Technical Release No. 2011-02Guidance on External Review for Group Health Plans and Health Insurance Issuers Offering Group and Individual Health Coverage, and Guidance for States on State External Review ProcessesJune 22, 2011 BackgroundThe Patient Protection and Affordable Care Act, Public Law 111-148, was enacted on March 23, 2010; the Health Care and Education Reconciliation Act, Public Law 111-152, was enacted on March 30, 2010 (collectively known as the "Affordable Care Act"). The Affordable Care Act reorganizes, amends, and adds to the provisions of part A of title XXVII of the Public Health Service Act (PHS Act) relating to group health plans and health insurance issuers offering group and individual health insurance coverage. The Affordable Care Act adds section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue Code (the Code) to incorporate the provisions of part A of title XXVII of the PHS Act into ERISA and the Code, and make them applicable to group health plans, and health insurance issuers providing health insurance coverage in connection with group health plans. The Departments of Health and Human Services (HHS), Labor, and the Treasury (collectively referred to as the Departments) have been issuing regulations in several phases to implement the revised sections 2701 through 2719A of the PHS Act and related provisions of the Affordable Care Act. Section 2719 of the PHS Act applies to group health plans and health insurance issuers in the individual and group health insurance markets that are not grandfathered health plans within the meaning of section 1251 of the Affordable Care Act.(1) It sets forth standards for plans and issuers regarding both internal claims and appeals process and external review. The Departments published interim final rules implementing section 2719 of the PHS Act on July 23, 2010, at 75 FR 43330 (the July 2010 regulations) and are issuing an amendment to those rules contemporaneously with this technical guidance. Section 2719(b)(1) of the PHS Act requires that group health plans and health insurance issuers in the group and individual market comply with a State external review process if that process includes, at a minimum, the consumer protections set forth in the Uniform Health Carrier External Review Model Act issued by the National Association of Insurance Commissioners (the NAIC Uniform Model Act).(2) Paragraph (c)(2) of the July 2010 regulations sets forth the 16 minimum consumer protection standards from the NAIC Uniform Model Act that a State external review process must include in order to be authorized under section 2719(b)(1) of the PHS Act. Therefore, under previous guidance, for a State external review process to apply (or continue to apply) to health insurance issuers (and certain plans(3)) for plan years (in the individual market, policy years) beginning on or after July 1, 2011, the State process was required to include the 16 minimum consumer protection standards set forth in paragraph (c)(2) of the July 2010 regulations. These 16 minimum consumer protection standards are being amended, in limited respects, by an amendment to the July 2010 regulations that is being issued contemporaneously with this technical guidance. That amendment to the July 2010 regulations also modifies (as described below) the transition period described in the first sentence of this paragraph. These 16 minimum consumer protection standards, as amended, may be summarized as follows:(4)
Under section 2719(b)(2) of the PHS Act, if a State's external review process does not meet these minimum consumer protection standards, group health plans and health insurance issuers in the group and individual market in that State are required to implement an effective external review process that meets minimum standards established by the Secretary through guidance. These standards must be similar to the standards established under section 2719(b)(1) of the PHS Act and must meet the requirements set forth in paragraph (d) of the July 2010 regulations. Accordingly, there may be external review processes authorized under PHS Act section 2719(b)(1) and paragraph (c) of the July 2010 regulations (hereinafter referred to as "NAIC-parallel processes") and there may be external review processes authorized under statutory PHS Act section 2719(b)(2) and paragraph (d) of the July 2010 regulations (hereinafter referred to as "NAIC-similar processes"). DiscussionA. Status of State External Review ImplementationThe Departments understand that many States have been working to make changes to implement NAIC-parallel processes. HHS continues to evaluate State external review processes to determine whether they meet the standards for an NAIC-parallel process. If HHS determines that a State's external review process does not meet those minimum consumer protection standards, issuers (and plans) will need a reasonable opportunity to respond and change to a different process. For these reasons, the Departments are establishing: (1) a transition period until January 1, 2012 for State external review process implementation; and (2) a set of temporary standards for NAIC-similar processes that will apply until January 1, 2014. Transition period In light of these circumstances, and in order to allow time for issuers (and plans) to make a reasonable transition to a different process, the Departments are modifying the transition period for States to implement external review processes.(8) Specifically, under an amendment to the July 2010 regulations being published contemporaneously with this technical guidance, the transition period is modified to extend through December 31, 2011. As discussed below, HHS intends to issue determinations regarding State external review implementation no later than July 31, 2011. Temporary standards for NAIC-similar consumer protections In addition to the transition period, this technical guidance establishes minimum consumer protection standards for NAIC-similar processes that will temporarily apply for a State-administered external review process authorized under section 2719(b)(2) of the PHS Act and paragraph (d) of the July 2010 regulations. These temporary standards will apply to health insurance issuers (and, if applicable, self-insured nonfederal governmental plans) in a State until January 1, 2014.(9) Until the earlier of these two dates, issuers (and plans) will comply with an applicable State external review process that meets these temporary standards even if it does not meet all the minimum consumer protections of paragraph (c)(2) of the July 2010 regulations, as amended. Beginning January 1, 2014, a State external review process will need to satisfy the standards of paragraph (c)(2) of the July 2010 regulations, as amended, or the issuer (or plan) will become subject to a Federally-administered external review process. The temporary standards for a State-administered external review process to be considered an NAIC-similar process are all of the following:
Determinations regarding individual State external review processes Not later than July 31, 2011, HHS will determine whether each State external review process meets the standards for NAIC-parallel processes outlined in paragraph (c)(2) of the July 2010 regulations, as amended, or the standards for NAIC-similar processes outlined in this technical guidance. If a State process meets neither standard, health insurance issuers (and, if applicable, self-insured nonfederal governmental plans) in the State will be subject to a Federally-administered external review process (discussed further below). If a State believes that this determination is not accurate, the State may request, within 30 days of receiving its determination letter, that HHS re-evaluate the State's external review process. Additional instructions on redeterminations will be available in the initial determination letters. If a State does not request a re-determination, this initial determination will be considered a final determination. Final determinations will be in place no later than October 1, 2011, which gives plans and issuers three months to transition to a different process, if warranted, by January 1, 2012. If, at any time after HHS makes a final determination, the State changes its external review process, the State may request a new determination.(11) Finally, in order to continue to be considered a NAIC-similar process under section 2719(b)(2) of the PHS Act and this technical guidance, States may not reduce the consumer protections in their external review process below the level that applies at the time HHS makes its finding. For example, if on or before July 31, 2011, HHS determines a State external review process is an NAIC-similar process and the State external review process allows consumers up to 120 days to file for external review, that protection cannot be narrowed later to allow consumers only up to 60 days to file for external review. If a State-administered process reduces consumer protections below the level that applies at the time HHS makes its finding, plans and issuers in the State will be required to participate in a Federally-administered external review process. B. Federal External Review ProcessesSince publication of the July 2010 regulations, the Departments have issued several technical guidance documents that set forth the Federally-administered external review process for specified types of health coverage.(12) Certain aspects of this previous technical guidance are modified by this Technical Release 2011-02, as discussed below. Health insurance issuers and self-insured nonfederal governmental plans All self-insured nonfederal governmental health plans, as well as health insurance issuers in the group and individual market in States whose external review processes are found not to meet the requirements to be an NAIC-parallel process or an NAIC-similar process, must participate in a Federally-administered external review process. Such plans and issuers may choose to participate in the Federal external review process administered by HHS agreement through the Office of Personnel Management (the HHS-administered process) or engage in the private accredited IRO process for plans subject to ERISA and/or the Code. This includes issuers (and self-insured nonfederal governmental plans) in Alabama, Nebraska, Mississippi, U.S. Virgin Islands, Guam, American Samoa, and Northern Mariana Islands that are currently using the HHS-administered process. Separate guidance published contemporaneously by HHS addresses how issuers and self-insured nonfederal governmental plans elect one of these two Federal external review processes. Self-insured plans subject to ERISA and/or the Internal Revenue Code On August 23, 2010, the Department of Labor issued Technical Release 2010-01 (T.R. 2010-01)(13) setting forth an interim enforcement safe harbor regarding external review for self-insured plans subject to ERISA and/or the Code. In general, T.R. 2010-01 provided that the Department of Labor and the Internal Revenue Service (IRS) would not take enforcement action against a group health plan that either: (1) complied with the standards set forth in the technical release; or (2) voluntarily complied with a State external review process. Among the standards set forth in T.R. 2010-01, plans were to contract with at least three accredited IROs and rotate assignments among them (or incorporate other independent, unbiased methods for selection of IROs, such as random selection). Immediately after publication of that technical guidance, many plans and issuers indicated that they were experiencing difficulty contracting with three IROs. While many IROs indicated that they had capacity to handle the additional external reviews, it appeared they were experiencing difficulty responding to numerous requests to negotiate new contracts from multiple plans and their service providers in a brief period. Accordingly, on September 20, 2010, the Departments issued Affordable Care Act Implementation FAQs Part I.(14) Among other things, these FAQs provided that, for plans that do not strictly comply with the enforcement safe harbor of T.R. 2010-01, compliance would be determined on a case-by-case basis. An example was given in FAQ-8 of a plan that had failed to contract with three IROs. The FAQ provided that the example was not a per se violation of PHS Act section 2719(b) and that, instead, the plan could demonstrate other steps taken to ensure that its external review process was independent and without bias. During the approximately nine months since publication of these FAQs, the marketplace for IROs has had an opportunity to adjust. Plans and IROs have had time to develop standard contractual documents, and many plans and issuers are using service providers such as third-party administrators (TPAs) to enter into global contracts, eliminating the need for each plan to have its own contract, and building economies of scale and contracting efficiencies into the process.(15) At the same time, concerns have been identified about the potential for bias when large plans use only one IRO, since the IRO can become very dependent on the plan for its financial security. Accordingly, in response to these concerns, and in recognition of the experience that has been gained in the past nine months, the Department of Labor and the IRS are modifying their enforcement policy with respect to IROs. Specifically, to be eligible for a safe harbor from enforcement from the Department of Labor and the IRS, self-insured plans will be required to contract with at least two IROs by January 1, 2012 and with at least three IROs by July 1, 2012 and to rotate assignments among them. These requirements remain part of an enforcement safe harbor, and a plan may use an alternative process to meet the standards of paragraph (d)(2)(i) of the July 2010 regulations regarding random assignment. However, the Department of Labor and the IRS will look closely at any process other than the rotational assignment referred to in T.R. 2010-01, and modified in this T.R. 2011-02 when making its case-by-case determinations. At a minimum, the Department of Labor and the IRS expect plans to document how any alternative process constitutes random assignment, as well as how it ensures that the process is independent (not subject to undue influence by the plan) and without bias. C. Federal External Review ProcessesConsistent with this technical guidance and the contemporaneous amendment to the July 2010 regulations, the Departments are also issuing a revised model notice of adverse benefit determination, a revised model notice of final internal adverse benefit determination, and a revised model notice of final external adverse benefit determination. These notices are included in the Appendix to this T.R. 2011-02. The Department of the Treasury and the IRS have reviewed and concur with this Technical Release. For Further Information Contact: Amy Turner or Beth Baum, Employee Benefits Security Administration, Department of Labor, at 202-693-8335; and Ellen Kuhn, Centers for Medicare & Medicaid Services, Department of Health and Human Services, at 301-492-4100. Footnotes
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