a right to request relevant documents, a statement advising claimants of their right to relevant documents currently is required only in notices of an adverse benefit determination on appeal. No commenters objected to the addition of this statement to the adverse benefit determination at the initial claims stage. The Department believes such a statement in the initial denial notice simply confirms rights claimants already have under the current claims regulation and will help ensure claimants understand their right of access to the information needed to understand the reasons for the denial and decide whether and how they may challenge the denial on appeal. Accordingly, this provision was adopted without change in the final rule.

3. Right To Review and Respond to New Information Before Final Decision

The Department continues to believe that a full and fair review requires that claimants have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal and have the opportunity to fully and fairly present his or her case at the administrative appeal level, as opposed merely to having a right to review such information on request only after the claim has already been denied on appeal. Accordingly, the final rule adopts those provisions of the proposal with certain modifications described below.

Paragraph (h)(4) of the final rule, consistent with the proposal, requires that plans provide claimants, free of charge, with new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) during the pendency of the appeal in connection with the claim. Consistent with the proposal, paragraph (h)(4) also provides a similar disclosure requirement for an adverse benefit determination based on a new or additional rationale. The evidence or rationale must be provided as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination on review is required to be provided to give the claimant a reasonable opportunity to address the evidence or rationale prior to that date. These requirements already apply to claims involving group health benefits under the ACA Claims and Appeals Final Rule. Further, the Department has interpreted ERISA section 503 and the current Section 503 Regulation as already requiring that plans provide claimants with new or additional evidence or rationales upon request and provide them an opportunity to respond in at least certain circumstances.^[16]

The objective of these provisions is to ensure the claimant’s ability to obtain a full and fair review of denied disability claims by explicitly providing that claimants have a right to review and respond to new or additional evidence or rationales developed by the plan during the pendency of the appeal, as opposed merely to having a right to such information on request only after the claim has already been denied on appeal, as some courts have held under the Section 503 Regulation. These protections are direct imports from the ACA Claims and Appeals Final Rule, and they would correct procedural problems evidenced in litigation even predating the ACA.^[17] It was and continues to be the view of the Department that claimants are deprived of a full and fair review, as required by Start Printed Page 92325section 503 of ERISA, when they are prevented from responding, at the administrative stage level, to all evidence and rationales.^[18]

As an example of how these new provisions would work, assume the plan denies a claim at the initial stage based on a medical report generated by the plan administrator. Also assume the claimant appeals the adverse benefit determination and, during the 45-day period the plan has to make its decision on appeal, the plan administrator causes a new medical report to be generated. The proposal and the final rule would require the plan to automatically furnish to the claimant any new or additional evidence in the second report. The obligation applies to any new or additional evidence, including, in particular, evidence that may support granting the claim. The plan would have to furnish the new or additional evidence to the claimant before the expiration of the 45-day period. The evidence would have to be furnished as soon as possible and sufficiently in advance of the applicable deadline (including an extension if available) in order to give the claimant a reasonable opportunity to address the new or additional evidence. The plan would be required to consider any response from the claimant. If the claimant’s response happened to cause the plan to generate a third medical report containing new or additional evidence, the plan would have to automatically furnish to the claimant any new or additional evidence in the third report. The new or additional evidence would have to be furnished as soon as possible and sufficiently in advance of the applicable deadline to allow the claimant a reasonable opportunity to respond to the new or additional evidence in the third report.

Several commenters asked for clarification regarding the application of the rights in paragraph (h)(4)(i) of the proposal which would have required that the plan’s claims procedures must allow a claimant to review the claim file and to present evidence and testimony as part of the “disability benefit claims and appeals process.” The commenters noted that, although subsection (h) deals with the appeals portion of the claim process, use of the phrase “claims and appeals process” could cause confusion as to whether the requirements of that subsection are intended to apply only to the appeals portion of the process or also to the initial stage of the claim process. Those commenters also suggested that this provision be deleted in its entirety because it was redundant and unnecessary. They pointed out that paragraph (g)(1)(vii)(C) of the proposal already added a requirement that claimants be notified as part of a denial at the initial claims stage of their right to review copies of documents and other information relevant to the claim for benefits. They pointed to the definition of “relevant” in the current regulation at paragraph (m)(8), which includes documents, records or other information that were relied upon in making the benefit determination, submitted, considered or generated in the course of making the benefit determination, demonstrates compliance with the certain administrative safeguards and requirements required under the regulation, or constitutes a statement of policy or guidance with respect to the plan concerning a denied treatment option or benefit or the claimant’s diagnosis. The commenters also noted that paragraph (h)(2)(ii) of the regulation currently gives claimants the right to “submit written comments, documents, records, and other information” as part of an initial claim. Consequently, they asserted that a provision stating that they can also submit “evidence” and “testimony” does not appear to add to the current requirements.

The text in paragraph (h)(4)(i) was intended to parallel text in the regulation for group health plans under the ACA Claims and Appeals Final Rule. The ACA Claims and Appeals Final Rule specifically addressed rights to review and respond to new or additional evidence or rationales during the appeal stage. The Department agrees with the commenters that the provision is intended to be limited to the appeal stage. The Department also agrees that the new text in proposed paragraph (h)(4)(i) on rights to review the claims file and to present evidence is unnecessary in the disability claims procedure regulation because those rights already exist under the current Section 503 regulation. Accordingly, because that provision in the proposal would not have added new substantive requirements, the Department has deleted the provision from the final rule. In light of the deletion of proposed paragraph (h)(4)(i) from the final rule, the definition in the proposal of “claim file” is also unnecessary, and, accordingly, the Department is not including that definitional provision in the final rule. The changes from the proposal should not be viewed, however, as in any way restricting claimant’s rights to documents, records, or other information under the regulation, or to restrict claimant’s rights to present evidence. For example, in the Department’s view, if the plan or claims adjudicator maintains a claims file or other similar compilation of documents, records, and other information, such a file by definition would constitute relevant materials and be subject to mandatory disclosure under the final rule.

In response to the paragraph (h)(4)(i) as drafted in the proposal, several commenters expressed concern that some plans would have read the language as imposing courtroom evidentiary standards for claimants submitting proof of their claim. Others expressed concern about a statement in the proposal’s preamble that referenced “written” testimony because they thought some plans might rely on that reference to prohibit claimants from submitting audio or video evidence. The Department did not intend that the provision be read to limit the types of evidence that claimants can submit or otherwise put claimants in a worse position than they face under the current regulation. For example, the Department does not believe that plans could refuse to accept evidence submitted in the form of video, audio or other electronic media. Further, in the Department’s view, even under the current regulation, it would not be permissible for a plan to impose courtroom evidentiary standards in determining whether the plan will accept or consider information or materials submitted by a claimant.

Several commenters argued that giving claimants new or additional evidence or rationales developed during the pendency of the appeal and requiring plans to consider and address claimant submissions regarding the new or additional evidence or rationale would set up an unnecessary cycle of review and re-review leading to delay and increased costs. The Department is not persuaded by this argument. The requirement conforms the disability claims regulation to the group health plan claims process requirements under the ACA Claims and Appeals Final Rule. Granting both parties (the claimant and the plan) the opportunity to address the other side’s evidence has not resulted in an endless loop of submissions in group health claims under the ACA Claims and Appeals Final Rule, and there is no reason to believe that this would occur in the disability claims administrative process. The Department also has previously stated its view that the supposed “endless loop” is necessarily limited by claimants’ ability to generate new or Start Printed Page 92326additional evidence requiring further review by the plan. Such submissions ordinarily become repetitive in short order, and are further circumscribed by the limited financial resources of most claimants. If a claimant’s assertions do not include new factual information or medical diagnoses, a plan need not generate report after report rather than relying on the reports it already has in hand merely because a claimant objects to or disagrees with the evidence or rationale. The process also necessarily resolves itself when the plan decides it has enough evidence to properly decide the claim and does not generate new or additional evidence or rationales to support its decision.^[19] The fiduciary obligation to pay benefits in accordance with the terms of the plan does not require a fiduciary to endlessly rebut credible evidence supplied by a claimant that, if accepted, would be sufficient to justify granting the claim. In fact, an aggressive claims processing practice of routinely rejecting or seeking to undermine credible evidence supplied by a claimant raises questions about whether a fiduciary, especially one operating under a conflict of interest, is violating the fiduciary’s loyalty obligation under ERISA to act solely in the interest of the plan’s participants and beneficiaries.

Several commenters complained about the possibility of claimants arguing that plans failed to comply with the claims procedure whenever any additional evidence was relied on to support a rationale that was already used as a basis for denying a claim. They expressed similar concerns about determining whether a rationale relied on in denying a claim on review was a “new” or “additional” rationale. They asked the Department to include in the final rule a definition of what constitutes “new or additional” evidence or a “new or additional” rationale. They asserted that the rule might be read to permit a claimant to receive and rebut medical opinion reports generated in the course of an administrative appeal, even when those reports contain no new factual information and deny benefits on the same basis as the initial decision.

The Department does not believe it is necessary or appropriate to include definitions of the terms “new evidence” or “new rationale” in the final rule. Those same terms exist in the parallel claims procedure requirement applicable to group health plans under the ACA Claims and Appeals Final Rule, and have been part of the claims procedure requirements for those plans for several years. The Department does, however, intend that the terms be applied broadly so that claimants have the opportunity to respond at the administrative stage level to all evidence and rationales. Many federal courts have held that in reviewing a plan administrator’s decision for abuse of discretion, the courts are limited to the “administrative record”—the materials compiled by the administrator in the course of making his or her decision. See Miller v. United Welfare Fund, 72 F.3d 1066, 1071 (2d Cir.1995) (compiling cases and stating that “[m]ost circuits have declared that, in reviewing decisions of plan fiduciaries under the arbitrary and capricious standard, district courts may consider only the evidence that the fiduciaries themselves considered”). While some courts have held that when conducting a de novo review, any party may be free to submit additional evidence outside the administrative record,^[20] most circuits have adopted rules allowing the admission of additional evidence in de novo cases only in limited circumstances. In addition to requiring the deciding fiduciary to consider the claimant’s response to new or additional evidence or rationales, the Department believes it is important that the claimant have the right and opportunity to ensure that a full administrative record is before a reviewing court when new or additional evidence or rationales are introduced into the record by the plan or deciding fiduciary.^[21]

The Department requested comments on whether, and to what extent, modifications to the existing timing rules are needed to ensure that disability benefit claimants and plans will have ample time to engage in the back-and-forth dialogue that is contemplated by these new review and response rights. The current Section 503 Regulation requires that the plan must decide claims and appeals within a reasonable period, taking into account all circumstances. The following timeframes reflect the maximum period by which a plan must make a determination: (1) Initial claim: 45 days after submission; additional 30 days with prior notice for circumstances beyond control of the plan; and (2) Appeal: 45 days after receipt of appeal; additional 45 days with prior notice for “special circumstances.” A special deadline for deciding appeals applies when the named fiduciary is a board or committee of a multiemployer plan that meets at least quarterly. The Department received several comments with suggestions on possible new timing requirements for the claimant to respond to the new evidence and a time deadline for the claims administrator to make its final decision. Other commenters asserted that the current regulations are sufficient for the needs of consumers covered under this final regulation and provide “ample” time for plans and claimants to engage in the necessary dialogue. One commenter raised an issue concerning this rule and its impact on the prompt administration of disability claims. The commenter described, by way of example, that the plan would have to send claimants new or additional evidence before the plan may have determined whether and how the evidence may contribute to an adverse appeal decision, claimants would receive new or additional evidence piecemeal as the appeals process continues and claimants could be required to provide comments back without necessarily knowing how that information may, if at all, affect the decision. The Department does not believe that the rule envisions this kind of process. This provision by its terms does not apply if a plan grants the claim on appeal. Instead, when the plan has decided that it is going to deny the claim on appeal, that is the point at which the rule requires new or additional evidence must be provided to the claimant, sufficiently in advance of final decision so that the claimant can address such evidence. The provision does not require that the plan provide the claimant with information in a piecemeal fashion without knowing whether, and if so how, that information may affect the decision.

The Department noted in the preamble to the proposal that the group health plan claims regulation provides that if the new or additional evidence or rationale is received by a plan so late that it would be impossible to provide it to the claimant in time for the Start Printed Page 92327claimant to have a reasonable opportunity to respond, the period for providing a notice of final internal adverse benefit determination is tolled until such time as the claimant has a reasonable opportunity to respond. The Department did not include this special tolling provision in the proposed amendments because the current disability claims regulation, as described above, already permits plans to take extensions at the appeals stage. In the Department’s view, the current disability claims regulation “special circumstances” provision permits the extension and tolling expressly added to the group health plan rule under the ACA Claims and Appeals Final Rule.^[22] Although the Department is not including special timing provisions in the final rule, the Department is open to considering comments on whether sub-regulatory guidance regarding the current provisions on extensions and tolling would be helpful in the context of the new review and response rights.

Commenters asked the Department to confirm that a plan could satisfy the new review and response requirements through a current procedure, which was described as “universal and a result of established case law.” Specifically the commenters stated that some plans currently provide claimants with a voluntary opportunity to appeal any rationale raised for the first time in an appeal denial letter. They contended that this process works well because it gives the claimant a choice of whether to appeal and supplement the administrative record based on a challenge to the new evidence or rationale. They also asserted that the procedure would address commenters’ concern that this requirement may conflict with claims administrator’s obligation to meet the requisite time requirements for deciding claims and appeals. In fact, a few other commenters specifically asked that the new requirement not apply to plans that currently offer a voluntary additional level of appeal. The Department does not agree that a voluntary additional level of appeal provides the same rights to claimants because the additional level of appeal is not subject to the rule’s provisions on timing of notification of benefit determinations on appeal. In the Department’s view, it would not be appropriate to condition a claimant’s right to review and respond to new evidence on the claimant effectively being required to give up rights to a timely review and decision at the appeal stage.

Finally, the Department’s experience enforcing the current regulation for group health plans has revealed circumstances where claims adjudicators assert that they are satisfying this requirement by providing claimants with a notice informing them that the plan relied on new or additional evidence or a new or additional rationale in denying the claim, and offering to provide the new evidence or rationale on request. As the Department explained in the preamble to the ACA Claims and Appeals Final Rule for group health plans,^[23] in order to comply with this requirement, a plan or issuer must send the new or additional evidence or rationale automatically to the claimant as soon as it becomes available to the plan. Merely sending a notice informing claimants of the availability of such information fails to satisfy the requirement, and if a plan’s claims procedure says the plan will send a notice of the availability of such information, the responsible plan fiduciary similarly would fail to have met the requirement under ERISA section 503 for the plan to establish and maintain a reasonable procedure governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations.

4. Deemed Exhaustion of Claims and Appeals Processes

The final rule tracks the proposal and provides that if a plan fails to adhere to all the requirements in the claims procedure regulation, the claimant would be deemed to have exhausted administrative remedies, with a limited exception where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. The rule thus mirrors the existing standard applicable to group health plans under the ACA Claims and Appeals Final Rule and is stricter than a mere “substantial compliance” requirement.

The Department received a number of generally favorable comments regarding the deemed exhaustion provisions in paragraphs (l)(1) and (2) of the proposal. Those commenters argued that claimants should not have to follow a claims and appeals process that is less than full, fair, and timely. Some of those commenters expressed concern that the language in proposed paragraph (l)(2)(i) was potentially inconsistent with language in the preamble. The commenters noted that the preamble stated that “in those situations when the minor errors exception does not apply, the proposal clarifies that the reviewing tribunal should not give special deference to the plan’s decision, but rather should review the dispute de novo.” By contrast, they point out that proposed paragraph (l)(2)(i) provides that “[i]f a claimant chooses to pursue remedies under section 502(a) of ERISA under such circumstances, the claim or appeal is deemed denied on review without the exercise of discretion by an appropriate fiduciary.” According to the commenters, plans could argue that the language in proposed paragraph (l)(2)(i) does not go far enough and suggested that the regulation should expressly require de novo review.

The Department does not intend to establish a general rule regarding the level of deference that a reviewing court may choose to give a fiduciary’s decision interpreting benefit provisions in the plan’s governing documents. However, the cases reviewing a plan fiduciary’s decision under a deferential arbitrary or capricious standard are based on the idea that the plan Start Printed Page 92328documents give the fiduciary discretionary authority to interpret the plan documents. By providing that the claim is deemed denied without the exercise of fiduciary discretion, the regulation relies on the regulatory authority granted the Department in ERISA sections 503 and 505 and is intended to define what constitutes a denial of a claim. The legal effect of the definition may be that a court would conclude that de novo review is appropriate because of the regulation that determines as a matter of law that no fiduciary discretion was exercised in denying the claim.

A number of commenters expressed concern with proposed paragraph (l)(2)(i), arguing that the proposal encourages claimants to circumvent a plan’s claims and appeals process, to seek remedies in court in the case of insignificant missteps in claims management practices that have no impact on claim outcomes, and, therefore, will result in increased litigation. One commenter asked that the proposal be deleted. A few commenters suggested alternative approaches to the proposal. For example, they suggested that the Department consider a rule which first requires claimants to notify the plan that they intend to pursue judicial review based upon the plan’s procedural error, and provide plans with a reasonable period of time to cure the error before the claimant can dispense with further administrative review. The Department does not believe that the typical participant pursuing a disability benefit claim in the context of a fair and timely review process will, as the commenters claimed, seek remedies in court in the case of insignificant missteps in claims management processes that have no impact on the ultimate decision on the claim. Further, the Department does not believe it would be appropriate to create a rule that could create incentives for plans and insurers to violate procedural requirements designed to protect claimants and ensure transparency in the decision-making process knowing that before the claimant could seek redress that the claimant would have to identify the violation, notify the plan of the violation, and give the plan time to cure the error. Rather, after careful consideration of these comments, the Department continues to believe that claimants should not have to follow a claims and appeals process that is less than full, fair, and timely. Accordingly, the Department decided to retain the deemed exhaustion provisions as proposed, including the exception to the strict compliance standard for errors that are minor and that meet certain other specified conditions.^[24]

5. Coverage Rescissions—Adverse Benefit Determinations

Paragraph (m)(4) of the final rule amends the definition of an adverse benefit determination to include, for plans providing disability benefits, a rescission of disability benefit coverage that has a 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 Department did not receive any comments objecting to this provision in the proposed rule, and, accordingly, the provision is adopted without change in the final rule.

Several commenters suggested that the provision be expanded to expressly include situations, particularly in cases involving mental health and substance use disorder claims, where a plan approves treatment for a period less than that requested, but defers the right to appeal until the date the approved benefits end. The Department did not make such a modification to paragraph (m)(4) in the final rule because the Department does not agree that such cases should be addressed as rescissions.

Rather, it appears that the commenters were making a more general point that the claims procedure regulation should expressly define an adverse benefit determination to include instances in which such a limitation is invoked. In that regard, the current regulation provides that the term “adverse benefit determination” includes any denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit. The Department issued a set of FAQs under the current regulation explaining the application of that definition to various situations. One FAQ stated that if a plan provides for the payment of disability benefits for a pre-determined, fixed period (e.g., a specified number of weeks or months or until a specified date), the termination of benefits at the end of the specified period would not constitute an adverse benefit determination under the regulation. Rather, the Department concluded that any request by a claimant for payment of disability benefits beyond the specified period would constitute a new claim.^[25] Another FAQ, however, addressed the different situation where the plan pays less than the total amount of expenses submitted with regard to a post-service claim. We explained that, while the plan is paying out the benefits to which the claimant is entitled under its terms, the claimant is nonetheless receiving less than full reimbursement of the submitted expenses. Therefore, in order to permit the claimant to challenge the plan’s calculation of how much it is required to pay, that decision is required to be treated as an adverse benefit determination under the regulation.^[26] Whether the situation presented by the commenters should be treated more like the former or latter FAQ will depend on the terms of the plan and the particular facts and circumstances.

One commenter asked whether the proposed rule regarding rescissions of coverage applies to adjustments or suspensions of benefits that reduce or eliminate a disability pension benefit under section 305 of ERISA, which corresponds to section 432 of the Internal Revenue Code of 1986 (Code). It is the Department’s view that a retroactive reduction or elimination of disability pension benefits pursuant to section 305 of ERISA is not a rescission of coverage under paragraph (m)(4)(ii) of the final rule. However, a retroactive reduction or elimination of disability pension benefits, that results from a finding by the plan that the claimant was not disabled within the meaning of the plan when the disability pension benefits were reduced or eliminated under ERISA section 305, would be an adverse benefit determination under the claims procedure regulation. If the claims adjudicator must make a determination of disability in order to decide a claim, the claim must be treated as a disability claim for purposes of the Section 503 Regulation.^[27]

Start Printed Page 92329

6. Culturally & Linguistically Appropriate Notices

Paragraphs (g)(1)(vii)(C), (j)(7) and (o) of the final rule require plans to provide notice to claimants in a culturally and linguistically appropriate manner. The final rule adopts the standards already applicable to group health plans under the ACA Claims and Appeals Final Rule. Specifically, if a claimant’s address is in a county where ten percent or more of the population residing in that county are literate only in the same non-English language as determined in guidance based on American Community Survey data published by the United States Census Bureau, notices of adverse benefit determinations to the claimant would have to include a statement prominently displayed in the applicable non-English language clearly indicating how to access language services provided by the plan. In addition, plans must provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon request.^[28]

A few commenters requested clarification that the culturally and linguistically appropriate standards (CLAS) requirements in the regulation apply only to notices of adverse benefit determinations and not to other communications regarding disability claims. In the Department’s view, the text of paragraphs (g)(1)(vii)(C) and (j)(7) is clear that the CLAS requirements are applicable to notices of adverse benefit determinations. The final rule does not address whether, and under what circumstances, the fiduciary duty or other provisions in ERISA would require plans to provide plan participants and beneficiaries with access to language services (see, for example, the discussion below regarding summary plan description (SPD) requirements).

A few commenters requested that the Department remove the CLAS standards. Other commenters supported the CLAS requirements but requested that the Department provide a reasonable time for compliance with this provision, citing operational changes and costs associated with the CLAS requirements. Other commenters requested that the threshold percentage that triggers the CLAS requirements be reduced to a lower percentage to capture a greater number of counties or to reflect a percentage of plan participants as opposed to the population of a relevant county. One commenter suggested that the Department may have unintentionally reduced protections for non-English speaking participants. The commenter pointed out that although a particular county may not meet the threshold under this rule, particular workforces may meet the Department’s thresholds under section § 2520.102-2(c).

In light of all the comments received, this final rule retains the CLAS requirements as set forth in the proposal. The Department believes that the CLAS requirements impose reasonable language access requirements on plans and appropriately balance the objective of protecting claimants by providing reasonable language assistance to individuals who communicate in languages other than English with the goal of mitigating administrative burdens on plans. The Department continues to believe that it is important to provide claims denial notices in a culturally and linguistically appropriate manner to ensure that individuals get the important information needed to properly evaluate the decision denying a claim and to allow for an informed decision on options for seeking review of a denial. Therefore, the final rule adopts the requirements in the proposal without change.

The Department does not agree that the final rule supersedes the summary plan description foreign language rules in § 2520.102-2(c) which include a requirement to offer assistance (which could include language services) calculated to provide participants with a reasonable opportunity to become informed as to their rights and obligations under the plan. Non-English speaking participants could be eligible for language services under either this final rule or § 2520.102-2(c), depending on the circumstances.

Finally, one commenter asked that the Department clarify that the English version of the notices takes precedence in the event of any conflict with the translated documents. Another commenter asked for clarification that the requirement to provide “assistance with filing claims and appeals in any applicable non-English language” is limited to procedural, not substantive, assistance. The Department was not persuaded that including such provisions in the final rule is necessary or appropriate. Notices provided to participants or beneficiaries should be complete and accurate notwithstanding the language used. Further, a “substantive versus procedural” distinction between the type of assistance required is not, in the Department’s view, particularly meaningful or helpful. Rather, the final rule requires plan fiduciaries to provide disability benefit claimants with the requisite level and amount of assistance necessary to assist the claimants in understanding their rights and obligations so that they can effectively file claims and appeals in pursuing a claim for disability benefits.

7. Miscellaneous

a. Technical Correction

The Department determined that a minor technical fix to the Section 503 Regulation is required with respect to disability claims. The Department proposed to clarify that the extended time frames for deciding disability claims, provided by the quarterly meeting rule found in the current regulation at 29 CFR 2560.503-1(i)(1)(ii), are applicable only to multiemployer plans. The Department did not receive any adverse comments on the proposed technical fix, and, accordingly, the final rule amends paragraph (i)(3) to correctly refer to the appropriate subparagraph in (i)(1) of the Section 503 Regulation.

b. Contractual Limitations Periods for Challenging Benefit Denials

In the proposal, the Department asked for comments on whether the claims procedure rule should address limitations periods in plans that govern the period after a final adverse benefit determination within which a civil action may be filed under section 502(a)(1)(B) of ERISA. We pointed out that ERISA does not specify that period and noted that the federal courts have generally looked to analogous state laws to determine an appropriate limitations period. Analogous state law limitations periods vary, but they generally start with the same event, the plan’s final benefit determination. We acknowledged that the Supreme Court recently upheld the use of contractual limitations periods in plan documents and insurance contracts which may override analogous state laws so long as they are reasonable. See Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S.Ct. 604, 611 (2013). We pointed out that contractual limitations periods are not uniform, the events that trigger the clock vary, and the documents in which the limitations periods are embedded may be difficult for claimants to obtain and understand. We also highlighted a Start Printed Page 92330separate issue, not before the Supreme Court in Heimeshoff, of whether plans must provide participants notice with respect to contractual limitations periods in adverse benefit determinations on review. Although many federal courts have held that plans should provide such notice under the Section 503 Regulation, the court decisions are not uniform.^[29] Accordingly, the Department solicited comments on whether the final regulation should require plans to provide claimants with a clear and prominent statement of any applicable contractual limitations period and its expiration date for the claim at issue in the final notice of adverse benefit determination on appeal and with an updated notice of that expiration date if tolling or some other event causes that date to change.

In response, the Department received many comments from claimants and participant advocates supporting a contractual limitations period notice requirement. Numerous commenters further requested that any required notice include the date on which the relevant contractual limitations period expires. They also asked the Department to include a definition of a “reasonable limitations period.” One commenter argued to the contrary that a rule requiring inclusion of a specific date would create confusion for claimants and carries a risk that the insurer or other administrative entity is seen as providing legal advice. Another commenter urged that such a rule should not be adopted because the date by which suit must be filed may be subject to dispute in litigation. A commenter expressed concern that such a notice requirement is largely unnecessary as the information is generally already included in plan documents, (e.g., the summary plan description), and that it could impose significant administrative burden. The commenter suggested that a more appropriate rule would be to require that the notice of adverse benefit determination on review include a statement alerting participants that they should review the terms of the applicable plan documents to determine any deadline by which they must file a civil action. Finally, a number of commenters asked the Department to specifically address whether it is allowable for a contractual limitations period to be structured so that it could actually expire before the plan’s appeals process is completed.

In light of the issues identified regarding contractual limitations periods, the Department concluded that it was appropriate in this final rule to address certain basic points.

First, section 503 of ERISA requires that a plan afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review of that decision by an appropriate named fiduciary. The Department does not believe that a claims procedure would satisfy the statutory requirement if the plan included a contractual limitations period that expired before the review was concluded. In the Department’s view, this is clear from the Supreme Court’s holding in Heimeshoff. In that case, the Supreme Court held that an ERISA disability plan’s three-year limitations period, running from the date of proof of loss, was enforceable even though the statute of limitations began to run before the participant’s cause of action accrued. The Court pointed out that there was nothing to suggest the 3-year contractual limitations period was not “reasonable” in light of the Department’s regulation that would require the internal claims and appeals process to be completed well inside a three-year period. Heimeshoff, 134 S.Ct. at 612 (citing Order of United Commercial Travelers of America v. Wolfe, 67 S.Ct. 1355 (1947)). A limitations period that expires before the conclusion of the plan’s internal appeals process on its face violates ERISA section 503’s requirement of a full and fair review process. A process that effectively requires the claimant to forego the right to judicial review and thereby insulates the administrator from impartial judicial review falls far short of the statutory fairness standard and undermines the claims administrator’s incentives to decide claims correctly.

Further, in rejecting the challenge to the contractual limitations period at issue in Heimeshoff, the Court emphasized that the claimant was allowed a year or more to bring suit after the close of the internal claims review process.^[30] A contractual limitations period that does not allow such a reasonable period after the conclusion of the appeal in which to bring a lawsuit is unenforceable.^[31] Moreover, as the Start Printed Page 92331Supreme Court also recognized in Heimeshoff, even in cases with an otherwise enforceable contractual limitations period, traditional doctrines, such as waiver and estoppel, may apply if a plan’s internal review prevents a claimant from bringing section 502(a)(1)(B) actions within the contractual period. Heimeshoff, 134 S.Ct. at 615. In addition to such traditional remedies, plans that offer appeals or dispute resolution beyond what is contemplated in the claims procedure regulations must agree to toll the limitations provision during that time. See 29 CFR 2560.503-1(c)(3)(ii).

Second, the Department agrees with the conclusion of those federal courts that have found that the current regulation fairly read requires some basic disclosure of contractual limitations periods in adverse benefit determinations. In fact, in the Department’s view, the statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review would be incomplete and potentially misleading if it failed to include limitations or restrictions in the documents governing the plan on the right to bring such a civil action. Accordingly, this final rule includes in new paragraph (j)(4)(ii) a requirement that the notice of an adverse benefit determination on review must include a description of any applicable contractual limitations period and its expiration date.

The Department is not persuaded that inclusion in the notice of adverse benefit determination on review of any applicable contractual limitations period and its expiration date will result in confusion. The Department also does not agree that a statement of the plan’s view as to the exact date the limitations period expires will somehow inappropriately foreclose or otherwise prejudice legitimate arguments about application of the limitations period in individual cases. Nor does the Department believe that disclosure of a contractual limitations period requires the plan to provide legal advice. Additionally, as described below, the Department does not believe that including a description of any contractual limitations period, including the date by which the claimant must bring a lawsuit, would impose more than a minimal additional burden. Although the final rule provision is technically applicable only to disability benefit claims, as explained above, the Department believes that notices of adverse benefit determinations on review for other benefit types would be required to include some disclosure about any applicable contractual limitations period. What would be sufficient will depend on the controlling judicial precedent and the individual facts and circumstances, but the Department would consider the inclusion of the information in paragraph (j)(4)(ii) to be an appropriate disclosure for all plan types.

Several comments raised other issues pertaining to the disclosure of contractual and statutory limitations on a claimant’s right to bring a civil action under section 502(a) of ERISA. Issues beyond this final rule may be addressed in a future regulatory action or other guidance by the Department.

c. Comments Beyond the Scope of the Rulemaking

Some commenters raised disability claims procedure issues pertaining to matters that the Department considers to be beyond the scope of this rulemaking. For example, one commenter suggested that the Department amend its Model Statement of ERISA Rights for SPDs for disability plans to include notification of eligibility for language services. Other commenters requested that the Department propose a rule requiring that adverse benefit determinations on review notify disability benefit claimants of the ERISA venue provisions. Other issues raised by some commenters relate to substantive limitations on recoupment of benefit overpayments, rights to supplement the administrative record for court review, and the validity of discretionary clauses in plans that are used as a basis for seeking a deferential “arbitrary or capricious” standard for court review of benefit denials. Although the Department agrees that the issues raised by the commenters may merit an evaluation of additional regulatory actions on procedural safeguards and protections, those subjects are beyond the scope of this rulemaking. As the Department noted in the preamble to the proposal, this rulemaking was a start to improving the current standards applicable to the processing of claims and appeals for disability benefits so that they include improvements to certain basic procedural protections in the current Section 503 Regulation. Issues beyond this final rule may be addressed in a future regulatory action or other guidance by the Department.

III. Economic Impact and Paperwork Burden

A. Background and Need for Regulatory Action

As discussed in Section I of this preamble, the final amendments would revise and strengthen the current rules regarding claims and appeals applicable to ERISA-covered plans providing disability benefits primarily by adopting several of the new procedural protections and safeguards made applicable to ERISA-covered group health plans by the Affordable Care Act. Before the enactment of the ACA, group health plan sponsors and sponsors of ERISA-covered plans providing disability benefits were required to implement claims and appeal processes that complied with the Department’s regulation establishing minimum requirements for benefit claims procedures for employee benefit plans covered by Title I of ERISA.^[32] The enactment of the ACA and the issuance of the implementing interim final regulations in 2010 resulted in disability benefit claimants receiving fewer procedural protections than group health plan participants even though disputes and litigation regarding disability benefit claims are more prevalent than health care benefit claims.^[33] In order to ensure fundamental fairness in the claim and appeals procedure process, health and disability plan claimants are entitled to receive the same procedural protections as they did when the 2000 regulation was issued.

The Department believes this action is necessary to ensure that disability claimants receive a full and fair review of their claims under the more stringent procedural protections that Congress established for group health care claimants under the ACA. The final rule will promote fairness and accuracy in the claims review process and protect participants and beneficiaries in ERISA-covered disability plans by ensuring they receive benefits that otherwise might have been denied by plan administrators in the absence of the fuller protections provided by this final regulation. The final rule also will help alleviate the financial and emotional hardship suffered by many individuals when they are unable to work after becoming disabled and their claims are denied.

As stated earlier in this preamble, this action also is necessary to correct Start Printed Page 92332procedural problems evidenced in litigation under the 2000 regulation predating the ACA, which in the Department’s view, resulted in claimants not receiving a full and fair review as required by ERISA section 503. Specifically, some courts held that under the 2000 regulation, claimants only have the right to review and respond to new evidence or rationales developed during the pendency of an appeal after the claim has been denied on appeal. The final rule levels the playing field by explicitly requiring plan administrators to provide claimants, free of charge, with any new evidence or rationale relied upon, considered, or generated by the plan in connection with the claim and a reasonable opportunity for the claimant to respond.

The Department disagrees with commenters’ assertion that disability plan claim procedures should not mirror the ACA group health plan amendments because of the difference between health and disability claims. For reasons discussed earlier in this preamble, after careful consideration, the Department incorporated into the final rule only certain of the ACA group health plan claims procedure amendments to ensure that disability plan claimants receive the same opportunity to pursue a full and fair review of their claims as required by ERISA section 503 with the procedural safeguards and consumer protections that are aligned with those required by group health plans under the ACA and the Department’s implementing regulation at 29 CFR 2590.715-2719. This final rule aligns the disability claims procedures with the ACA procedural safeguards and consumer protections for group health plans. The Department did not amend other provisions of the 2000 regulation that affect how disability plan claims are processed or the timing requirements. Therefore, as discussed more fully below, the Department does not expect that the final rule will lead to delays and significant increased cost for disability claims and appeals processes. The Department considered comments asserting that some of its cost estimates in the proposed Regulatory Impact Analysis (“RIA”) were underestimated and made adjustments where appropriate.

The Department has crafted these final regulations to secure the protections of those submitting disability benefit claims. In accordance with OMB Circular A-4, the Department has quantified the costs where possible and provided a qualitative discussion of the benefits that are associated with these final regulations.

B. Executive Order 12866 and 13563

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects; distributive impacts; and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

Under Executive Order 12866 (58 FR 51735), “significant” regulatory actions are subject to review by the Office of Management and Budget (OMB). Section 3(f) of the Executive Order defines a “significant regulatory action” as an action that is likely to result in a rule (1) having an annual effect on the economy of $100 million or more in any one year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”); (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. It has been determined that this rule is significant within the meaning of section 3(f) (4) of the Executive Order. Therefore, OMB has reviewed the final rule pursuant to the Executive Order. The Department provides an assessment of the potential costs and benefits of the final rule below, as summarized in Table 1, below. The Department concludes that the economic benefits of these final regulations justify their costs.

1. Estimated Number of Affected Entities

The Department does not have complete data on the number of plans providing disability benefits or the total number of participants covered by such plans. ERISA-covered welfare benefit plans with more than 100 participants generally are required to file the Form 5500 Annual Return/Report. Currently, only a small number of ERISA-covered welfare benefit plans with less than 100 participants are required to file the form. Based on current trends in the establishment of pension and health plans, there are many more small plans than large plans, but the majority of participants are covered by the large plans.

Data from the 2014 Form 5500 Schedule A indicates that there are 39,135 plans reporting a code indicating they provide temporary disability benefits covering 40.1 million participants, and 26,171 plans reporting a code indicating they provide long-term disability benefits covering 22.4 million participants.^[34] To put the number of large and small plans in perspective, the Department estimates that there are 150,000 large group health plans and 2.1 million small group health plans using 2016 Medical Expenditure Panel Survey-Insurance Component. While most plans are small plans most participants are in large plans.

2. Benefits

In developing these final regulations, the Department closely considered their potential economic effects, including both benefits and costs. The Department does not have sufficient data to quantify the benefits associated with these final regulations due to data limitations and a lack of effective measures. Therefore, the Department provides a qualitative discussion of the benefits below.

These final regulations implement a more uniform, rigorous, and fair disability claims and appeals process as required by ERISA section 503 that conforms to a carefully selected set of the requirements applicable to group health plans under the ACA Claims and Appeals Final Rule. In general, the Department expects that these final regulations will improve the procedural protections for disabled workers who make claims for disability benefits from ERISA-covered employee benefit plans. This will cause some participants to receive benefits that, absent the fuller protections of the regulation, they might otherwise have been incorrectly denied. In other circumstances, expenditures in the claims process incurred by plans may be reduced as a fuller and fairer system of claims and appeals processing helps facilitate participant acceptance of cost management efforts. The Department expects that greater certainty and consistency in the handling of disability benefit claims and appeals and improved access to information about the manner in which claims and appeals are adjudicated will lead to efficiency gains in the system, both in terms of the allocation of spending at a macro-economic level as well as operational efficiencies among individual plans. This certainty and consistency also are expected to benefit, to varying degrees, all parties within the system and lead to broader social welfare gains, particularly for disability benefit plan claimants.

The Department expects that these final regulations also will improve the efficiency of disability benefit plans by improving their transparency and fostering participants’ confidence in their fairness. The enhanced disclosure and notice requirements contained in these final regulations will help ensure that benefit participants and beneficiaries have a clear understanding of the reasons underlying adverse benefit determinations and their appeal rights.

For example, the final regulations require all adverse benefit determinations to contain a discussion of the decision, including an explanation of the basis for disagreeing with the views of a treating health care professional or vocational professional who evaluated the claimant or any disability determination regarding the claimant made by the Social Security Administration and presented to the plan by the claimant. This provision would address the confusion often experienced by claimants when there is little or no explanation provided for their plan’s determination and/or their plan’s determination is contrary to their treating professional’s opinion or their SSA award of disability benefits.

The final rule also requires adverse benefit determinations to contain the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were relied upon in denying the claim (or a statement that these do not exist), and a notice of adverse benefit determination at the claims stage must contain a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s benefit claim. These provisions will benefit claimants by ensuring that they fully understand the reasons why their claim was denied so they are able to meaningfully evaluate the merits of pursuing an appeal or litigation.

The requirement to include a discussion of the decision, as well as the requirement to include specific internal rules, guideline, protocols, standards, or similar criteria relied upon by the plan will improve the accuracy of claims determinations. The process of documenting and explaining the reasoning of the decision will help ensure that plans’ terms are followed and accurate information is used, and will enable plan participants to challenge inadequate or faulty evidence or reasoning.

Under the final rule, adverse benefit determinations must be provided in a culturally and linguistically appropriate manner for certain participants and beneficiaries that are not fluent in Start Printed Page 92334English. Specifically, if a claimant’s address is in a county where 10 percent or more of the population residing in that county, as determined based on American Community Survey (ACS) data published by the United States Census Bureau, are literate only in the same non-English language, notices of adverse benefit determinations to the claimant would have to include a prominent one-sentence statement in the relevant non-English language about the availability of language services. This provision will ensure that certain disability claimants that are not fluent in English understand the notices received from the plan regarding their disability claims and their right to appeal denied claims.

These important protections would benefit participants and beneficiaries by correcting procedural wrongs evidenced in the litigation even predating the ACA.

The voluntary nature of the employment-based benefit system in conjunction with the open and dynamic character of labor markets make explicit as well as implicit negotiations on compensation a key determinant of the prevalence of employee benefits coverage. The prevalence of benefits is therefore largely dependent on the efficacy of this exchange. If workers perceive that there is the potential for inappropriate denial of benefits or handling of appeals, they will discount the value of such benefits to adjust for this risk. This discount drives a wedge in compensation negotiation, limiting its efficiency. If workers undervalue the full benefit of disability coverage, fewer employers will provide such coverage or fewer participants will enroll. To the extent that workers perceive that the final rule, supported by the Department’s enforcement authority, will reduce the risk of inappropriate denials of disability benefits, the differential between the employers’ costs and workers’ willingness to accept wage offsets is minimized.

These final regulations would reduce the likelihood of inappropriate benefit denials by requiring all disability claims and appeals to be adjudicated by persons that are independent and impartial. Specifically, the final rule would prohibit hiring, compensation, termination, promotion, or other similar decisions with respect to any individual (such as a claims adjudicator or a medical or vocational expert) to be made based upon the likelihood that the individual will support the plan’s benefits denial. This will ensure that all disability benefit plan claims and appeals processes are adjudicated in a manner designed to ensure the independence and impartiality of persons involved in making the decisions and enhance participants’ perception that their disability plan’s claims and appeals processes are operated in a fair manner.

As stated above, the final rule requires claimants to have the right to review and respond to new evidence or rationales developed by the plan during the pendency of an appeal, as opposed merely to having a right to such information upon request only after the claim has already been denied on appeal, as some courts have held under the Section 503 Regulation. These provisions will benefit claimants by correcting certain procedural flaws that currently occur when disability benefit claims are litigated and ensuring that they have a right to review and respond to new evidence or rationales developed by the plan during the pendency of the appeal.

In summary, the final rules provide more uniform standards for handling disability benefit claims and appeals that are comparable to the rules applicable to group health plans under the ACA Claims and Appeals Final Rule. These rules will reduce the incidence of inappropriate denials, averting serious financial hardship and emotional distress for participants and beneficiaries that are impacted by a disability. They also would enhance participants’ confidence in the fairness of their plans’ claims and appeals processes. Finally, by improving the transparency and flow of information between plans and claimants, the final regulations will enhance the efficiency of labor and insurance markets.

3. Costs and Transfers

The Department has quantified the costs related to the final regulations’ requirements to (1) provide the claimant free of charge with any new or additional evidence considered, and (2) to providing notices of adverse benefit determinations in a culturally and linguistically appropriate manner. These requirements and their associated costs are discussed below

Provision of new or additional evidence or rationale: As stated earlier in this preamble, before a plan providing disability benefits can issue an adverse benefit determination on review on a disability benefit claim, these final regulations require such plans to provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan or any new or additional rationale upon which the adverse determination is based as soon as possible and sufficiently in advance of the date the notice of adverse benefit determination on review is required to be provided. This requirement may increase the administrative burden on plans to prepare and deliver the enhanced information to claimants. The Department is not aware of a data source substantiating how often plans rely on new or additional evidence or rationale during the appeals process or the volume of materials that comprise the new evidence or rationale. Based on comments and discussions with the regulated community, the Department understands that few plans base adverse benefit determinations on appeal on new evidence or rationales. The Department also understands that the most critical new information relied on by plans when issuing adverse benefit determinations on review are new independent medical reports, and that at least some plans and insurers have a practice of providing claimants with rights to a voluntary additional level of appeal to respond to the new independent medical report if they disagree with its findings.

These final rules further require adverse benefit determinations on review for disability benefit plans to include a description of any contractual limitations period, including the date by which the claimant must bring a lawsuit. In the regulatory impact analysis for the proposal, the Department estimated these costs by assuming that compliance will require medical office staff, or other similar staff for another service provider with a labor rate of $30, five minutes ^[35] to collect and distribute the additional evidence or rationale considered, relied upon, or generated by (or at the direction of) the plan during the appeals process. Additionally, including a description of any contractual limitations period, including the date by which the claimant must bring a lawsuit would have minimal additional burden as plans already maintain such information in the ordinary course of their claims administration process and would just need to add it to the notice.

One commenter questioned the Department’s assumption asserting that it does not account for time to identify the additional or new information or rationale and for staff to respond. Commenters also asserted that providing the information will trigger a response by the claimant to which they Start Printed Page 92335will have to respond. The commenter provided no alternative estimates or data supporting their assertions that the Department could use to revise its cost estimate.

In the absence of such data, the Department disagrees with the comments. While some effort is required to provide claimants with the new information or rationale, the Department does not find the commenters’ assertion of significant burden to be credible. As part of its customary and usual business practices, the insurer or TPA should have an existing system in place to track any new information or rationale it relies on in making an adverse benefit determination in order to identify, document, and evaluate the information during its claim adjudication process. The Department acknowledges, however, that an average of five minutes may be inadequate time to collect the information and provide it to the claimants; therefore, it has increased the estimate to an average of 30 minutes, which should provide a reasonable amount of time to perform this task.

The Department also agrees that making the new or additional information or rationale available to the claimant may trigger a response from the claimant. However, the Department does not have sufficient data to estimate the number of claimants that will respond with information that the insurer or TPA will need to evaluate or how much time will be required to evaluate the information. Moreover, the Department’s consultations with EBSA field investigators that investigate disability plan issues indicate that many disability plans already allow claimants to respond to the new information or rationale in a back-and-forth process. The requirement imposes no new costs on these plans, insurers, and TPAs. The requirement does impose an additional burden on plans that do not allow claimants to respond to the new information or rationale, but the Department does not have sufficient data to estimate the increased costs. One industry commenter agreed that that it would be difficult to estimate the burden associated with responding to claimants.

Commenters also raised concern regarding a potentially endless cycle of appeals, responses, and reconsiderations that would extend the claim determination process and substantially increase costs. As discussed elsewhere in the preamble, the Department also does not find this claim to be credible. The requirement only requires action if the insurer or TPA produces new or additional information or rationale after reviewing the new information submitted by the claimant, not if it just evaluates the information submitted by the claimant, and the Department’s consultations with its investigators indicated that this occurs infrequently.

Additionally, while a plan fiduciary has a responsibility to ensure the accurate evaluation of all claims, that responsibility does not require the fiduciary to rebut every piece of evidence submitted or seek to deny every claim. Indeed, an endless effort to rebut every piece of evidence submitted by the claimant would call into question whether the fiduciary was impartially resolving claims as required by the duties of prudence and loyalty.

Furthermore, the Department has interpreted ERISA section 503 and the current Section 503 Regulation as already requiring that plans provide claimants with new or additional evidence or rationales upon request and an opportunity to respond in certain circumstances. See Brief of the Secretary of Labor, Hilda L. Solis, as Amicus Curiae in Support of Plaintiff-Appellant’s Petition for Rehearing, Midgett v. Washington Group Int’l Long Term Disability Plan, 561 F.3d 887 (8th Cir. 2009) (No. 08-2523), (expressing disagreement with cases holding that there is no such requirement). The supposed “endless loop” is necessarily limited by claimants’ ability to generate new evidence requiring further review by the plan. Such submissions ordinarily become repetitive in short order, and are further circumscribed by the limited financial resources of most claimants.

For purposes of this regulatory impact analysis, the Department assumes, as an upper bound, that all appealed claims will involve a reliance on additional evidence or rationale. Based on that assumption, the Department assumes that this requirement will impose an annual aggregate cost of $14.5 million. The Department estimates this cost by assuming that compliance will require medical office staff, or another service providers’ similar staff with a labor rate of $42.08, thirty minutes ^[36] to collect and distribute the additional evidence considered, relied upon, or generated by (or at the direction of) the plan during the appeals process. The Department estimates that on average, material, printing and postage costs will total $2.15 per mailing (20 pages * 0.05 cents per copy + $1.15 postage). The Department further assumes that 30 percent of all mailings will be distributed electronically with no associated material, printing or postage costs.^[37]

The Department does not have sufficient data on the number of disability claims that are filed or denied. Therefore, the Department estimates the number of short- and long-term disability claims based on the percentage of private sector employees (122 million) ^[38] that participate in short- and long-term disability programs (approximately 39 and 33 percent respectively).^[39] The Department estimates the number of claims per covered life for long-term disability benefits based on the percentage of covered individuals that file claims under the Social Security Disability Insurance Program (SSDI) (two percent of covered individuals). The Department notes that SSDI uses a standard for disability determinations that is stricter than the standard used in many long-term disability plans offered by private employers. However, the number of claims filed with the SSDI is an acceptable proxy as most employer plans require claimants to file with the SSDI as a condition of receiving benefits from the plan as they offset the benefits paid by plan with the amount received from SSDI.

The Department does not have sufficient data to estimate the percentage of covered individuals that file short-term disability claims. Therefore, for purposes of this analysis, the Department estimates, as it did in Start Printed Page 92336the proposal, that six percent of covered lives file such claims, because it believes that short-term disability claims rates are higher than long-term disability claim rates. The Department received no comments regarding this assumption.

The Department estimates the number of denied claims that would be covered by the rule in the following manner: For long-term disability, the percent of claims denied is estimated using the percent of denied claims for the SSDI Program (75 percent). This estimate may overstate the denial rates for ERISA-covered long-term disability plans, because as discussed above, many plans require claimants to file for SSDI benefits as a requirement to receive benefits from their plan. Plans often have a lower benefit determination standard, at least initially, than the SSDI Program resulting in less denied claims. Therefore, using the SSDI denied claims rate as a proxy for the ERISA-covered plan claims denial rate may overstate the number of private long-term disability plan denied claims. For short-term disability, the estimate of denied claims (three percent) is an assumption based on previous regulations and feedback. The estimates are provided in the table below.

Adverse benefit determinations on disability benefit claims would have to contain a discussion of the decision, including the basis for disagreeing with SSA Disability Determination and Views of Treating Physician: Commenters on the proposal noted that costs were not quantified for the added burden of including in the benefit determination a discussion of why the plan did not follow the determination of the SSA or views of health care professionals that treated the claimant. Commenters did not provide data or information that would provide the Department with sufficient data to quantify such costs. Thus, while the Department agrees that there could be added burden imposed on plans to provide this discussion in adverse benefit determinations, the Department is unable to estimate the burden because it does not have sufficient data on the number or percent of claims that would need to contain this discussion.

Departmental investigators reviewing disability claims report that if the plan deviates from an attending physician’s recommendation, a review is conducted by a supervisor, nurse, medical director or a consultant. This additional review usually generates documentation in the claim file. While this documentation may not be adequate in its current form to satisfy the requirement, the incremental costs to comply could be small, because it appears that deviations from physician’s recommendations are documented currently. Plans or insurers may still need to prepare a response using the already available information. The Department does not know how many claim determinations would require this discussion. The average hourly labor rate of a nurse is $46.02 and that of a physician is $157.80, and the Department estimates that preparing a report with information already available should not take more than one hour.

Adverse benefit determination would have to contain the internal rules, guidelines, protocols, standards, or other similar criteria of the plan used in denying the claim. The Department believes that this requirement will have minimal costs. In the process of determining a claim, plans will know, or should know, the internal rules, guidelines or protocols that were used to make a benefit determination. A commenter was concerned about the time and costs that would be required to comb through hundreds of pages of a claim manual to determine that no provision has any conceivable application to a particular claim in order to substantiate this requirement. The Department believes that neither the proposal nor the final rule requires this type of costly and time consuming process. The rule requires only the inclusion of those items that were relied upon and that should already be documented in the claim file at the time it was used to make a determination.

A notice of adverse benefit determination at the claims stage would have to contain a statement that the claimant is entitled to receive relevant documents upon request. The Department believes that this requirement will have a negligible cost impact, because an insignificant amount of time will be required to add the statement to the notice. Although the current claims procedure regulation provides claimants with the right to request relevant documents when challenging an initial claims denial, a statement was required to be included only in notices of adverse benefit determinations on appeal. Including the statement in the initial denial notice as required by the final rule, in the Department’s view, merely confirms claimants’ rights under the current claims procedure regulation and will help ensure that they understand their right to receive such information to help them understand the reasons for the denial and to make informed decisions regarding whether and how they challenge a denial on appeal. The Department acknowledges that it is likely that more claimants will request this information when they are informed of their right to receive it; however, the Department does not have sufficient data to estimate the number of requests that will be made.

Culturally and Linguistically Appropriate Notices: The final regulations require notices of adverse benefit determinations with respect to disability benefits to be provided in a culturally and linguistically appropriate manner in certain situations. This requirement is satisfied if plans provide oral language services including Start Printed Page 92337answering questions and providing assistance with filing claims and appeals in any applicable non-English language. The final regulations also require each notice sent by a plan to which the requirement applies to include a one-sentence statement in the relevant non-English language that translation services are available. The Department believes that this requirement will have a negligible cost impact. Plans also must provide, upon request, a notice in any applicable non-English language.

Although, one commenter reported that oral translation services are not provided by plans, the Department’s conversations with the regulated community indicate that oral translation services generally are offered as a standard service. Based on this information, the Department assumes that only a small number of plans will need to begin offering oral translation services for the first time upon the issuance of the final rule. Therefore, the Department assumes that this requirement will impose minimal additional costs.

The Department expects that the largest cost associated with the requirement is for plans to provide notices in the applicable non-English language upon request. Based on 2014 ACS data, the Department estimates that there are about 22.7 million individuals living in covered counties that are literate only in a covered non-English Language.^[40] To estimate the number of these individuals that might request a notice in a non-English language, the Department estimated the number of workers in each county (total population in county * state labor force participation rate * (1—state unemployment rate)) ^[41 42] and calculated the number with access to short-term and long-term disability insurance by multiplying those estimates by the estimates of the share of workers participating in disability benefit programs (39 percent for short-term and 33 percent for long term disability.) ^[43] It should be noted that the sums in the right two columns are all workers in the county with disability insurance, not just workers with disability insurance that are eligible to receive notices in the applicable non-English language, because the calculation for the number of requests for translation is based on workers with insurance.

The Department’s discussions with the regulated community indicate that in California, which has a State law requirement for providing translation services for health benefit claims, requests for translations of written documents averages 0.098 requests per 1,000 members (note that requirement applies to all members not just foreign language speaking) for health claims. While the requirements of California differ from those contained in these final regulations and the demographics for California do not match those of covered counties, for purposes of this Start Printed Page 92338analysis, the Department used this percentage to estimate the number of translation service requests that plans could expect to receive. The Department believes that this estimate significantly overstates the number of translation requests that will be received, because there are fewer disability claims than health claims. Industry experts also told the Department that while the cost of translation services varies, $500 per document is a reasonable approximation of translation cost, and the Department used this amount in its cost estimate for the final rule. This number was provided to the Department in 2010; therefore, for purposes of this analysis, the Department has adjusted this amount to $553 to account for inflation.^[44]

Based on the foregoing, the Department estimates that the cost to provide translation services pursuant to the final rule will be approximately $1,283,840 annually (23,678,572 lives * 0.098/1000 * $553).

Commenters questioned the data the Department used in the regulatory impact analysis for the proposed rule to estimate the costs incurred by TPAs and insurers to provide culturally and linguistically appropriate notices. One commenter questioned whether the $500 per document translation cost accurately reflects the costs to comply with this provision. The commenter, however, failed to explain its rationale or provide any alternative information the Department could use to refine its estimate.

Another commenter questioned whether it was valid to rely on cost estimates to translate a notice into a non-English language based on data used by the Department to quantify the costs of complying with the a similar ACA requirement for group health plans. The Department believes that its experience with ACA group health plan claims and appeals regulations is directly applicable to this final regulation regarding disability claims and appeals. Contrary to the commenter’s assertion that disability claims are so different from health claims that information about one cannot inform the other, the Department believes that translation of a notice into a different language is very similar for health and disability benefits, particularly as the same translation companies offer services for both types of notices. Also, while commenters argue that disability claims files are much larger than medical claim files, the distinction is not relevant here, because the claim file is not required to be translated; only the notice is.

Another comment received was that there would be additional costs due to privacy issues arising from sharing personal information with a third-party. The same privacy issues arise in the health claims context. Pricing for translation services used in the analysis, therefore already have the costs for privacy issues built into the estimates.

The Department did not have sufficient data to quantify other costs associated with the final rule; and therefore, has provided a qualitative discussion of these costs below and a response to cost-related comments received in response to the regulatory impact analysis for the proposed regulation.

Independence and Impartiality-Avoiding Conflicts of Interest: The Department’s claims and appeals regulation required certain standards of independence for persons making claims decisions before the final rules were issued. These final rules add new criteria for avoiding conflicts that require plans providing disability benefits to 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 decisions.” Also decisions regarding hiring, compensation, termination, promotion, or other similar matters must not be made based on the likelihood that the individual will support the denial of benefits.

These requirements provide protections to claimants by ensuring that their claims are processed impartially and already are considered best practice by many plan administrators who comply with this standard. Some plans and insurers may need to evaluate their policies and procedures to ensure they are compliant with this this requirement. The Department did not have sufficient data to quantify the costs of these requirements.

One commenter, who supported applying independence and impartiality requirements, expressed concern about a statement in the preamble to the proposed rule where the Department explained, as an example, that a plan cannot contract with a medical expert based on the expert’s reputation for outcomes in contested cases rather than based on the expert’s professional qualifications. The commenter expressed concern that the statement in the preamble might result in claimants requesting statistics and other information on cases in which the medical expert expressed opinions in support of denying versus granting a disability benefit claims.

In the Department’s view, the preamble statement is an accurate example of one way that the independence and impartiality standard would be violated, and, accordingly, does not believe it would be appropriate to disclaim or caveat the statement in the final rule. That said, the independence and impartiality requirements in the rule do not modify the scope of what would be “relevant documents” subject to the disclosure requirements in paragraphs (g)(1)(vii)(C) and (h)(2)(iii) of the Section 503 Regulation, as amended by this rule. Nor does the rule prescribe limits on the extent to which information about consulting experts would be discoverable in a court proceeding as part of an evaluation of the extent to which the claims administrator or insurer was acting under a conflict of interest that should be considered in evaluating an adverse benefit determination. Thus, the Department acknowledges that plans may incur costs to respond to claimants’ requests for statistics and other information described by the commenter. However, the commenter provided no evidence or data to support their assertion and did not quantify the additional cost, thus the Department does not have sufficient data to quantify such costs.

Deemed Exhaustion of Claims and Appeals Process: The final rule tracks the proposal and provides that if a plan fails to adhere to all the requirements in the claims procedure regulation, the claimant would be deemed to have exhausted administrative remedies, with a limited exception where the violation was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. Litigation costs are the primary cost related to this requirement, because claimants may proceed directly to court after a deemed exhaustion. Pursing litigation is more expensive than the plan appeals process, however, it may be the only option claimants have available to obtain denied benefits. Deemed exhaustion is available for the situations when plans are not following the procedural rules of the regulation. At times it may still be in a claimant’s best interest to pursue an appeal inside the plan due to cost and time to resolve issues instead of using the court system. Commenters raised a concern the Start Printed Page 92339claimants would be hurt by the higher costs and delay in obtaining a resolution if they sought resolution through litigation. However, this provision allows claimants to decide if the added costs and time of litigation are offset by the cost to them of remaining in an appeals process that is in violation of the procedural rules.

Some commenters maintained that their liability exposure increases when claimants’ ability to go to court is enhanced. These commenters expressed concern about the expense of discovery to even determine if the procedural requirements have not been followed and asserted that claimants will allege that plans have violated their procedures and go to court to force a settlement.

While all of these scenarios are possible, the Department does not know of, nor did commenters provide, any data or information that would even be suggestive of, the frequency of these events, or the added expense resulting from their occurrence. The Department is not aware of systematic abuses or complaints of abuse with respect to a similar deemed exhaustion requirement contained in the ACA and the Departments’ implementing regulation at 29 CFR 2590.715.2719. Thus, the Department believes these occurrences will be infrequent.

Covered Rescissions-Adverse Benefit Determinations: The final rule adds a new provision to address coverage rescissions. Specifically, the 2000 regulation already covered a rescission if it is the basis, in whole or in part, of an adverse benefit determination. The final regulation amends the definition of adverse benefit determination to include a rescission of disability benefit coverage that has a retroactive effect, whether or not there is an adverse effect on a benefit at that time.

The Department understands that this situation occurs infrequently. When it does occur, plans will incur the cost of providing an appeal of the rescission. The Department does not have sufficient data to estimate the cost to review and appeal a rescission of coverage. However, the Department expects that it would be less than the cost to appeal other disability benefit denials because medical or vocation professionals are not needed to review the claim. Instead, the facts of the coverage situation are required. When a rescission is reversed, the provision of future benefits would be considered a transfer from the plan to the claimant whose rescission was reversed.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are likely to have a significant economic impact on a substantial number of small entities. Unless an agency determines that a final rule is not likely to have a significant economic impact on a substantial number of small entities, section 604 of the RFA requires the agency to present a final regulatory flexibility analysis (FRFA) of the final rule describing the rule’s impact on small entities and explaining how the agency made its decisions with respect to the application of the rule to small entities. Pursuant to section 605(b) of the RFA, the Assistant Secretary of the Employee Benefits Security Administration hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The Department discusses the impacts of the final rule and the basis for its certification below.

Need for and Objectives of the Rule: As discussed in section II above, the final rule will revise and strengthen the current rules regarding claims and appeals applicable to ERISA-covered plans providing disability benefits primarily by adopting several of the new procedural protections and safeguards made applicable to ERISA-covered group health plans by the Affordable Care Act. Before the enactment of the Affordable Care Act, group health plan sponsors and sponsors of ERISA-covered plans providing disability benefits were required to implement internal claims and appeal processes that complied with the Section 503 Regulation. The enactment of the Affordable Care Act and the issuance of the implementing interim final regulations resulted in disability plan claimants receiving fewer procedural protections than group health plan participants even though litigation regarding disability benefit claims is prevalent today.

The Department believes this action is necessary to ensure that disability claimants receive the same protections that Congress and the President established for group health care claimants under the Affordable Care Act. This will result in some participants receiving benefits they might otherwise have been incorrectly denied in the absence of the fuller protections provided by the final regulation. This will help alleviate the financial and emotional hardship suffered by many individuals when they lose earnings due to their becoming disabled.

Affected Small Entities: The Department does not have complete data on the number of plans providing disability benefits or the total number of participants covered by such plans. ERISA-covered welfare benefit plans with more than 100 participants generally are required to file a Form 5500. Only some ERISA-covered welfare benefit plans with less than 100 participants are required to file for various reasons, but this number is very small. Based on current trends in the establishment of pension and health plans, there are many more small plans than large plans, but the majority of participants are covered by the large plans.

Data from the 2014 Form 5500 Schedule A indicates that there are 39,135 plans reporting a code indicating they provide temporary disability benefits covering 40.1 million participants, and 26,171 plans reporting a code indicating they provide long-term disability benefits covering 22.4 million participants. To put the number of large and small plans in perspective, the Department estimates that there are 150,000 large group health plans and 2.1 million small group health plans using 2016 Medical Expenditure Panel Survey-Insurance Component.

Impact of the Rule: The Department has quantified some of the costs associated with these final regulations’ requirements to (1) provide the claimant free of charge with any new or additional evidence considered, and (2) to providing notices of adverse benefit determinations in a culturally and linguistically appropriate manner. These requirements and their associated costs are discussed in the Costs and Transfers section above. Additionally other costs are qualitatively discussed in the Costs section. Comments addressing the burden of the regulations were received and are discussed above as well.

Provision of new or additional evidence or rationale: As stated earlier in this preamble, before a plan can issue a notice of adverse benefit determination on review, the final rule requires plans to provide disability benefit claimants, free of charge, with any new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan as soon as possible and sufficiently in advance of the date the notice of adverse benefit determination on review is required to be provided and any new or additional Start Printed Page 92340rationale sufficiently in advance of the due date of the response to an adverse benefit determination on review.

The Department is not aware of data suggesting how often plans rely on new or additional evidence or rationale during the appeals process or the volume of materials that are received. The Department estimated the cost per claim by assuming that compliance will require medical office staff, or other similar staff in other service setting with a labor rate of $30, 30 minutes to collect and distribute the additional evidence considered, relied upon, or generated by (or at the direction of) the plan during the appeals process. The Department estimates that on average, material, printing and postage costs will total $2.50 per mailing. The Department further assumes that 30 percent of all mailings will be distributed electronically with no associated material, printing or postage costs.

Providing Notices in a Culturally and Linguistically Appropriate Manner: The final rule would require notices of adverse benefit determinations with respect to disability benefits to be provided in a culturally and linguistically appropriate manner in certain situations. This requirement is satisfied if plans provide oral language services including answering questions and providing assistance with filing claims and appeals in any applicable non-English language. The final rule also requires such notices of adverse benefit determinations sent by a plan to which the requirement applies to include a one-sentence statement in the relevant non-English language about the availability of language services. Plans also must provide, upon request, such notices of adverse benefit determinations in the applicable non-English language.

The Department expects that the largest cost associated with the requirement for culturally and linguistically appropriate notices will be for plans to provide notices in the applicable non-English language upon request. Industry experts also told the Department that while the cost of translation services varies, $553 per document is a reasonable approximation of translation cost.

In discussions with the regulated community, the Department found that experience in California, which has a State law requirement for providing translation services, indicates that requests for translations of written documents averages 0.098 requests per 1,000 members for health claims. While the California law is not identical to the final rule, and the demographics for California do not match other counties, for purposes of this analysis, the Department used this percentage to estimate of the number of translation service requests plans could expect to receive. Based on the low number of requests per claim, the Department expects that translation costs would be included as part of a package of services offered to a plan, and that the costs of actual requests will be spread across multiple plans.

Duplication, Overlap, and Conflict With Other Rules and Regulations: The Department does not believe that the final rule will conflict with any relevant regulations, federal or other.

D. Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the Department submitted an information collection request (ICR) to OMB regarding the ICRs contained in the final rule in accordance with 44 U.S.C. 3507(d), for OMB’s review. OMB approved the ICR under OMB Control Number 1210-0053, which currently is scheduled to expire on November 30, 2019.

As discussed earlier in this preamble, the Department’s final amendments to its claims and appeals procedure regulation would revise and strengthen the current rules regarding claims and appeals applicable to ERISA-covered plans providing disability benefits primarily by adopting several of the procedural protections and safeguards made applicable to ERISA-covered group health plans by the ACA. Some of these amendments revise disclosure requirements under the current rule that are information collections covered by the PRA. For example, benefit denial notices must contain a full discussion of why the plan denied the claim, and to the extent the plan did not follow or agree with the views presented by the claimant to the plan or health care professional treating the claimant or vocational professionals who evaluated the claimant, or a disability determination regarding the claimant presented by the claimant to the plan made by the SSA, the discussion must include an explanation of the basis for disagreeing with the views or disability determination. The notices also must include either (1) the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in making the adverse determination or, alternatively, or (2) a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist.

A copy of the ICR may be obtained by contacting the PRA addressee shown below or at http://www.RegInfo.gov. PRA ADDRESSEE: G. Christopher Cosby, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW., Room N- 5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free numbers.

After the implementation of the ACA claims regulations, disability plans claimants received fewer procedural protections than group health plan participants even though disability plan claimants experience more issues with the claims review process. These final regulations will reduce the inconsistent procedural rules applied to health and disability benefit plan claims and provide similar procedural protections to claimants of both types of plans.

The burdens associated with the regulatory requirements of the ICRs contained in the final rule are summarized below.

Type of Review: Revised collection.

Agencies: Employee Benefits Security Administration, Department of Labor.

Title: ERISA Claims Procedures.

OMB Number: 1210-0053.

Affected Public: Business or other for-profit; not-for-profit institutions.

Total Respondents: 5,808,000.

Total Responses: 311,790,000.

Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours: 516,000.

Estimated Total Annual Burden Cost: $814,450,000.

IV. Congressional Review Act

The final rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the Comptroller General for review. The final rule is not a “major rule” as that term is defined in 5 U.S.C. 804, because it is not likely to result in an annual effect on the economy of $100 million or more.

V. Unfunded Mandates Reform Act

For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.), as well as Executive Order 12875, this final rule does not include any federal mandate that may result in expenditures by state, local, or tribal governments, or the private sector, which may impose an annual burden of $100 million or more (as adjusted for inflation).

VI. Federalism Statement

Executive Order 13132 outlines fundamental principles of federalism, Start Printed Page 92341and requires the adherence to specific criteria by Federal agencies in the process of their formulation and implementation of policies that have “substantial direct effects” on the States, the relationship between the national government and States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have federalism implications must consult with State and local officials and describe the extent of their consultation and the nature of the concerns of State and local officials in the preamble to the final regulation.

In the Department of Labor’s view, these final regulations have federalism implications because they would have direct effects on the States, the relationship between the national government and the States, or on the distribution of power and responsibilities among various levels of government to the extent states have enacted laws affecting disability plan claims and appeals that contain similar requirements to the final rule. The Department believes these effects are limited, because although section 514 of ERISA supersedes State laws to the extent they relate to any covered employee benefit plan, it preserves State laws that regulate insurance, banking, or securities. In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have federalism implications or limit the policy making discretion of the States, the Department solicited input from affected States, including the National Association of Insurance Commissioners and State insurance officials, regarding this assessment at the proposed rule stage but did not receive any comments.

List of Subjects in 29 CFR Part 2560

• Claims
• Employee benefit plans

For the reasons stated in the preamble, the Department of Labor amends 29 CFR part 2560 as set forth below:

PART 2560—RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT

1. The authority citation for part 2560 is revised to read as follows:

Authority: 29 U.S.C. 1132, 1135, and Secretary of Labor’s Order 1-2011, 77 FR 1088 (Jan. 9, 2012). Section 2560.503-1 also issued under 29 U.S.C. 1133. Section 2560.502c-7 also issued under 29 U.S.C. 1132(c)(7). Section 2560.502c-4 also issued under 29 U.S.C. 1132(c)(4). Section 2560.502c-8 also issued under 29 U.S.C. 1132(c)(8).

2. Section 2560.503-1 is amended by:

a. Adding paragraph (b)(7).

b. Revising paragraph (g)(1)(v).

c. Adding paragraphs (g)(1)(vii) and (viii).

d. Revising paragraphs (h)(4) and (i)(3)(i).

e. Revising paragraphs (j)(4) and (j)(5) introductory text.

f. Adding paragraphs (j)(6) and (7).

g. Revising paragraphs (l) and (m)(4).

i. Redesignating paragraph (o) as (p), and adding new paragraph (o).

j. Revising newly redesignated paragraph (p).

The revisions and additions read as follows:

Footnotes

by Cody Allison

New DOL ERISA Changes

by Cody Allison

ERISA LTD Statute of Limitations Addressed by Supreme Court

by Cody Allison

HAISLEY v. SEDGWICK