The recent health care reform legislation requires a group health plan to maintain an internal claim and appeal process that meets certain standards and to provide for an external appeal process. The U.S. Departments of Treasury, Labor, and Health and Human Services have jointly released regulations that address these subjects.

Internal Claims and Appeals

The regulations establish internal claim and appeal requirements that apply to both insured and self-funded health plans. The same rules apply to the insurers that provide insurance to group health plans.

These requirements incorporate the ERISA claim and appeal procedures set forth in Department of Labor regulations, but include six additional requirements:

(1) A rescission of coverage (a retroactive termination for reasons other than the failure to make timely premium/contribution payments) will be treated as a claim denial for purposes of these rules and can be appealed, whether or not a claim is attached.

(2) The determination with respect to a claim for urgent care must be made within 24 hours. The current standard is 72 hours.

(3) A claimant must be provided with any “new or additional evidence considered, relied upon, or generated” and any new or additional rationale for denying a claim sufficiently in advance of an appeal determination to allow the claimant a reasonable chance to respond.

(4) Processes must be instituted that ensure the independence and impartiality of persons who make determinations on appeal.

(5) Claim denial notices must be written in a culturally and linguistically appropriate manner and must include additional information, such as the relevant diagnosis, treatment and denial codes, explanations of what these codes mean, and a description of the standard used in denying claims (such as the standard for medical necessity). The government expects to publish model notices.

(6) Any deviation by a group health plan from these process requirements will allow a claimant to treat the claim and appeal process as exhausted. The claimant may then pursue his or her rights to external or judicial review.

External Review Process

When a final internal determination is made, a claimant may pursue an external appeal. A claimant seeking the approval of urgent care may pursue external review while the internal process continues. Depending on the circumstances, the appeal may follow a state process or a federal process.

The requirements for the state process build on the existing rules followed by each state. For plan years beginning before July 1, 2011, a state that provides for external review will be deemed to meet applicable standards. For later plan years, the state process must also meet certain standards for consumer protection. In any event, the state process will apply only to plans that are subject to state law. Insured plans and self-funded plans maintained by many church organizations and state and local governments are subject to relevant state requirements. For insured coverage, it is the insurer (and not the group health plan) that must meet the external review requirements.

If the state rules do not apply, a group health plan must provide for an external review that meets federal standards. Although it is expected that the federal standards will include many of the requirements that apply to state processes, the standards for the federal process have not yet been established.

In contrast, the regulations precisely define the scope of claims subject to the federal external review process. All rescissions and claim denials, other than denials based on an individual’s eligibility to participate in a plan, qualify for external review under the rules governing federal review.

The regulations do not set forth the scope of the state process so clearly. At a minimum, a state process must reach medical necessity, appropriateness, health care setting, level of care, and effectiveness of a covered benefit. However, a state may make its external review process available more broadly.

Continued Coverage Requirement

The health care reform legislation requires a plan to allow an enrollee to “receive continued coverage pending the outcome of the appeal process.” The regulations view this provision as applying only to the internal appeal process and as generally prohibiting a plan from reducing or terminating an ongoing course of treatment unless the participant is provided advance notice and an opportunity for advance review.

Effective Date

The new requirements apply to plan years beginning on and after September 23, 2010. For calendar year plans, the rules take effect January 1, 2011. The rules do not apply to grandfathered health plans.

If you have questions regarding the new regulations, please contact Edward I. Leeds, 215.864.8419 or

As the federal health care reform effort gained steam, Ballard Spahr attorneys formed an initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting employers in understanding the relevant changes and planning for the future. For more information on the firm’s Health Care Reform Initiative, please click here.