Tag Archives: department of labor

New Regulations for Disability Claims

In December 2016, the Department of Labor issued final regulations under ERISA governing claims procedures for group disability plans, which became effective Jan. 1, 2018. The new regulations govern employee benefit plans subject to ERISA that offer disability benefits, not just disability plans. ERISA plans must strictly comply with the new regulations for all claims filed on or after Jan. 1, 2018, including any necessary amendments to plan documents and internal claims-handling procedures. However, some parts of the regulation took effect Jan. 18, 2017.

Although the DOL announced on July 20, 2017, that the new regulations might be amended or delayed, they were scheduled to take effect for all claims for disability benefits filed on or after
Jan. 1, 2018. These new disability claims regulations would not apply if a plan does not make the determination of disability, but instead relies on a third party’s determination of disability, such as a determination of disability made by the Social Security Administration or the employer’s long-term disability plan. Further, the new regulations do not apply when parties to a collective bargaining agreement have agreed to use a grievance and arbitration process to adjudicate disability claims.

For claims filed between Jan. 18 and Dec. 31, 2017, the DOL is imposing the following additional standards (as applicable) on denial notices to ensure a full and fair review has occurred.

  1. The notice either needs to provide (i) the specific rule, guideline, etc., that was relied upon in making the adverse determination relied; or (ii) a statement that that such a rule was relied upon and notice that a copy will be provided for free upon request.
  2. If the claim is denied based upon medical necessity, experimental treatment or a similar exclusion or limit, the notice must provide (i) an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical situation; or (ii) a statement that the explanation will be provided for free upon request. (Note: this standard will continue to apply in 2018.)

See also: How to Win at Work Comp Claims  

For claims filed on or after Jan, 1, 2018, these are the new requirements:

  1. Loss of discretionary authority. If a plan violates any of the rules for disability claims, the claim is deemed denied without the
    exercise of discretionary authority. This gives the claimant the right to file a lawsuit without further delay and will allow a court to decide the merits of the claim de novo, without any deference to the fiduciary who violated the rules. The only exception to this rule is if the plan’s violation was: (i) minor; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of a continuing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. In addition, a claimant may request that the plan explain in writing any violation. The plan must respond within 10 days by specifically explaining the violation and why it believes the claimant should not be permitted to file a lawsuit at that time.
  2. Impartiality. A plan’s claims procedure must be designed to ensure impartiality. This means that a plan cannot
    make hiring, compensation, promotion or termination decisions based on the likelihood that a claim adjudicator or supporting expert will support the denial of disability benefits. This rule also applies to vocational experts, medical consultants and in-house medical reviewers.
  3. Disclosure Requirements. Denial notices must include the following:
    1. Disagreement with Experts. A discussion of the basis for disagreeing with any healthcare professionals treating the claimant or any medical/vocational experts who evaluated the claimant. The discussion must include an explanation of why the plan disagrees with any medical/vocational experts whose advice was obtained in connection with the determination process, regardless of whether the advice was relied on when making the determination (This is designed to prevent “expert shopping”).
    2. Disagreement with SSA. If the Social Security Administration (SSA) has determined the claimant is disabled for Social Security purposes, the plan must discuss why it disagrees with the SSA’s determination. If the plan’s definition of “disabled” is similar to the SSA’s definition, the plan must provide a more detailed justification.
    3. Medical Necessity/Experiment Treatment. If a denial is based on medical necessity or experimental treatment, the notice must include an explanation of the scientific or clinical judgment used for the denial, or a statement that such explanation will be provided free of charge upon request.
    4. Internal Guidelines or Standards. If internal rules, guidelines or standards were relied on in making the plan decision, the plan must provide such rules, guidelines and standards. This disclosure requirement is more onerous than the requirements applicable to group health plans. The claims decision maker must affirmatively provide the rule, guideline or standard (or state that none was relied on). It is not sufficient to simply state that it will be provided upon request.
    5. Relevant Documents. For claim denials, the notice must provide that all documents relevant to the claim denial will be provided upon request. This requirement already exists for appeal denials.
    6. Contractual Limitations for Bringing Suit. All appeal denial notices must describe any time limit for filing suit in court set forth in the plan documents (any contractual limitations), and must include the specific date by which a lawsuit must be filed to be considered timely.
  4. Right to Respond to New Evidence or Rationales. A claimant must be given the right to respond to new evidence or rationales relied on or generated during the pendency of an appeal (even if supportive of the claimant). The plan must provide such evidence and rationales to the claimant as soon as possible and sufficiently in advance of the date on which the plan will reach its determination, so that the claimant has the opportunity to respond prior to the plan’s appeal decision.
  5. Rescissions of Coverage. Rescissions of coverage (the termination of coverage with a retroactive effect) must be treated as a denial of a claim. As such, a participant is entitled to use the plan’s claims procedure to appeal a rescission of coverage. This does not apply to retroactive termination of coverage for failure to pay premiums.
  6. Translation Requirements. If a denial notice is being mailed to a county where 10% or more of the population is literate only in the same non-English language, the denial notice must include a prominent statement in the relevant non-English language about the availability of language services. The plan would also be required to provide an oral customer assistance process (i.e., telephone hotline) in the non-English language and provide written notices in the non-English language upon request.

See also: Claims Litigation: a Better Outcome?  

PLEASE NOTE – On Oct. 6, 2017, the Department of Labor signed a proposed rule “to delay for ninety (90) days – through April 1, 2018 – the applicability of the final rule amending the claims procedure requirements applicable to ERISA-covered employee benefit plans that provide disability benefits.”

There is a 60-day period to submit comments providing data and other relevant information regarding the merits of rescinding, modifying or retaining the final rule. The DOL has received many complaints about the added costs to benefit plans (estimated at 6% to 10% increase in premiums, according to several insurance carriers). In light of these complaints, the DOL believes it is appropriate to seek additional public input and additional reliable data.

I believe there will be some changes to the final rule and do not believe they will just scrap it.

DOL Fiduciary Rule: What It Means

In April 2016, the U.S. Department of Labor (DOL) released a regulatory package that established a new standard for fiduciary investment advice. Under the Fiduciary Rule, investment recommendation given to an employee benefit plan or an individual retirement account (IRA) is considered fiduciary investment advice and therefore must be in the “best interest” of the investor.

As a result, financial advisers who provide investment advice under the new standard now face limits on receiving commission-based compensation. Considering that 50% of U.S. financial assets is held in retirement accounts, the impact of the rule is significantly affecting insurers, broker dealers and investment managers.

The DOL has long been concerned that people rolling over assets from an employer-sponsored pension plan to an IRA are not being well-advised and, as a result, are investing in products that are not most suitable for their needs or are unnecessarily expensive. Central to the DOL concern is what it perceives to be a lack of transparency around the standard under which an adviser is providing advice and how he/she is compensated. This is not surprising because advisers operate under multiple standards, with a majority of asset flows falling under a “suitability” rather than fiduciary standard.

To address these concerns, the DOL expanded the definition of the term “investment advice” under ERISA, thereby imposing fiduciary status under both ERISA and the Internal Revenue Code on firms and advisers who provide investment advice under this expanded standard. A fiduciary is subject to the duties of prudence and loyalty and is prohibited from acting for his/her own interests or in a manner adverse to those of the ERISA plan or IRA. Accordingly, fiduciary status will have a fundamental impact on adviser compensation, as advisers who are fiduciaries may not use their authority to affect or increase their own compensation in connection with transactions involving an ERISA plan or IRA.

See also: Does DOL Ruling Require a Plan C?  

A catalyst of widespread organizational change

The DOL Rule is causing significant changes to the insurance industry that go well beyond compliance. While the industry needs to be prepared for the June 2017 applicability date, delayed from the original April date, the rule (even if delayed again) is also a catalyst for more meaningful change for both insurance manufacturers and distributors. In many cases, these changes have been contemplated for some time.

Compensation For starters, to mitigate any conflicts of interest resulting from distribution compensation, insurers should inventory current compensation and understand the impact of changing models to various distribution channels. The industry has been focusing on the issue of compensation for some time, anyway (e.g., moving to commissions for annuities), and the DOL rule provides further impetus for change. This change will not be easy, not least because the industry has a variety of products and uses different distribution models. To facilitate the transition to the new environment, carriers and distributors will need to understand the current hierarchy and how it might change.

  1. What is the distribution channel? Is the distributor a fiduciary? If so, what exception or exemption is the distributor using?
  2. How will changing the hierarchy affect agents’ livelihood?
  3. Do you risk losing agents to a carrier that will pay “conflicted” compensation?
  4. How do you factor in outside compensation (e.g., marketing fees and allowances, 12-B1 fees)?
  5. Depending on the product shelf, there will be different types of conflicts.
  6. Determine which transactions are prohibited. Determining “red” and “green” transactions should be relatively easy, but determining “yellow” ones will be much more difficult, especially because the rule is fairly ambiguous in this regard.
  7. Understand each other’s point of view. Distributors will create rules for types of compensation they will allow in their systems. Although they are currently uncertain about how they will have to adapt, carriers will have to change their compensation structures and communicate them to distributors.

Carriers and distributors will also need to safeguard against personal and organizational conflicts of interest.

  1. How do we pay our workforce and others?
  2. What is non-cash compensation?
  3. How do we provide incentives to agents to sell products and sell certain product classes over others?
  4. What is the difference between suitability and fiduciary?
  5. Inventory products and create a tool to identify potential conflicts. This will be a complex undertaking, but it will enable carriers to determine who and how much carriers pay and why, as well as if conflicts are permissible or need to be disclosed.
  6. Perform a compensation impact analysis; assess the performance of distribution compensation as it currently exists and what seems likely in the future. This should include an assessment of the future model’s effect on revenue, profitability, market position, channel attractiveness and overall company performance.
  7. As part of a change management strategy, ensure that there is regular, clear and informative communication – both internally and externally – on impending change.

Changes in agent training

Once the fiduciary rule is in effect, agents will need to be advisers first and sellers second. Even though many insurers, especially ones with captive sales forces, have already tightened sales practices in recent years, this does represent a genuine cultural shift and a novel convergence between compliance and sales and distribution. As a result, agents will need more training on their fiduciary role – all the way down to call center scripts – and, with rationalized product lines, most likely less product training than in the past.

Some carriers are experiencing impacts they didn’t foresee. Because of their increasing need to respond to fiduciaries’ requests, they’re having to adopt their distributors’ policies and procedures (including access data requests) and change their product portfolios, share classes and fee structures. If they don’t do this, they risk losing shelf space to insurers that do.

Product rationalization – The DOL rule is intensifying carriers’ and distributors’ focus on product rationalization. Smaller product portfolios and resulting streamlined distribution models will facilitate carrier understanding of its product suite and compliance risks when providing “best interest” advice to consumers, reduce training required for agents and help the industry reduce costs and increase scale. For example, with annuities:

  • There are many providers offering many similar products, and oftentimes riders emulate characteristics of other carriers’ products that companies can’t build themselves. The rule provides the industry further incentives to address the inherent inefficiency in this state of affairs.
  • When determining which products to sell, financial strength is going to be a key product rationalization consideration for distributors because compensation will be more normalized with fewer products. When product portfolios shrink, lower-rated carriers’ products aren’t going to receive shelf space, especially if distributors can’t clearly demonstrate their benefits to customers. As a result of portfolio rationalization and likely decreases in commissions, both carrier and distributor consolidation is likely to increase.
  • Moreover, this isn’t just a business decision but also a compliance one; distributors will have monitoring policy procedures to confirm adherence to this policy. Accordingly, distributors will have to establish a product selection methodology for each segment that accounts for appropriateness and applicability.

However, regardless of product, the challenges of rationalization also represent an opportunity for insurers to have more profitable product portfolios because they can focus on what they’re best at. They also should be able to create products that are less capital-intensive and, with a level fee/different fee structure, potentially profitable in earlier years. In addition, rationalization can help solve the challenge of a shrinking captive and independent agent workforce; fewer and more transparent products should reduce the need to replace many of the agents who are at or near retirement age. Because of the ability to inexpensively manage small accounts and automatically comply with fiduciary standards, as well as the potential to increase scale as needed, robo-advisers should become an even more popular way for insurers to sell products.

Data and technologyMoreover, the DOL rule makes capturing and maintaining new types of data a high priority for carriers and distributors. Agents will need to track, from the time contact is made with a client, how they acted in his/her best interest, and this record – which should be readily available to customers – will demonstrate that agents are being compliant (i.e., defensibility), as well as facilitate monitoring. Automating data capture, which should be especially effective via the robo-adviser channel, is the easiest way to ensure data is repeatable and transparent (again, defensible). This requires automating certain process to maintain compliance and be competitive in the future. Most of the industry has been aware of the need for technological changes, namely process automation, for some time – and many have been making them – but the DOL rule serves as yet another catalyst, especially for those companies that have been slow to act.

See also: Stepping Over Dollars to Pick Up Pennies  

Facilitating effective compliance

Distribution traditionally has had little to no involvement in regulatory compliance, and the DOL rule represents a new challenge for most organizations. We recommend that compliance should:

  1. Oversee distribution;
  2. Provide quarterly “health checks” to the board of directors in to review compliance on a quarterly basis;
  3. Maintain a traceability matrix that outlines key strategic and operational decisions related to rule requirements and thereby provides the company defensible documentation to minimize and mitigate losses.

Implications: Far beyond compliance

As a result:

  • The industry is likely to increase its already growing investments in and use of digital and online channels, including robo-advice.
  • Some insurers are divesting their broker-dealers; as a result, we expect to see consolidation among smaller insurance broker-dealers, independent broker-dealers and regional brokerages over the next three years.
  • The DOL’s move to increase transparency and eliminate conflicts of interest is helping drive convergence of regulation toward a broad fiduciary standard. Whether or not the SEC proposes to cover non-retirement accounts given the mandate for a federal uniform fiduciary standard under the Dodd-Frank Act, some fiduciary agents have already started to consider extending the DOL standard to an increased scope of accounts to avoid potentially awkward double standards for investors who hold both retirement and non-retirement accounts.

Regardless of political developments, we believe the rule’s core framework will remain intact. The industry has already made significant progress toward complying with it, and there is general recognition of the importance of removing conflicts of interest between financial advisers and retirement investors. As a result, financial advisers and firms should continue their work to meet the rule’s requirements.

Let’s Sponsor a Free Online RMI Course

The average age of an insurance professional in the U.S. is around 60 years old. Estimates place the giant wave of retirements coming our way at around 50% by 2020. The U.S. Department of Labor estimates that between retirements and growth we’ll need to hire 400,000 people in the next decade. That’s a lot of people!

Risk Management and Insurance (RMI) programs at colleges and universities have become more popular over the last few years, but they still only exist at fewer than 100 out of the 3,000-plus institutions in the U.S. RMI programs produce amazing graduates, but they only feed 15% of our hiring needs each year! So 85% of our new hires come without any sort of insurance background or education. Each company has to take the full expense of training these new insurance pros, and retention is lower because those people haven’t committed to a career in insurance; they might still be testing the waters.

See also: A New Paradigm for Risk Management?  

At the same time, college has gotten more expensive, and total student loan debt stands at around $1.3 trillion! That debt is very scary to potential college students, and many are choosing to forego going to college to avoid going into debt. This is bad for their future employment, but it’s also a waste for us; we could use their talents if we just played our cards right.

This is where today’s crazy idea comes in. We should come together as an industry and ally ourselves with an online education provider such as Coursera. Coursera offers massive open online courses (MOOCs) from world class universities in video format, with intra-video quizzing, group projects, automated grading of multiple choice tests and student peer grading of papers. You can take almost any Coursera class for free, or you can pay a small fee to get a certificate proving you passed the class. Coursera even has cool technology to verify you’re doing your classwork yourself instead of paying someone else to take tests for you.

Currently, there is not a single insurance and risk management class on Coursera. The only classes that come up in a search have to do with health insurance exchanges or with product and portfolio financial risks.

See also: The Sad State of Continuing Education  

We should come together as an industry and sponsor a free (or almost free) risk management and insurance program on Coursera, available to ANY student who is interested. We would work with the school to make sure the curriculum teaches them the things employers in the industry need them to know, and we could even split it into an “associate” type program meant to train customer service rpepresentatives (CSRs) for agencies and a more in-depth “bachelor” type program meant to train future underwriters, agents and claims and other industry professionals.

This could be a cost-effective way to make big strides toward solving our talent crisis, and it would help us improve our image overall. Who’s in?

This article originally appeared on InsNerds.com.

Congress Reins in OSHA on Records

As part of efforts by Congress to overturn various regulations published during the waning days of the Obama administration, the House of Representatives on March 1 passed HJR 83 on a largely party-line vote. The resolution, unlike what we have come to expect in congressional work product, is a model of conciseness:

“That Congress disapproves the rule submitted by the Department of Labor relating to ‘Clarification of Employer’s Continuing Obligation to Make and Maintain an Accurate Record of Each Recordable Injury and Illness’ (published at 81 Fed. Reg. 91792 (December 19, 2016)), and such rule shall have no force or effect.”

The rule, announced by the Occupational Safety and Health Administration (OSHA), created a continuing obligation to maintain accurate injury and illness records for five years (OSHA 300 Log). The rule also required the accurate filing of Form 301 incident reports throughout the five-year, retention-and-access period if employers do not prepare the report when first required to do so,

HJR83 is a technical way to say that the Dec. 19, 2016 rule will be nullified if the Senate concurs and President Trump signs the legislation. In case there was any doubt, on Feb. 28 the office of the president issued a statement saying, “If this bill were presented to the president in its current form, his advisers would recommend that he sign it into law.”

See also: What Trump Wants to Do on ACA  

When the Senate received HJR 83 on March 2, it immediately introduced SJR 27 to accomplish the same purpose and with identical language.

Critics of the regulation felt that it was a last-hour effort to undo the decision of a panel of the U.S. Court of Appeals for the District of Columbia Circuit in AKM LLC (dba Volks Constructors) v. Sec’y of Labor, 675 F.3d 752 (D.C. Cir. 2012). In that case, per OSHA’s interpretation, the five-year retention requirement for these injury and illness logs created five years of potential liability for inaccurate record keeping. In other words, there was a continuing duty to maintain the accuracy of the logs. In Volks, however, the court unanimously disagreed with the Department of Labor and decided that there was no such continuing duty. The court held that no citation may be issued after the expiration of six months following the occurrence of any violation, following the general limitation on citations contained in the U.S. Code under the Occupational Safety and Health Act.

OSHA did not challenge the Volks decision. Instead, OSHA pointed to the concurring opinion of Circuit Judge Merrick Garland, who agreed that OSHA’s interpretation was wrong, but because of a lack of regulatory authority and not necessarily a lack of statutory authority. That distinction was enough for the Department of Labor to adopt the challenged regulations, and Garland’s opinion was quoted extensively in the Federal Register by OSHA in support of its actions. Congress, it appears, will be the ultimate arbiter of that issue.

The creation of a continuing duty arguably makes it easier to prove that record keeping violations were willful. That increases the exposure to penalties. While OSHA’s comments in the Federal Register when the regulation was published downplayed the additional obligations of employers in complying with the law, employers and associations expressed concerns about how the “continuing violations” would be managed by employers and enforced by OSHA. These comments suggest that the compliance costs are real and material.

The National Federation of Independent Businesses (NFIB) says the regulation will cost the economy $1.9 billion over five years. OSHA disagreed with that assessment. (Federal Register, Vol. 81, No. 243, p. 91806).

See also: Captives: Congress Shoots, Misses  

It is important to remember that if Congress doesn’t act and the president does not sign the resolution, the regulation will be in effect.

The bigger picture of how to deal with a wide range of regulations from the Department of Labor, including OSHA, is a much larger topic. There are certainly controversial regulations that must be reviewed by the new nominee for Secretary of Labor, Alex Acosta, once he is confirmed. For the moment, however, this record-keeping rule is on the path of disapproval, much to the relief of employers across the country.