On March 23, 2013, the United States will observe the third anniversary of the Affordable Care Act.  On March 15, 2013, the Departments of Health and Human Services, Labor, and Treasury issued a joint technical release extending until January 1, 2016, the time states have to bring their external review procedures into compliance with the National Association of Insurance Commissioner’s External Review Model Act.  While this release is not a major event in its own right, its history offers an excellent example of the course that the administration has taken over the past three years as it has implemented the ACA.

Section 2719 of the Affordable Care Act requires non-grandfathered insured health plans to comply with state external review processes that at a minimum conform to the NAIC Uniform External Model Review Act.  Insurers in states that have not adopted the NAIC Model Act and self-insured employee health plans must, under section 2719, offer their enrollees an external review process that meets minimum standards established by HHS through Guidance.

The external review process is one of the ACA’s most important consumer protections.  Group health plans deny the claims of almost two million plan members each year.  Participants and beneficiaries of group health plans covered by the Employee Retirement Income Security Act (ERISA) can sue in federal court to challenge claim denials, while members of nongroup plans can sue in state court.  But lawsuits are costly and time-consuming.  External review by an independent review organization promises an inexpensive and expeditious alternatives means to obtaining an unbiased review of negative plan decisions.

Implementation of the external review requirement, however, has not gone smoothly.  The implementing agencies (which include not just HHS but also Treasury and Labor because of their jurisdiction over ERISA plans) promptly issued interim final regulations implementing this provision on July 23, 2010.  These regulations were formally amended in 2011.  The March 15 guidance is only the latest of about a dozen releases by HHS or Labor clarifying, explaining, or modifying the 2010 internal and external review rules.  The recently released multi-state plan rule also includes special provisions for an alternative process for review of multi-state plan coverage decisions through the Office of Personnel Management’s external review process.

The Original Regulatory Scheme

The original 2010 interim final rule provided that if a state’s law contained sixteen enumerated consumer protections found in the NAIC Model Act, health insurance plans in that state could be deemed to meet the ACA external review requirement by complying with their state’s external review law.  If an insurer was located in a state that had an external review law that did not offer all sixteen NAIC Model Act protections, the insurer still could still be deemed in compliance with the ACA’s external review requirement as long as it complied with the state’s law, but only for plan years beginning prior to July 1, 2011.  Beyond that date, compliance with state law would only shield the insurer if the state adopted those sixteen protections.

The regulation subjected 1) insurers in states that did not have external review laws, 2) self-insured ERISA plans, and 3) insurers in states that did not require compliance with the sixteen protections  by July 1, 2011, to a federal review process.  The federal process was not described in the regulation itself but rather in further guidance promised by the rule.  Grandfathered plans are not subject to the external review ACA provision, although most grandfathered insured plans are subject to pre-existing state external review requirements.

Further guidance followed shortly.  The Department of Labor published guidance for external review for self-insured ERISA plans on August 23, 2010, while HHS published interim federal external review procedures on August 26, 2010, for the review of insurer decisions in states without an external review law.  HHS has contracted with Maximus, a private independent review organization to handle federal appeals.  Self-insured non-federal governmental group plans could use either the procedure for self-insured plans or the federal external review procedure.

Limiting The Strong Consumer Protections In The Original Rules

The initial internal and external review rules were quite strong, expanding on the protections offered by the existing ERISA internal review regulations and establishing a binding, impartial, external review process.  Almost from the beginning, however, the enforcement agencies began to waffle in the face of intense lobbying from insurers and employers, delaying enforcement of some of the internal review provisions by a technical guidance issued in September 2010 and again by another  issued in March of 2011, and weakening the federal external review procedure in a September 2010 guidance.

On June 22, 2011, eleven months after the issuance of the initial rules, the implementing agencies released amendments to the interim final rule accompanied by further guidance, which together significantly undermined the consumer protections found in the initial rule. Although the amendments addressed some practical difficulties that were encountered in implementing the initial rules, they also represented a movement away from the aggressive consumer protection stance represented by the original ACA rules toward a position more accommodating to insurers and employers.

HHS had initially proposed to determine by July 1, 2011 whether a state’s external review standards met the sixteen minimum standards that characterize the NAIC’s model rule.  Only in states where procedural standards met these standards, would the state’s processes govern external review of insurer decisions.  But the June 22, 2011, HHS guidance  also created a new category of external review.  It listed thirteen minimum standards that characterize “NAIC-similar” consumer protections.  The external review laws of states that met these standards would govern external review for insurers in those states for a transition period through the end of 2013, even if those states did not adopt the model act or another law that provided the sixteen protections.  HHS would determine by July 1, 2011, whether state procedures met these standards.

Review under state laws that met neither the NAIC or NAIC-similar standards would be available through the end of 2011, but no longer.  Insurers located in such states would be subject to the federal external review process, under which plans either had to use an external review program offered by Maximus or a program established under federal guidance in which the plan contracted with accredited independent review organizations (IROs).

The thirteen NAIC-similar minimum standards announced in June of 2011 were adopted to cover states whose external review processes fell short of the NAIC standards in specific respects but still offered some protection to claimants. Thus, for example, external review processes could be found to be NAIC-similar if they only allowed 60 days for an appeal rather than 120, permitted 60 days for an external review decision rather than 45, or required a decision in an urgent case within four business days rather than 72 hours.  NAIC-similar laws did not have to allow claimants to submit additional information to the IRO for it to consider in the external review, a requirement that applies to NAIC Model Act states.  NAIC-similar states also did not have to assign IROs through any particular process, as long as it was done impartially.  Finally, NAIC-similar IROs did not need to be accredited.

The federal process through which plans contract with IROs was also modified.  The original guidance plans required plans to contract with three accredited IROs and to assign cases to them by rotation or by another unbiased method.  Plans protested that they could not find enough IROs and guidance was issued in June, 2011, allowing self-insured plans to contract with only one IRO until January 2012, and with only two until July of 2012, achieving full compliance with the law only at that time.  Self-insured plans were allowed to choose the IROs with which they contracted.  Consumer advocates have found that IROs chosen by plans are more likely to rule in the plans’ favor than IROs assigned to plans by states.  Obviously IROs are likely to take into account future business opportunities in their consideration of cases brought by a plan that has contracted for their business.

The amended federal external review rule limited the federal external review process on an interim basis to plan determinations involving medical judgment and to rescissions.  “Determinations involving medical judgment” is a reasonably broad category, including medical necessity, appropriateness, health care setting, level of care, and effectiveness determinations, but it does not include many coverage decisions.  The departments limited appeals to this category because they questioned the ability of IROs to decide non-medical issues and the appropriateness of IROs interpreting contracts. Consumer advocates had feared that the rule would only include appeals based on medical necessity, and this is clearly a broader category.  The amended rule also weakened the language accessibility requirements found in the proposed rule.

The latest guidance further extends the time during which insurers can comply with 2719 by complying with state external review laws in states with “NAIC similar” standards until January 1, 2016.  The current status of state external review laws is shown in a table here.

A Practical, Accommodating Style Of Rulemaking Typical Of Affordable Care Act Implementation

This extension in itself is not an earth-shaking even.  What is of the greatest interest, however, is the pattern of rulemaking and guidance that the Departments have followed over the past three years.  They began by issuing a rule with strong consumer protections, consistent with the mandate laid down by the ACA.  This rule received substantial push-back from insurers and employers.  The agencies responded both by watering down some of the requirements of the initial rule and by delaying deadlines for full compliance for other parts.  The agencies also took the pressure off the states to amend their laws by recognizing the NAIC-similar category, and most recently by delaying the date by which states must enact the NAIC model law’s sixteen protections if they wish to continue the operation of appeals under state law.

In sum, HHS, Labor, and Treasury have over the past three years pursued a delicate balancing act: attempting to provide consumers with strong external appeal protections as promised by the ACA, but also accommodating employers and insurers that have experienced difficulty in immediately establishing fully compliant external review programs.  The agencies have also gone out of their way to accommodate states, repeatedly delaying the time that states must change their laws if they are to retain jurisdiction over external reviews.  The agencies have enough battles to fight without demanding that states amend their external appeal laws just at this moment when the agencies are trying to secure cooperation from the states on so many other fronts.

The ACA implementation process has been often described by opponents of the ACA as a bureaucratic nightmare.  However, the history of the external appeals regulation in fact demonstrates the practical and accommodating approach the agencies have taken to implementation, above all deferring to the states but also recognizing the interests of insurers and employers where necessary, all the while trying to improve the protection of consumers.   This pattern can be seen throughout the implementation process, as in the implementation of the exchanges or the essential health benefits package or the preventive services requirement.  We can expect this practical approach to continue as the final steps to ACA implementation move forward.