A new proposed rule seeks to give disability insuranceparticipants more rights when appealing claims denials – but thatmay not be a good thing.

Some industry stakeholders have voiced concern that theDepartment of Labor’s Disability Claims Rules, which would changethe way disability benefits claims are adjudicated, would be tooonerous for plan administrators and ultimately make the productmore expensive. This could discourage employers from offeringdisability insurance to its workforce altogether.

First proposed in November 2015, the rule is currently beingfinalized. It would take effect 60 days after being finalized.

In 2001, the DOL issued a rule on claims and appeals proceduresfor employer-sponsored health and disability plans regulated underthe Employee Retirement Income Security Act.

The proposed rule aligns existing disability claims and appealsprocesses with sponsor requirements for health benefits claimsdisputes, the latter of which was implemented in 2015 under theAffordable Care Act.

Analysis from the Groom Law Group says the proposed rule “wouldalmost certainly increase the administrative costs and burdens ofadministering disability plans, and would encourage claimants(participants) to pursue their claims in courts.”

The ERISA specialists at Groom say the DOL is seeking “to giveclaimants an edge in court they do not currently enjoy.”

Specifically, the proposed rule seeks to ensure that thosereviewing claims are impartial by mitigating potential conflicts ofinterest on the part of sponsors and insurers. Plans would not beallowed to provide bonuses to adjudicators, for instance, based onthe number of claims they deny.

The rule would also substantially increase disclosurerequirements; plans would have to provide extensive reasoning forany claims denials, including whether the claim was denied inopposition of Social Security or other third-party claims standardsthat may be more favorable to the participant’s claim.

Groom’s analysis says this requirement could be especiallyburdensome because it could be difficult to get information fromthe SSA on a timely basis. The attorneys also say the proposed ruleis unclear as to what constitutes “adequate evidence” for claimsdenied without regard for third-party claims standards.

If a participant appeals a denied claim, the plan would berequired to provide his or her employer with all supportingevidence and testimony and allow the participant to respond to thatevidence. During the appeals process, the plan would also have todisclose to the employee any new information that supportsdenial.

If plans failed to adhere to the new claims rules, an employeecould sue the carrier under a de novo standard, whichmeans that courts would review the claim independent of, andwithout deference to, the plan’s evidence for denial.

The rationale – and theopposition

In the proposed rule’s preamble, regulators say the new employeeprotections are necessary in part because disability claimslawsuits “dominate” the ERISA litigation landscape. This is thanksin part to more claims from an aging workforce – a phenomenon theDOL expects to continue.

As a result of greater disability litigation, insurers and planshoping to contain the cost of disability coverage “are oftenmotivated to aggressively dispute disability claims,” according tothe DOL’s reasoning in the proposed rule.

At least one leading disability insurance provider disagreeswith that reasoning

In a comment letter, a senior executive from Unum said theinsurer has actually seen less disability claimslitigation over the past decade, and that only a “tiny fraction of1 percent” of disability claims are litigated.

Unum says the existing claims process framework already provides“significant consumer protections,” and that the proposed changeswould increase administrative costs and litigation. These expenseswould ultimately be passed on to consumers, who already struggle tomanage the cost of coverage, in the form of higher premium. Theproposed rule, then, would effectively discourage employers fromoffering disability benefits due to their cost, argues Unum in itscomment letter.

Other stakeholders offer similar assessments, including TheAmerican Benefits Council (ABC), which represents the interests ofthe largest plan sponsors.

Just over one-third of private sector workers havelong-term disability coverage, according to the U.S Bureau ofLabor Statistics. Of those who don’t have coverage, 41 percent say they would consider buying disabilityincome protection if it were less expensive, according toCouncil for Disability Awareness data cited in ABC’s commentletter.

“Any additional costs resulting from the proposed regulationsare very likely to be borne to a greater extent by the Americanworker,” ABC’s letter predicts.

The opportunity forvoluntary

Inquires to several benefits specialists and ERISA consultantsdid not reveal how close the rule is to finalization. Sources didnote that regulators typically give great weight to consumerprotections in disability claims.

One implication for the voluntary market is that, if theproposed rule is finalized, employers may be interested in safeharbor-qualified disability benefits.

William Allison, a Shreveport, Louisiana-based attorney, favorsthe proposed rule, saying he’d actually like to see its protectionsexpanded. Under existing claims regulations, “sandbagginghas been a persistent problem in the ERISA appeals process,” wroteAllison in his comment letter.

He has represented claimants in ERISA-governed disabilitybenefit disputes for the past 15 years, and says conflicted claimsadministrators often prevent employees from getting a fair reviewof their claim.

Asked if a disability policy that qualifies for the ERISAvoluntary benefit safe harbor would be subject to the new claimsproposals, Allison’s response is clear: “If a policy issafe-harbored, the DOL does not apply.” That means the proposedrule on the claims process would also not apply.

But for those brokers who might consider advising employers tooffer disability on a strictly voluntary basis in order to qualifyfor the safe harbor, Allison has an admonition.

“The safe harbor is incredibly hard to meet,” he says. “Everyday, I get the decisions on all of the ERISA cases decided acrossthe country,” Allison says. “You don’t see a whole lot of casesthat have applied the safe harbor. There are a few, but notmany.”

Allison’s clients have an advantage when policies aren’tgoverned by ERISA, because it gives them access to jury trials instate courts, which tend to be more favorable to disabilityplaintiffs than bench trials litigated under ERISA.

“If you can navigate your way through the narrow inlet, thenyes, the safe harbor provides protection from ERISA oversight,” headded. “But [that’s] not easy to do.”