Benefits Monthly Minute
The May Monthly Minute examines a recent Seventh Circuit decision upholding unambiguous plan language against class action attack, the status of the federal IDR process under the No Surprises Act, and the DOL’s recent settlement with Prudential involving EOI requirements for life insurance benefits.
No Severance For You: Seventh Circuit Upholds Unambiguous Eligibility Standard
Apparently in no mood to mince words, the Seventh Circuit recently shut down a class action consisting of laid off plaintiffs seeking severance benefits. As succinctly stated in the Seventh Circuit’s opinion: “Northrop Grumman laid off some workers in 2012 and did not provide severance benefits to all of them. […] The Plan makes the receipt of severance benefits contingent on receipt of a HR Memo, which plaintiffs and the other class members did not get.” Unmoved by the plaintiffs’ estoppel arguments that looked to Northrop Grumman’s past practice of routinely providing HR memos and severance benefits to laid off workers, the Court emphasized that rights under ERISA are not subject to estoppel. Rather, the sponsor must apply a pension or welfare plan as written. In reliance on the plan document’s HR memo requirement, without the required HR memo, plaintiffs were not entitled to benefits.
KMK Comment: The Court’s unambiguous message and no-nonsense tone is sure to provide a powerful shield for plans against plaintiffs seeking benefits that fall outside the clear language of the plan document.
Slowly, but Surely — IDR Process Is Up and Running
The federal Independent Dispute Resolution (IDR) portal was launched on April 15, 2022, which allows providers, facilities, and providers of air ambulance services, as well as group health plans to determine the out-of-network payment rate for items and services subject to surprise billing protections under the No Surprises Act. The process involves a certified IDR entity that reviews offers made by each disputing party along with supporting evidence. According to a report released on April 27, 2023, the one year anniversary of the federal IDR portal was defined by an unexpectedly high volume of disputes, complex eligibility determinations, and ongoing technical and operational issues.
From April 15, 2022 to March 31, 2023, disputing parties initiated 334,828 disputes through the federal IDR portal -- nearly fourteen times greater than initial estimates. Initiating parties were the prevailing party in approximately 71% of the disputes and payment determinations were rendered in 42,158 disputes. Interestingly, of the 106,615 disputes closed during this period, 39,890 were ultimately determined ineligible for the federal IDR process. Given the large volume of disputes, many parties are still awaiting eligibility and payment determinations. The Departments cited the primary cause of delays as the complexity of determining dispute eligibility for the federal IDR process. To address this issue, data elements are being added to the dispute initiation form, parties are directed to attach documents supporting or contesting eligibility when initiating or challenging disputes, and the Departments are engaging additional staff to manage pre-eligibility reviews. Additional policy and operational improvements are also being considered.
KMK Comment: According to an earlier CMS report, the majority of disputes were initiated by providers (medical management associations, medical practices, and revenue management companies). The backlog CMS is experiencing is undoubtedly a frustration for entities seeking payment, while the high success rate of the initiating parties may be cause for concern by health plans and other payors. It remains to be seen if the additional data and documentary requirements for eligibility contests will stem the flow of disputes, or whether further legislation will be adopted to better manage the process.
DOL to Prudential: You Can’t Have Your Cake and Eat it, too!
Prudential recently agreed to a settlement after it came under fire by the DOL for denying life insurance benefits on the basis of failures to provide evidence of insurance (EOI) despite accepting premium payments. The settlement flows from an investigation where Prudential offered group life insurance policies to businesses that allowed plan participants to permit payroll deductions to pay for supplemental coverage. The investigation uncovered that from 2017 to 2020, Prudential denied more than 200 claims on the grounds that the participant failed to provide EOI and, further, that Prudential had collected premiums despite lacking EOI since at least 2004. The DOL contended that Prudential has a fiduciary duty under ERISA to ensure that it makes eligibility determinations for supplemental coverage at or near the time it receives premiums. In the settlement agreement, Prudential agreed that it will not deny a supplemental coverage claim under an ERISA group life policy solely on the basis that an EOI was not submitted or approved by Prudential, where Prudential received premiums for at least three months. The settlement also provides existing participants additional protections and includes certain notice requirements to participants and policyholders. According to a DOL press release, Prudential is also voluntarily reprocessing denied claims dating back to June 2019 and providing benefits for claims previously denied based solely on lack of EOI.
KMK Comment: The force of this settlement will likely be felt beyond Prudential’s policies, as parallel investigations of other insurers have uncovered similar practices. It also bears noting the settlement agreement cautioned that group policyholders, such as employers sponsoring plans, who collect premiums may be liable for beneficiary claims for supplemental coverage if they fail to notify participants that Prudential had not approved their EOI.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
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