External Review Process Options for Self-Funded Health Insurance Plans

Sunday, January 15th, 2012 at 11:22 am by David Goldin

David Goldin, External Review Process Options for Self-Funded Health Insurance Plans, 2011 Colum. Bus. L. Rev. 429.

Many provisions of the Patient Protection and Affordable Care Act (the “PPACA” or “the Act”), signed into law on March 23, 2010, are highly controversial. Particularly contentious are issues pertaining to the rationing of health care, as illustrated by the recent, highly visible discourse about “death panels.” The issue became so heated that President Obama urged five governors with whom he met to avoid using the word “rationing” in discussing health care reform “for fear of evoking the hostile response that sank the Clintons’ attempt to achieve reform.” Although none of the legislative proposals contained any provisions that would lead to the creation of death panels or any similar body, the Act does have sections that affect decisions about who will receive health care and who will not.

One of these sections is the provision of the PPACA governing external review of denial-of-care decisions by insurance companies. This section generally mandates either that insurers comply with external review processes found in state law, or, if they are not subject to state regulation, that they establish an external review process. Insurers in the latter category must implement “effective external review process[es]” that meet “minimum standards established by the Secretary [of Health and Human Services]” and that are “similar” to state-regulated processes. While the framework provided in the Act offers some guidance as to what these processes should look like, it does not dictate a specific review process.

This provision is particularly important because it will lead to the implementation of a review process for claims determinations made by insurers in self-funded plans that are governed by the Employee Retirement Income Security Act (“ERISA”). The lack of meaningful review for these claims in the current insurance system has been heavily criticized in the past, and the PPACA provides an excellent opportunity to correct the problem. Section 514 of ERISA provides that ERISA supersedes all state laws that “relate to any employee benefit plan.” One consequence of this provision is the shielding of self-funded insurers from liability for negligent utilization review determinations, which limits the remedies available to claimants injured from improper denials of benefits. The external review provision of the PPACA has the potential to provide claimants insured under self-funded plans with a meaningful forum for review of claims determinations. It thus has the potential to be very powerful.

Five months after the signing of the PPACA, the U.S. Department of Labor issued Technical Release 2010-01, which dictates two interim procedures for external review that, if adopted, would provide insurers with a safe harbor. One option is for plans governed by ERISA to voluntarily submit themselves to state external review processes, among which there is a wide range of variation.  Alternatively, states have the option of adopting the process set forth in the Technical Release, which mandates the use of Independent Review Organizations (“IROs”). Technical Release 2010-01 is entirely elective; self-funded insurers can choose both whether to comply with the release, and thus whether to benefit from the safe harbor, and which method of external review they will use.

It is up to the Secretary of the Department of Health and Human Services (“the Secretary”) to promulgate minimum standards for the processes that insurers must implement. This Note analyzes a number of potential options for external review processes that can be implemented under the PPACA for self-funded health insurance plans regulated by ERISA. Establishing a viable and efficient external review process is particularly important because few other options for review of claims decisions by self-funded insurance plans exist, in part because of ERISA preemption.  If properly structured and operated, this external review mechanism has the potential to help both insurers and insureds.

Part II introduces the review processes and methods that health insurers use to either approve or reject claims, and discusses the implications of these processes for both insurers and insureds. It also examines the legal issues unique to review of claims determinations for self-funded health insurance plans governed by ERISA, which are specifically addressed by Section 10101(g) of the PPACA. Part III discusses the issues that should be considered in promulgating the minimum standards for an external review process. Part IV concludes by analyzing many of the options that might fulfill the external appeals process mandate.

Author Information

J.D. Candidate 2012, Columbia University School of Law; B.A. Columbia University, 2007.