Depending upon the perspective, the new federal requirement that employers provide an external review process for insurance disputes either essentially duplicates existing procedures or may add an unwieldy and potentially costly layer of review.
The requirement, which went into effect September 23 for some self-insured plans, is part of the Patient Protection and Affordable Care Act, also known as the health reform law. For the first time, self-insured employers must offer an external arbitrator to settle contentious insurance claims. Amid a flurry of interim regulations and related technical advice issued late this summer, consultants and business leaders were still sorting out the potential impact.
Minimally, many employers likely will have to beef up their existing process, says Molly Iacovoni, a legal consultant and principal in Hewitt Associate’s health management practice. But that’s not the only concern, she says. “I think there is a big fear that this will be more costly and that claims that maybe shouldn’t have been approved, will be.”
To date, an external review has only been mandated on the state level, with 44 states implementing some type of process, dating back to the 1990s, according to the National Conference of State Legislatures. But self-insured health plans, typically run by large employers, didn’t fall under states’ laws.
Federal officials estimate that nearly 77 million people are enrolled in a self-insured Employee Retirement Income Security Act (ERISA)-covered plan, although precisely when they will fall under the external review requirements depends upon if their plan is considered grandfathered. (Plans lose their grandfathered status, and thus must comply with all components of the health reform law, if they make significant design changes, such as reducing benefits.)
Based on a prior study, showing that 40 percent of insurance denials are reversed on external review, the cost of such reversals could reach as high as $33.1 million in 2013, federal officials estimate.
Driving the debate over potential impact is a difference in opinion over how arm’s length the current process is. Helen Darling, president of the National Business Group on Health, says many employers already use some type of outside review, typically through an independent review organization (IRO) to resolve insurance disputes.
But Jennifer Jaff, executive director of Advocacy for Patients with Chronic Illness, says that the relationship can seem more independent than it is in practice. For example, the IRO can be fed information by the insurance plan through back channels, she says. “I see truly heartbreaking things happen to people when there is no real arm’s-length external review.”
Unraveling the details
The external review requirement only applies to new health plans or those that have lost their grandfathered status. Nine out of 10 employers anticipate losing that status by 2014, and many likely sooner, according to Hewitt Associate’s July survey of 466 companies. Among self-insured employers, 72 percent of plans predict they will no longer be grandfathered by 2012.
Although the interim regulations were issued in late July, much of the details about the external appeals process itself wasn’t available until August 23, when the U.S. Department of Labor released technical guidance about the structure and related deadlines. In late September, Labor Department officials answered some frequently asked questions related to external appeals, among other elements of the health reform law.
Among the details:
• Insurance providers that don’t fall under the rules of an existing state review process, such as self-insured plans, must use the federal review process for new plan years starting on or after September 23.
• To ensure against bias, insurance plans must contract with at least three IROs and rotate claims among them, or use other unbiased methods, such as random selection. That IRO “may not be eligible for any financial incentives based on the likelihood that the IRO will support the denial of benefits,” according to Labor Department officials.
• The Labor Department’s technical release also lays out a series of time frames, including an expedited process for those external appeals involving urgent-care treatment. In those situations, the plan’s contract must require the involved IRO to reach a decision as soon as possible and within 72 hours after receiving the request.
Traditionally, the external reviewer has agreed with the consumer 37 percent of the time, according to the most recent analysis of external appeals on the state level. In an additional 4 percent of cases, a portion of the appeal was upheld. The analysis, involving 2006 data and conducted by America’s Health Insurance Plans, a trade group, also found that the overall external appeals rate averaged one appeal per 10,650 covered individuals.
Based on the states’ experience, people tend to appeal only in the most “drastic health circumstances,” says Richard Cauchi, a health policy director at the National Conference of State Legislatures. “This doesn’t create some huge open-ended benefit per se because employers and large employers especially do control, to some extent, the benefit package.”
How arm’s length?
Darling, the business group’s president, says while external review isn’t necessarily new, the related logistics and tight time frames could prove to be challenging for some employers. “I think as a practical matter, it [the external appeal] is another hoop to go through for the plan sponsor.”
The interim regulations, though, do provide federal officials with the authority to deem an existing review process to be in compliance, Iacovoni says. Thus, some large companies may be able to continue to largely use the same approach, but expand the number of IROs that contract with the insurance plan to fulfill that external review function, she says. “It’s pretty arms length at that point. You as an employer are not making decisions.”
While the regulations prohibit financial incentives, Hewitt’s Iacovoni says she does not perceive that as analogous to paying a flat administrative fee to contract out external review. She says she interprets the prohibition against financial incentives “to say, ‘You can’t add a sweetener for denials.’ ”
For those companies that already have developed a good external appeals mechanism, one that offer a neutral perspective, the new requirements won’t significantly change their practice or the outcome, says the chronic illness group’s Jaff. “Where it’s going to matter is for companies who either don’t have external review at all or who abuse the external review process.”
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