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Copyright 1999 Federal News Service, Inc.  
Federal News Service



LENGTH: 4324 words



Chairman Jeffords and Members of the Committee, thank you for the opportunity to testify this morning about the Department of Labor's role in the Administration's efforts to ensure that American workers are afforded full and fair reviews of their benefit claims. We appreciate the leadership of the Chairman, Ranking Member, and other Committee Members for focusing early in this new Congress on these issues, which are so important to the millions of Americans and their families who receive their health care coverage through employment- based plans.
I am Leslie Kramerich, Deputy Assistant Secretary for Policy for the Pension and Welfare Benefits Administration (PWBA). PWBA administers Title I of the Employee Retirement Income Security Act (ERISA), the primary federal statute governing employment-based pension and welfare plans. Currently, ERISA governs an estimated 700,000 pension plans, covering approximately 87 million participants and an estimated 6 million welfare plans (including 2.6 million group health plans) covering approximately 72 million participants.
The regulatory efforts that I will discuss this morning represent an important step towards improving the fairness and effectiveness of the processes by which health and other benefit determinations are made by employee benefit plans subject to BRISA. Although we are working to achieve these goals, we do not have the authority under BRISA to address all Administration's goals for American workers, such as the need to be able to obtain independent external reviews of denied health benefit claims and compensation when a health plan decision wrongly causes a patient to be harmed or die. In this regard, legislation is required to ensure that fundamental patient protections are extended to the millions of Americans covered by BRISA plans. We believe American workers not only need, but deserve, a strong and enforceable Patients' Bill of Rights.
We also thank you, Mr. Chairman and Members of the Comittee, for your leadership in the nation's continuing efforts to improve the health care rights of American workers. We welcome the opportunity to work with you and Members of the Committee in addressing these issues so important to millions of Americans.
ERISA sees out the broad contours of procedural fairness for benefit claims of plan participants. It simply states that all plans must provide a claimant with an adequate written notice when a claim for benefits is denied in whole or in part. The notice must give specific reasons for the denial and be written in a mariner calculated to be understood by the claimant, Finally, the claimant must be afforded a reasonable opportunity to obtain a full and fair review of the denial by an appropriate named fiduciary of the plan. ERISA gives the Department of Labor the authority To promulgate regulations to give substance to these general rights,In 1977, early in ERISA's history, the Department issued a regulation to implement these basic requirements. The 1977 regulation, which applies uniformly to both pension and welfare plans (including group health plans), sets a number of specific, basic standards, such as requiring that the plan's claims procedures be set forth in the plan's summary plan description -- a document commonly referred to as the SPD. The SPD is the principal document by which ERISA participants and beneficiaries are notified of their rights and responsibilities under their plans. They should receive it when they join the plan, and they should receive summaries of material changes within time frames set out in the statute and regulations.
The 1977 regulation also provides that when a plan denies a claim, it must notify the claimant in writing, stating the reasons for the denial and references to the relevant plan provisions. This notice must also describe any additional material or information necessary for the claimant to perfect the claim. Finally, the notice must include appropriate information on how the claimant may seek review of this denial. A claimant must have the right to inspect pertinent documents and to submit issues and comments in writing to the plan.
ERISA and the 1977 regulation set requirements for an initial decision and a review by an appropriate named fiduciary. The 1977 regulation sets maximum time frames for completing this two-stage process: the initial written denial must be provided within a reasonable period of time, but not later than 90 days after receipt of the claim (if special circumstances require additional time, up to 90 more days is allowed, for a total of 180 days); a claimant must be given at least 60 days after a denial in which to request a review of the decision; a decision on appeal of a denial must be made ordinarily within 60 days after the review request (if there are special circumstances, the appeal can take up to an additional 60 days, for a total of 120 days). The 1977 regulation also allows a plan to take even longer to complete a review where the named fiduciary is a group that holds regularly scheduled meetings at least quarterly. Ira review decision is not made within the 1977 regulation's time frames, the claimant can deem the claim to be denied and can file suit for court review. While these time frames may have been appropriate when this regulation was promulgated, they are no longer responsive to the needs of participants today. These standards are so out-of-date that they provide little protection in any benefit dispute. In particular, they do not provide any true protection for participants and beneficiaries of group health plans, that require patients to obtain pre-approvals for tests, treatments, hospitalizations, and referrals to specialists.
The Department of Labor is not alone in believing that the health procedures must be updated. I will mention the changes put into motion by the Health Care Financing Administration and the state-level National Association of Insurance Commissioners.
In 1977, when most health plans operated on a traditional fee-for- service basis and most health benefits were fully insured, the maximum time frames set by the 1977 regulation did not cause undue hardship at that time, because the matter at issue was simply whether or how much the plan would pay for a service that already had been rendered. Times have changed. The overwhelming rise in health care costs over the last twenty years has placed enormous pressures on employers, health care entities, insurance providers, and individuals to reduce costs and has created a revolution in the methods of financing employer-provided health care coverage. A large proportion of group health plans are now "self-insured," that is, the employer pays for the benefit claims out of its own assets, without recourse to insurance. The health care industry has developed, and is continuing to develop, creative methods of reducing its costs by adopting a variety of techniques to "manage" health care, many of which limit patient access to care. In today's health care environment, an outside limit of 90-days to decide, for example, whether to pre-approve a request to see a specialist or to have a diagnostic test is unnecessarily long and unreasonable. When the patient cannot finance an urgently needed service out of the plan, the 1977 regulation's requirements simply do not provide plans or participants with an appropriate framework for timely decision-making while the claimant's health -- potentially life -- hangs in the balance.

Far reaching changes in the deliver' and financing of medical services, particularly the growth of managed care systems and the requirement of pre-approval for major medical expenses under fee-for- service plans, have occurred since the 1977 regulation was issued and have accelerated in recent years. Accordingly, the Department initiated a project in mid- 1997 to consider whether, and to what extent, to change the framework set by the 1977 regulation.
The need to bring claims adjudication procedures up to date, particularly with respect to health claims, has been widely recognized. For example, during the period in which the Department developed its current benefit claims procedure proposal, the Health Care Financing Administration (HCFA) was in the process of amending its regulations relating to Medicare beneficiary appeals for managed care plans. The amendments adopted by HCFA established an expedited review process in situations where the time required for the standard review process could seriously jeopardize the life or health of the Medicare beneficiary or the beneficiary's ability to regain maximum function. The new Medicare expedited procedure rule also provides that a decision to discontinue services that are currently being provided may also be subject to the expedited review process. In addition, the National Association of Insurance Commissioners (NAIC) has developed several model acts that address the need for more detailed health benefit claims procedure regulation, especially with respect to claims that are subject to utilization review. Two of the NAIC's model acts provide specific requirements comparable to the Department's proposal, including expedited time frames in urgent care circumstances and independence of the decision-maker on review of denied claims.
Because we seek to ensure that the development of any new procedural standards is based on sound information, the Department published in the Federal Register, on September 8, 1997, a Request for Information (RFI) inviting the views of the public on the advisability of amending the 1977 regulation. The RFI invited comments on a series of questions, focusing primarily on benefit claims standards and practices of group health plans. The RFI also invited comments on the extent to which the standards set by the NAIC model acts and by HCFA with respect to Medicare beneficiaries would be applicable to ERISA- covered group health plans.
We received over ninety comments in response to the RFI. While they were far from unanimous in their descriptions or views, they presented strong support for the need to update the 1977 regulation, especially as it applies to health and disability benefit claims. Even those commenters who opposed revision of the regulation asserted that health benefit claims disputes are Usually resolved in much shorter time frames than currently permitted under the 1977 regulation. Other comments stated that many plans fail to provide claims processing that meets the standards of the 1977 regulation and that claimants are not well-informed about their rights or the procedures that govern their claims disputes.In November of 1997, the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry issued its report entitled Consumer Bill of Rights and Responsibilities. One of the rights identified by the Commission was the right of consumers to receive accurate, easily understood information relating to their health plans. Another right identified by the Commission was the right of all consumers "to a fair and efficient process for resolving differences with their health care providers...including a rigorous system of internal review and an independent system of external review" after the internal review has been exhausted. The President embraced the Commission's recommendations and directed the Department of Labor, among other agencies in the Administration, to report to him on how it could act within its jurisdiction to effectuate the recommendations. In its February 1998 report to the President, the Department fully supported the Commission's recommendations, but explained the limits of the Department's authority under ERISA to implement many of those recommendations.
In its report, the Department outlined a series of specific regulatory reforms it could undertake within its authority. One of these reforms involved the issuance of proposed regulations clarifying the information required to be contained in the summary plan description. On September 9, 1998, the Department proposed amendments to the summary plan description requirements requiring the clarifications identified in the Department's report. These amendments make clear that the summary plan description of group health plans must set forth a description of benefits and limits on coverage, the extent to which preventive services are covered, provider network composition and coverage of out-of-network services, among other things. We are currently reviewing comments submitted in response to those proposed regulations.The Department also identified in its report to the President a number of actions it could take to strengthen the claims review procedures under ERISA. The Department's proposed claims procedure regulation incorporates the reforms identified in the Department's report. The proposal also reflects the Department's consideration of the RFI comments, the Commission's findings, and the actions taken by other regulatory and governmental bodies, and it has been published as a proposal subject to further consideration to reflect public comment.
On September 9, 1998, the Department published in the Federal Register a proposed regulation that would revise the minimum standards relating to benefit claims procedures for all employee benefit plans covered by ERISA. This proposed regulation would change the benefit claims procedures that must be provided under both pension plans and welfare plans (including group health plans). While the proposal would make substantial changes to the processing of all benefit claims, the most significant changes in the proposed regulation concern the standards that would be applicable to group health plans.
Among the significant proposed changes are the following: The proposal would require that group health plans process routine claims within a reasonable period of time, not to exceed 15 days, and that appeals of such claims be resolved not later than 30 days. In the case of claims requiring expedited processing because the health of the claimant is at risk, described as "urgent care" claims, the proposal would require a decision on the claim as soon as possible, but not later than 72 hours. The proposal also would require that appeals of "urgent care" claims be resolved not later than 72 hours. The proposal would also establish special time limits for resolving disability benefit claims. Under the proposal, disability benefit claims would have to be resolved within 30 days and appeals of adverse determinations on such claims resolved within 45 days. In addition to establishing shorter processing time frames for health and disability plans, the proposal would require for group health plans that, in appeals of any adverse benefit determination involving a medical judgement, the deciding fiduciary of the plan consult with an independent health care professional who has appropriate training and expertise in the relevant field of medicine.
As stated earlier, the proposal would also make some changes to claims processing that are applicable more generally to all plans, including speeding up certain responses to employees. Under the proposal, for example, all covered plans, including pension plans, would be required to notify participants and beneficiaries when the participant or beneficiary makes a request for benefits, but fails to follow the plan's claim filing procedures, or where a properly filed claim is determined to be incomplete. Additionally, the plan fiduciary who reviews a denied claim would have to be different from, and not subordinate to, the initial decision maker, and would be required to make a de novo finding, not giving deference to the initial decision, and to consider any new evidence the claimant submits. In considering the application of such changes to all employee benefit plans, the Department concluded that these changes represent such fundamental components of a fair claims process that the principles must be applied uniformly to all benefit plans subject to ERISA, whether they provide health, pension, or other benefits.
The proposed regulation is intended to ensure that American workers and their families are afforded full and fair review of their benefit claims. Since the publication of the proposed regulation in early September 1998, the Department has received more than 600 public comments. Many commenters, including plan sponsors, trade associations and others, express concerns about increases in the cost of providing benefits that may result from compliance with the proposed rules. On the other hand, commenters representing employees and patients overwhelmingly support the proposal.

Mr. Chairman, our deliberative process will be continued through a public hearing on the proposed regulation scheduled to take place beginning on February 17, 1999. The purpose of the public hearing is to obtain further information on the proposed regulation so that the Department can better assess whether, and to what extent, the proposed regulation should be modified before the adoption of a final rule.
I can assure you that the Department will give thorough consideration to all of the issues raised by the commenters and expects to gain further understanding through the testimony that will be presented at the public hearing. Any final regulation promulgated through this process will reflect a balance of the burdens imposed on employers and other sponsors of employee benefit plans with the needs of participants and beneficiaries for procedural fairness in the process of resolving benefit claims.
The Committee has requested that we specifically address provisions of two health care bills introduced in the last Congress, S. 1890 and S. 2330. The Committee has asked the Department to explain how the standards of the proposed regulation compare to the internal claims and appeals provisions in S. 1890 and S. 2330. In general, these bills called for the establishment of new minimum standards and requirements for processing claims under all group health plans subject to ERISA. These bills do not apply to pension plans. They required plans to provide for accelerated procedures that take into account medical exigencies, for increased disclosure of information relating to the claims and appeals process, and for some kind of "independent" internal appeals process conducted by a doctor or other individual with appropriate expertise.
Many of the principal health-plan requirements of our regulatory proposal are comparable to the internal claims and appeals provisions of S. 1890 and S. 2330. All three proposals include provisions requiring:
- Expedited review of claims involving urgent care within comparable time frames (up to 72 hours for the Department's proposal and S. 2330; 3 business days for S. 1890);
- Notice provisions requiring plans to provide more information to participants when claims are denied, including an explanation of why the claim was denied, notice of the participant's right to appeal, and information about the plan's appeal process; and
- Independent internal review conducted by, or in consultation with, a doctor, health care professional, or some other person with appropriate medical expertise.
There are also some important differences between our proposal and the legislative proposals that warrant discussion. First, there are a number of provisions which were included in our regulatory proposal that were not addressed in one or both of the legislative proposals. These include: (1) a timely notification requirement for situations in which the plan needs more information to determine whether a benefit is covered; (2)provisions protecting participants from being subjected to multiple levels of internal review; (3) provisions extending the minimum period within which plans must permit participants to initiate appeals; (4) requirements that the review upon appeal be conducted de novo, meaning that the reviewer will not defer to the initial determination and will allow new evidence to be submitted; and (5) provisions allowing the participant to seek immediate judicial review where the plan has failed to establish or comply with procedures consistent with the proposed regulation.
There are also important differences in the way the time frame requirements are structured in the legislative proposals, as compared with our proposal. First, our proposal imposes time frame requirements in terms of calendar days, rather than "business" days, as S. 1890 does. Next, our proposal provides a standard that determines time frame requirements on the basis of the urgency of the need for care. Both S. 1890 and S. 2330 further delineate benefit determination time frame requirements on the basis of whether the claim involves prospective, concurrent, or retrospective review.
In addition to provisions addressing the internal claims review process, both bills provided for an external claims review process. We believe that the establishment of a system for providing an independent external review of benefit claims is critical to providing participants and beneficiaries a fair and efficient claims review process. We note that the establishment of an independent system for external review of benefit claims was advocated by the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry in their Consumer Bill of Rights and Responsibilities.
The Department, however, does not have the authority under current law to establish through regulations a system for independent, external benefit reviews.Accordingly, the Administration strongly supports legislative efforts to establish such a review system for participants and beneficiaries in all ERISA-covered group health plans. We believe that any legislative proposal establishing an external review process must, at a minimum:
- Ensure that the reviewing person or entity is independent of the party who decided the appealed claim and is not operating under any conflict of interest (including an objective procedure for selecting the reviewer);
- Ensure that the reviewing, g person or entity possesses the medical or other expertise necessary to perform the required review;
- Establish a certification and oversight process to ensure independence and qualifications of reviewers;
- Provide that external reviews will be de novo, i.e., reviews that afford no deference to original decisions and permit the claimant to submit new evidence pertinent to his or her claim;
- Establish specific time-frames within which routine and "urgent care"-type claims must be determined, providing expedited review of claims involving urgent care; and
- Provide for decisions on review to be binding on the plan.
As I noted earlier, American workers need and deserve a strong and enforceable Patients' Bill of Rights. Because the Department lacks the authority under current law to do more than reform the standards applicable to internal benefit claims processing, however, reform measures must come through legislation. In this regard, as I have already stated, we strongly support the Health Care Commission's recommendations for an external review of plan decisions. The absence of any independent, de novo review for claims determinations is a serious weakness in the protections offered by the existing statutory scheme.
In our view, stronger legal remedies are needed to assure compliance with the enhanced procedural protections. Under current law, when a consumer suffers harm due to the wrongful delay or denial of a claim for benefits, ERISA provides only for the benefit that the individual should have received to begin with; no additional medical costs or other compensation is available. As a result, a plan fiduciary who fails to assure compliance with the time limits or notice provisions of our current regulation is not truly accountable to individual participants for that failure. At best, an aggrieved participant may treat the claim as denied and proceed to court, possibly without the benefit of a clear explanation of her or his denial or access to pertinent documents that might help her or him evaluate or prove her or his claim. A participant may find himself in court with his health already injured and his need for treatment mooted by the progress of his illness, or even the possibility of death. If the plan's delay in providing a decision or critical information causes injury, the participant has no legal recourse, and the responsible fiduciary suffers no consequences.
In May of 1998, then Assistant Secretary Olena Berg testified before this Committee on the Department's efforts to address deficiencies in the benefit claims procedure processes and the limited ability of the Department to provide for the essential consumer protections listed in the Health Care Commission's Consumer Bill of Rights. While the Department has since that time taken steps to strengthen the internal claims review processes followed by plans, legislation is needed to provide the important patient protections American workers need and deserve. Merely rewriting our claims procedure regulation is a good start, but is simply not enough.
Millions of American workers are looking to Congress to address these critical issues through bipartisan legislation. In this regard, I reiterate our willingness to work with the Members of this Committee in developing a Patients' Bill of Rights in which we all can take great pride.
In closing, I want to thank the Members of this Committee for their leadership and for affording us the opportunity to testify this morning. I would be pleased to answer any question you might have.

LOAD-DATE: January 23, 1999

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