Bulletin No. 2011-32 HIGHLIGHTS OF THIS ISSUE · Bulletin No. 2011-32 August 8, 2011 HIGHLIGHTS OF...

Bulletin No. 2011-32August 8, 2011

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2011–16, page 93.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for August 2011.

Notice 2011–53, page 124.This notice describes transition rules for phased implementa-tion of Chapter 4 of the Code.

Notice 2011–70, page 135.This notice enlarges the period within which individuals mayrequest equitable relief from joint and several liability undersection 6015(f) of the Code.

EMPLOYEE PLANS

T.D. 9532, page 95.REG–125592–10, page 137.Final, temporary, and proposed regulations under section 9815of the Code contain amendments implementing the require-ments regarding internal claims and appeals and external re-view processes for group health plans and health insurancecoverage in the group and individual markets under provisionsof the Affordable Care Act. These rules are intended to respondto feedback on the regulations and to assist plans and issuersin coming into full compliance with the law.

EXCISE TAX

T.D. 9532, page 95.REG–125592–10, page 137.Final, temporary, and proposed regulations under section 9815of the Code contain amendments implementing the require-ments regarding internal claims and appeals and external re-view processes for group health plans and health insurancecoverage in the group and individual markets under provisionsof the Affordable Care Act. These rules are intended to respondto feedback on the regulations and to assist plans and issuersin coming into full compliance with the law.

ADMINISTRATIVE

Notice 2011–62, page 126.This notice provides a proposed revenue procedure that willupdate Rev. Proc. 2000–43, 2000–2 C.B. 404, which pro-vides guidance regarding ex parte communications betweenAppeals and other Internal Revenue Service functions. Com-ments should be submitted by August 18, 2011.

Notice 2011–70, page 135.This notice enlarges the period within which individuals mayrequest equitable relief from joint and several liability undersection 6015(f) of the Code.

Announcement 2011–42, page 138.Discontinuance of high-low method for substantiatingtravel expenses. This announcement advises taxpayers thatthe IRS intends to discontinue authorizing the high-low perdiem method for substantiating lodging, meal, and incidentalexpenses incurred in traveling away from home under section274(d) of the Code.

Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

August 8, 2011 2011–32 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2011. See Rev. Rul. 2011-16, page 93.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of August 2011. See Rev.Rul. 2011-16, page 93.

Section 382.—Limitationson Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of August 2011. See Rev. Rul.2011-16, page 93.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs


Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves


Section 846.—DiscountedUnpaid Losses Defined


Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes of

sections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for August 2011.

Rev. Rul. 2011–16

This revenue ruling provides variousprescribed rates for federal income taxpurposes for August 2011 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (ad-justed AFR) for the current month forpurposes of section 1288(b). Table 3 setsforth the adjusted federal long-term rateand the long-term tax-exempt rate de-scribed in section 382(f). Table 4 containsthe appropriate percentages for deter-mining the low-income housing creditdescribed in section 42(b)(1) for build-ings placed in service during the currentmonth. However, under section 42(b)(2),the applicable percentage for non-feder-ally subsidized new buildings placed inservice after July 30, 2008, and beforeDecember 31, 2013, shall not be less than9%. Finally, Table 5 contains the federalrate for determining the present value ofan annuity, an interest for life or for a termof years, or a remainder or a reversionaryinterest for purposes of section 7520.

2011–32 I.R.B. 93 August 8, 2011

REV. RUL. 2011–16 TABLE 1

Applicable Federal Rates (AFR) for August 2011

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR .32% .32% .32% .32%110% AFR .35% .35% .35% .35%120% AFR .38% .38% .38% .38%130% AFR .42% .42% .42% .42%

Mid-term

AFR 1.90% 1.89% 1.89% 1.88%110% AFR 2.09% 2.08% 2.07% 2.07%120% AFR 2.28% 2.27% 2.26% 2.26%130% AFR 2.48% 2.46% 2.45% 2.45%150% AFR 2.86% 2.84% 2.83% 2.82%175% AFR 3.34% 3.31% 3.30% 3.29%

Long-term

AFR 3.86% 3.82% 3.80% 3.79%110% AFR 4.24% 4.20% 4.18% 4.16%120% AFR 4.63% 4.58% 4.55% 4.54%130% AFR 5.03% 4.97% 4.94% 4.92%


Adjusted AFR for August 2011

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

.44% .44% .44% .44%

Mid-term adjusted AFR 1.62% 1.61% 1.61% 1.60%

Long-term adjustedAFR

3.82% 3.78% 3.76% 3.75%


Rates Under Section 382 for August 2011

Adjusted federal long-term rate for the current month 3.82%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.17%

August 8, 2011 94 2011–32 I.R.B.


Appropriate Percentages Under Section 42(b)(1) for August 2011

Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in serviceafter July 30, 2008, and before December 31, 2013, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.66%

Appropriate percentage for the 30% present value low-income housing credit 3.28%


Rate Under Section 7520 for August 2011

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 2.2%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


Section 9815.—AdditionalMarket Reforms26 CFR 54.9815–2719T: Internal claims and appealsand external review processes (temporary).

T.D. 9532

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 54

DEPARTMENT OF LABOREmployee Benefits SecurityAdministration29 CFR Part 2590

DEPARTMENT OF HEALTHAND HUMAN SERVICES45 CFR Part 147

Group Health Plans and HealthInsurance Issuers: RulesRelating to Internal Claimsand Appeals and ExternalReview Processes

AGENCIES: Internal Revenue Service,Department of the Treasury; EmployeeBenefits Security Administration, Depart-ment of Labor; Centers for Medicare &Medicaid Services, Department of Healthand Human Services.

ACTION: Amendment to interim finalrules with request for comments.

SUMMARY: This document containsamendments to interim final regulationsimplementing the requirements regardinginternal claims and appeals and externalreview processes for group health plansand health insurance coverage in the groupand individual markets under provisionsof the Affordable Care Act. These rulesare intended to respond to feedback from awide range of stakeholders on the interimfinal regulations and to assist plans and is-suers in coming into full compliance withthe law through an orderly and expeditiousimplementation process.

DATES: Effective date: This amendmentto the interim final regulations is effectiveon July 22, 2011.

Comment date: Comments are due onor before July 25, 2011.

ADDRESSES: Written comments may besubmitted to any of the addresses specifiedbelow. Any comment that is submitted toany Department will be shared with theother Departments. Please do not submitduplicates.

All comments will be made available tothe public. Warning: Do not include anypersonally identifiable information (suchas name, address, or other contact informa-tion) or confidential business informationthat you do not want publicly disclosed.All comments may be posted on the Inter-net and can be retrieved by most Internetsearch engines. Comments may be sub-mitted anonymously.

Department of Labor. Comments to theDepartment of Labor, identified by RIN

2011–32 I.R.B. 95 August 8, 2011

1210–AB45, by one of the following meth-ods:

• Federal eRulemaking Portal:http://www.regulations.gov. Followthe instructions for submittingcomments.

• Email:[email protected].

• Mail or Hand Delivery: Office ofHealth Plan Standards and ComplianceAssistance, Employee Benefits Secu-rity Administration, Room N–5653,U.S. Department of Labor, 200 Con-stitution Avenue NW, Washington, DC20210, Attention: RIN 1210–AB45.

Comments received by the Depart-ment of Labor will be posted with-out change to www.regulations.gov andwww.dol.gov/ebsa, and available for pub-lic inspection at the Public DisclosureRoom, N–1513, Employee Benefits Se-curity Administration, 200 ConstitutionAvenue, NW, Washington, DC 20210.

Department of Health and Human Ser-vices. In commenting, please refer to filecode CMS–9993–IFC2. Because of staffand resource limitations, we cannot acceptcomments by facsimile (FAX) transmis-sion.

You may submit comments in one offour ways (please choose only one of theways listed):

1. Electronically. You may submitelectronic comments on this regulation tohttp://www.regulations.gov. Follow theinstructions under the “More Search Op-tions” tab.

2. By regular mail. You may mailwritten comments to the following addressONLY:

Centers for Medicare &Medicaid Services,

Department of Health andHuman Services,

Attention: CMS–9993–IFC2,P.O. Box 8010,Baltimore, MD 21244–8010.

Please allow sufficient time for mailedcomments to be received before the closeof the comment period.

3. By express or overnight mail. Youmay send written comments to the follow-ing address ONLY:



Attention: CMS–9993–IFC2,Mail Stop C4–26–05,7500 Security Boulevard,Baltimore, MD 21244–1850.

4. By hand or courier. If you prefer,you may deliver (by hand or courier) yourwritten comments before the close of thecomment period to either of the followingaddresses:

a. For delivery in Washington, DC—



Room 445-G,Hubert H. Humphrey Building,

200 Independence Avenue, S.W.,Washington, DC 20201.

(Because access to the interior of theHubert H. Humphrey Building is not read-ily available to persons without Federalgovernment identification, commentersare encouraged to leave their commentsin the CMS drop slots located in the mainlobby of the building. A stamp-in clock isavailable for persons wishing to retain aproof of filing by stamping in and retain-ing an extra copy of the comments beingfiled.)

b. For delivery in Baltimore, MD—



7500 Security Boulevard,Baltimore, MD 21244–1850.

If you intend to deliver your commentsto the Baltimore address, please call tele-phone number (410) 786–9994 in advanceto schedule your arrival with one of ourstaff members.

Comments mailed to the addresses in-dicated as appropriate for hand or courierdelivery may be delayed and received afterthe comment period.

Internal Revenue Service. Commentsto the IRS, identified by REG–125592–10,by one of the following methods:

• Federal eRulemaking Portal:http://www.regulations.gov. Followthe instructions for submittingcomments.

• Mail: CC:PA:LPD:PR(REG–125592–10), room 5205, Inter-nal Revenue Service, P.O. Box 7604,Ben Franklin Station, Washington, DC20044.

• Hand or courier delivery: Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to: CC:PA:LPD:PR(REG–125592–10), Courier’s Desk,Internal Revenue Service, 1111Constitution Avenue, NW, WashingtonDC 20224.

All submissions to the IRS will be opento public inspection and copying in room1621, 1111 Constitution Avenue, NW,Washington, DC from 9 a.m. to 4 p.m.

FOR FURTHER INFORMATIONCONTACT: Amy Turner or BethBaum, Employee Benefits SecurityAdministration, Department of Labor, at(202) 693–8335; Karen Levin, InternalRevenue Service, Department of theTreasury, at (202) 622–6080; EllenKuhn, Centers for Medicare & MedicaidServices, Department of Health andHuman Services, at (301) 492–4263.

CUSTOMER SERVICEINFORMATION: Individuals interestedin obtaining information from theDepartment of Labor concerningemployment-based health coveragelaws may call the EBSA Toll-FreeHotline at 1–866–444–EBSA (3272)or visit the Department of Labor’swebsite (http://www.dol.gov/ebsa). Inaddition, information from HHS onprivate health insurance for consumerscan be found on the Centers forMedicare & Medicaid Services (CMS)website (http://www.cms.hhs.gov/HealthInsReformforConsume/01_Overview.asp). Informationon health reform can be found atwww.healthcare.gov.

SUPPLEMENTARY INFORMATION:

I. Background

The Patient Protection and AffordableCare Act, Public Law 111–148, was en-acted on March 23, 2010; the Health Care

August 8, 2011 96 2011–32 I.R.B.

and Education Reconciliation Act, PublicLaw 111–152, was enacted on March 30,2010 (collectively known as the “Afford-able Care Act”). The Affordable Care Actreorganizes, amends, and adds to the pro-visions in part A of title XXVII of the Pub-lic Health Service Act (PHS Act) relatingto group health plans and health insuranceissuers in the group and individual mar-kets. The term “group health plan” in-cludes both insured and self-insured grouphealth plans.1 The Affordable Care Actadds section 715(a)(1) to the EmployeeRetirement Income Security Act (ERISA)and section 9815(a)(1) to the Internal Rev-enue Code (the Code) to incorporate theprovisions of part A of title XXVII ofthe PHS Act into ERISA and the Code,and make them applicable to group healthplans, and health insurance issuers provid-ing health insurance coverage in connec-tion with group health plans. The PHSAct sections incorporated by this referenceare sections 2701 through 2728. PHS Actsections 2701 through 2719A are substan-tially new, though they incorporate someprovisions of prior law. PHS Act sections2722 through 2728 are sections of priorlaw renumbered, with some, mostly minor,changes.

On July 23, 2010, the Departments ofHealth and Human Services (HHS), La-bor, and the Treasury (the Departments) is-sued interim final regulations implement-ing PHS Act section 2719 at 75 FR 43330(July 2010 regulations), regarding inter-nal claims and appeals and external re-view processes for group health plans andhealth insurance issuers offering coveragein the group and individual markets. Therequirements of PHS Act section 2719 andthe July 2010 regulations do not apply tograndfathered health plans under section1251 of the Affordable Care Act.2

A. Internal Claims and Appeals

With respect to internal claims andappeals processes for group health plansand health insurance issuers offeringgroup health insurance coverage, PHSAct section 2719 provides that plans andissuers must initially incorporate the in-ternal claims and appeals processes setforth in regulations promulgated by theDepartment of Labor (DOL) at 29 CFR2560.503–1 (the DOL claims procedureregulation) and update such processes inaccordance with standards established bythe Secretary of Labor. Similarly, withrespect to internal claims and appeals pro-cesses for individual health insurance cov-erage, issuers must initially incorporatethe internal claims and appeals processesset forth in applicable State law and up-date such processes in accordance withstandards established by the Secretary ofHHS.

The July 2010 regulations providedsuch updated standards for complianceand invited comment on the updated stan-dards. In particular, the July 2010 regu-lations provided the following additionalstandards3 for internal claims and appealsprocesses:

1. The scope of adverse benefit determi-nations eligible for internal claims andappeals includes a rescission of cov-erage (whether or not the rescissionhas an adverse effect on any particu-lar benefit at the time).4

2. Notwithstanding the rule in the DOLclaims procedure regulation that pro-vides for notification in the case ofurgent care claims5 not later than72 hours after the receipt of the claim,a plan or issuer must notify a claimantof a benefit determination (whether

adverse or not) with respect to aclaim involving urgent care as soonas possible, taking into account themedical exigencies, but not later than24 hours after the receipt of the claimby the plan or issuer.6

3. Clarifications with respect to full andfair review, such that plans and is-suers are clearly required to providethe claimant (free of charge) with newor additional evidence considered, re-lied upon, or generated by (or at thedirection of) the plan or issuer in con-nection with the claim, as well as anynew or additional rationale for a denialat the internal appeals stage, and a rea-sonable opportunity for the claimantto respond to such new evidence or ra-tionale.

4. Clarifications regarding conflicts ofinterest, such that decisions regardinghiring, compensation, termination,promotion, or other similar matterswith respect to an individual, such as aclaims adjudicator or medical expert,must not be based upon the likelihoodthat the individual will support thedenial of benefits.

5. Notices must be provided in a cul-turally and linguistically appropriatemanner, as required by the statute, andas set forth in paragraph (e) of the July2010 regulations.

6. Notices to claimants must provide ad-ditional content. Specifically:a. Any notice of adverse benefit de-

termination or final internal ad-verse benefit determination mustinclude information sufficient toidentify the claim involved, in-cluding the date of the service,the health care provider, the claimamount (if applicable), the diag-nosis code and its corresponding

1 The term “group health plan” is used in title XXVII of the PHS Act, part 7 of ERISA, and chapter 100 of the Code, and is distinct from the term “health plan”, as used in other provisions oftitle I of the Affordable Care Act. The term “health plan”, as used in those provisions, does not include self-insured group health plans.

2 The Departments published interim final regulations implementing section 1251 of the Affordable Care Act on June 17, 2010, at 75 FR 34538, as amended on November 17, 2010 at 75 FR70114.

3 To address certain relevant differences in the group and individual markets, the July 2010 regulations provided that health insurance issuers offering individual health insurance coveragemust comply with three additional requirements for internal claims and appeals processes. First, the July 2010 regulations include initial eligibility determinations in the individual marketwithin the scope of claims eligible for internal appeals. Second, health insurance issuers offering individual health insurance coverage are permitted only one level of internal appeal. Third,health insurance issuers offering individual health insurance coverage must maintain all records of claims and notices associated with internal claims and appeals for six years and must makethese records available for examination by the claimant, State or Federal oversight agency. 75 FR 43330, 43334 (July 23, 2010).

4 This definition is broader than the definition in the DOL claims procedure regulation, which provides that a denial, reduction, or termination of, or a failure to provide payment (in whole orin part) for a benefit is an adverse benefit determination eligible for internal claims and appeals processes.

5 A claim involving urgent care is generally a claim for medical care or treatment with respect to which the application of the time periods for making non-urgent care determinations couldseriously jeopardize the life or health of the claimant or the ability of the claimant to regain maximum function; or, in the opinion of the physician with knowledge of the claimant’s medicalcondition, would subject the claimant to severe pain that cannot be adequately managed without the care or treatment that is the subject of the claim.

6 Under the July 2010 regulations, there is a special exception if the claimant fails to provide sufficient information to determine whether, or to what extent, benefits are covered or payableunder the plan.

2011–32 I.R.B. 97 August 8, 2011

meaning, and the treatment codeand its corresponding meaning.

b. The plan or issuer must ensurethat the reason or reasons for anadverse benefit determination orfinal internal adverse benefit de-termination includes the denialcode and its corresponding mean-ing, as well as a description ofthe plan’s or issuer’s standard, ifany, that was used in denying theclaim. In the case of a final in-ternal adverse benefit determina-tion, this description must also in-clude a discussion of the decision.

c. The plan or issuer must providea description of available internalappeals and external review pro-cesses, including information re-garding how to initiate an appeal.

d. The plan or issuer must disclosethe availability of, and contactinformation for, an applicableoffice of health insurance con-sumer assistance or ombudsmanestablished under PHS Act sec-tion 2793.

7. If a plan or issuer fails to strictly ad-here to all the requirements of theJuly 2010 regulations, the claimant isdeemed to have exhausted the plan’sor issuer’s internal claims and appealsprocess, regardless of whether theplan or issuer asserts that it has sub-stantially complied, and the claimantmay initiate any available externalreview process or remedies availableunder ERISA or under State law.

On September 20, 2010, based on apreliminary review of comments fromstakeholders which indicated that they be-lieved more time was needed to come intocompliance with PHS Act section 2719and the additional internal claims and ap-peal standards in the July 2010 regulations,the Department of Labor issued TechnicalRelease 2010–02 (T.R. 2010–02), whichset forth an enforcement grace period until

July 1, 2011 for compliance with certainnew provisions with respect to internalclaims and appeals.7

Specifically, T.R. 2010–02 set forthan enforcement grace period until July 1,2011 with respect to standard #2 above(regarding the timeframe for making ur-gent care claims decisions), standard #5above (regarding providing notices in aculturally and linguistically appropriatemanner), standard #6 above (requiringbroader content and specificity in notices),and standard #7 above (regarding exhaus-tion). T.R. 2010–02 also stated that, duringthat period, the Department of Labor andthe Internal Revenue Service (IRS) wouldnot take any enforcement action againsta group health plan, and HHS wouldnot take any enforcement action againsta self-funded nonfederal governmentalhealth plan that is working in good faith toimplement such additional standards butdoes not yet have them in place.8

Based on further review of the com-ments received on the July 2010 reg-ulations and T.R. 2010–02, and otherfeedback from interested stakehold-ers, on March 18, 2011, the Depart-ment of Labor issued Technical Re-lease 2011–019 (T.R. 2011–01), whichmodified and extended the enforcementgrace period set forth in T.R. 2010–02.Specifically, T.R. 2011–01 extendedthe enforcement grace period until planyears beginning on or after January 1,2012 with respect to standard #2 above(regarding the timeframe for makingurgent care claims decisions), standard #5above (regarding providing notices in aculturally and linguistically appropriatemanner), and standard #7 above (regardingexhaustion). Moreover, whereas T.R.2010–02 required plans to be working ingood faith to implement such standards forthe enforcement grace period to apply, T.R.2011–01 stated that no such requirementwould apply for either the extended or theoriginal enforcement grace period.

With respect to standard #6 above (re-quiring broader content and specificityin notices), T.R. 2011–01 extended theenforcement grace period only in part.Specifically, with respect to the require-ment to disclose diagnosis codes andtreatment codes (and their correspond-ing meanings), T.R. 2011–01 extendedthe enforcement grace period until planyears beginning on or after January 1,2012.10 With respect to the other dis-closure requirements of standard #6, theenforcement grace period was extendedfrom July 1, 2011 until the first day ofthe first plan year beginning on or afterJuly 1, 2011 (which is January 1, 2012for calendar year plans), affecting: (a)the disclosure of information sufficient toidentify a claim (other than the diagnosisand treatment information), (b) the reasonsfor an adverse benefit determination,(c) the description of available internalappeals and external review processes, and(d) for plans and issuers in States in whichan office of health consumer assistanceprogram or ombudsman is operational,the disclosure of the availability of, andcontact information for, such program.11

T.R. 2011–01 also stated the Depart-ments’ intent to issue an amendment to theJuly 2010 regulations that would take intoaccount comments and other feedback re-ceived from stakeholders and make mod-ifications to certain provisions of the July2010 regulations. T.R. 2011–01 went onto state that the relief was intended to actas a bridge until an amendment to the July2010 regulations was issued.

This amendment to the July 2010 reg-ulations makes changes with respect tothe provisions subject to the enforcementgrace period under T.R. 2011–01. At theexpiration of the enforcement grace pe-riod, the Departments will begin enforcingthe relevant requirements of the July 2010regulations, as amended by this rulemak-ing.

7 Technical Release 2010–02 is available at http://www.dol.gov/ebsa/pdf/ACATechnicalRelease2010–02.pdf. HHS published a corresponding guidance document, available at:http://cciio.cms.gov/resources/files/interim_procedures_for_internal_claims_and_appeals.pdf.

8 T.R. 2010–02 also stated that HHS was encouraging States to provide similar grace periods with respect to issuers and HHS would not cite a State for failing to substantially enforce theprovisions of part A of title XXVII of the PHS Act in these situations.

9 T.R. 2011–01 is available at http://www.dol.gov/ebsa/pdf/tr11–01.pdf.

10 Information related to diagnosis and treatment codes (and/or their meanings) is, however, generally required to be provided to claimants upon request under existing DOL claims procedures.See 29 CFR 2560.503–1(h)(2)(iii), which is also applicable to plans (whether or not they are ERISA plans) and issuers that are not grandfathered health plans pursuant to paragraph (b)(2)(i)of the July 2010 regulations. Nevertheless, a request for such information, in itself, should not be considered to be a request for (and therefore trigger the start of) an internal appeal or externalreview.

11 Any enforcement grace period with respect to disclosure requirements that has been provided under T.R. 2010–02 or T.R. 2011–01 does not affect disclosure requirements still in effect forERISA plans under the DOL claims procedure regulation and/or Part 1 of ERISA.

August 8, 2011 98 2011–32 I.R.B.

B. External Review

1. Applicability of Federal and Stateexternal review processes.

PHS Act section 2719, the July 2010regulations, and technical guidance issuedby the Departments12 provide a systemwith respect to applicability of either aState external review process or a Federalexternal review process for non-grandfa-thered plans and issuers. How this impactsplans and issuers varies, depending on thetype of coverage:

a. Self-insured plans subject to ERISAand/or the Code.

In the case of self-insured plans subjectto ERISA and/or the Code, a Federal exter-nal review process supervised by DOL andTreasury applies (the “private accreditedIRO process”13). On August 23, 2010, theDepartment of Labor issued Technical Re-lease 2010–01 (T.R. 2010–01), which setforth an interim enforcement safe harborfor self-insured plans not subject to a Stateexternal review process or to the HHS-su-pervised process (the “HHS-administeredprocess”).14 This interim enforcement safeharbor essentially permits a private con-tract process under which plans contractwith accredited independent review orga-nizations (IROs) to perform reviews. Sep-arate guidance being issued contempora-neous with the publication of this amend-ment makes adjustments to, and providesclarifications regarding, the operation ofthe private accredited IRO process.

b. Insured coverage.

In the case of health insurance issuersin the group and individual market, theJuly 2010 regulations set forth 16 mini-mum consumer protections based on theUniform External Review Model Act pro-mulgated by the National Association ofInsurance Commissioners (NAIC) that,if provided by a State external review

process, will result in the State’s processapplying in lieu of a Federal external re-view process. Moreover, for insured grouphealth plans, as provided under paragraph(c)(1) of the July 2010 regulations, if aState external review process applies toand is binding on the plan’s health in-surance issuer under paragraph (c) of theJuly 2010 regulations (regarding Statestandards for external review), then theinsured group health plan is not requiredto comply with either the State externalreview process or the Federal external re-view process. The July 2010 regulationsprovided a transition period for plan years(in the individual market, policy years)beginning before July 1, 2011, duringwhich any existing State external reviewprocess will be considered sufficient (andwill apply to health insurance issuers inthat State). During the transition period, inStates and territories without an existingState external review process (Alabama,Mississippi, and Nebraska, Guam, Amer-ican Samoa, U.S. Virgin Islands and theNorthern Mariana Islands), HHS guidancegenerally provided that health insuranceissuers will participate in the HHS-ad-ministered process. As explained later inthis preamble, this amendment to the July2010 regulations modifies the transitionperiod originally issued as part of the July2010 regulations so that the last day of thetransition period for all health insurance is-suers offering group and individual healthinsurance coverage is December 31, 2011.

In addition, the July 2010 regulationsprovided that, following the conclusionof the transition period, health insuranceissuers in a State that does not meet theminimum consumer protection standardsset forth in paragraph (c) of the July2010 regulations will participate in anexternal review process under Federalstandards similar to the process underthe NAIC Uniform Model Act, such asthe HHS-administered process. Separateguidance being issued contemporaneouswith the publication of this amendment

announces standards under which, untilJanuary 1, 2014, a State may also operatesuch an external review process underFederal standards similar to the processunder the NAIC Uniform Model Act (an“NAIC-similar process”). Accordingly,if HHS determines that a State has nei-ther implemented the minimum consumerprotections required under paragraph(c) of the July 2010 regulations, nor anNAIC-similar process, issuers in the Statewill have the choice of participating in ei-ther the HHS-administered process or theprivate accredited IRO process. HHS isadopting this approach to permit States tooperate their external review processes un-der standards established by the Secretaryuntil January 1, 2014, avoiding unneces-sary disruption, while States work to adoptan “NAIC-parallel process,” consistentwith the consumer protections set forth inparagraph (c) of the July 2010 regulations.

c. Self-insured, nonfederal governmentalplans.

For self-insured, nonfederal govern-mental plans (which are subject to the PHSAct, but not ERISA or the Code), pre-vious HHS guidance generally providedthat they follow the private accreditedIRO process.15 (In States and territoriesthat did not have an existing external re-view process (Alabama, Mississippi, andNebraska, Guam, American Samoa, U.S.Virgin Islands and the Northern MarianaIslands), previous HHS guidance gener-ally provided that such plans may chooseto follow the HHS-administered processor follow the private accredited IROprocess.) Separate guidance being issuedcontemporaneous with the publication ofthis amendment generally treats self-in-sured nonfederal governmental plans thesame as health insurance issuers. Thatis, a State may temporarily operate suchan external review process applicable toa self-insured nonfederal governmentalplan under Federal standards similar to the

12 See DOL Technical Release 2010–01, available at http://www.dol.gov/ebsa/pdf/ACATechnicalRelease2010–01.pdf; HHS Technical Guidance issued August 26, 2010, available athttp://cciio.cms.gov/resources/files/interim_appeals_guidance.pdf; and HHS Technical Guidance issued September 23, 2010, available at http://cciio.cms.gov/resources/files/technical_guid-ance_for_self_funded_non_fed_plans.pdf. Additional clarifications were provided in the form of frequently-asked questions (FAQs), available at http://www.dol.gov/ebsa/faqs/faq-aca.htmland http://cciio.cms.gov/resources/factsheets/aca_implementation_faqs.html#claims.

13 For simplicity, the Federal external review process for self-insured plans subject to ERISA and/or the Code supervised by DOL and Treasury is referred to as the “private accredited IROprocess” throughout this preamble. However, the interim procedures for Federal external review issued as DOL Technical Release 2010–01 also recognizes that States may choose to expandaccess to their State external review process to plans not subject to applicable State laws (such as self-insured ERISA plans) and allows those plans to meet their responsibilities to provideexternal review under PHS Act section 2719(b) by voluntarily complying with the provisions of that State external review process.

14 HHS Technical Guidance issued August 26, 2010 provided that, for insured coverage, the Federal external review process would be fulfilled through the HHS-administered process.

15 See HHS Technical Guidance issued September 23, 2010.

2011–32 I.R.B. 99 August 8, 2011

process under the NAIC Uniform ModelAct. If no such State-operated process ex-ists, self-insured nonfederal governmentalplans have the choice of participating ineither the HHS-administered process orthe private accredited IRO process.

2. Scope of claims eligible for externalreview.

While the process varies depending onthe type of coverage, so does the scope ofclaims eligible for external review. Thatis, for insurance coverage and self-insurednonfederal governmental plans subject toa State external review process (either anNAIC-parallel process or an NAIC-simi-lar process), the State determines the scopeof claims eligible for external review.16

For coverage subject to either the HHS-ad-ministered process or the private accred-ited IRO process, the July 2010 regula-tions provided that any adverse benefit de-termination (or final internal adverse ben-efit determination) could be reviewed un-less it related to a participant’s or benefi-ciary’s failure to meet the requirements foreligibility under the terms of a group healthplan. As explained later in this preamble,this amendment to the July 2010 regula-tions modifies the scope of claims eligiblefor external review under the Federal ex-ternal review process.

II. Overview of Amendments to theInterim Final Regulations

A. Internal Claims and Appeals

1. Expedited notification of benefit de-terminations involving urgent care (para-graph (b)(2)(ii)(B) of the July 2010 regu-lations).

The July 2010 regulations provided thata plan or issuer must notify a claimant of abenefit determination (whether adverse ornot) with respect to a claim involving ur-gent care (as defined in the DOL claims

procedure regulation)17 as soon as possi-ble, taking into account the medical ex-igencies, but not later than 24 hours af-ter the receipt of the claim by the planor issuer, unless the claimant fails to pro-vide sufficient information to determinewhether, or to what extent, benefits arecovered or payable under the plan or healthinsurance coverage. This was a changefrom the DOL claims procedure regula-tion, which generally requires a determi-nation not later than 72 hours after receiptof the claim by a group health plan forurgent care claims. The preamble to theJuly 2010 regulations stated that the De-partments expected electronic communi-cation would enable faster decision-mak-ing than in the year 2000, when the DOLclaims procedure regulation was issued.18

While some commenters supported the24-hour rule (particularly consumer advo-cates and medical associations, includingmental health providers who noted the24-hour standard was especially importantfor people in psychiatric crisis), concernswere raised by many plans and issuersregarding the burden of a 24-hour turn-around. Some commenters argued thatsome of the claims constituting “urgentcare” and thus qualifying for the expeditedtimeframe really do not need to be madewithin 24 hours. Moreover, a number ofcommenters highlighted that the 72-hourprovision was intended only to serve asa “backstop”; as the general rule underboth the July 2010 regulations and theDOL claims procedure regulation requiresa decision as soon as possible consistentwith the medical exigencies involved,making the change to a 24-hour timeframeunnecessary for the most serious medi-cal cases. Some commenters cited theEmergency Medical Treatment and LaborAct (EMTALA)19, which generally re-quires hospitals to provide emergency careto individuals with or without insuranceor preauthorization and, therefore, miti-gates the need for expedited pre-service

emergency claims determinations in manysituations. Finally, some commentersstated that a firm 24-hour turnaround forurgent care claims will adversely affectclaimants, as plans and issuers will nothave sufficient time to properly reviewa claim, adversely affecting the qualityof the review process in cases where theprovider cannot be consulted in time, andleading to unnecessary denials of claims.

After considering the comments, andthe costs and benefits of an absolute24-hour decision-making deadline forpre-service urgent care claims, this amend-ment permits plans and issuers to followthe original rule in the DOL claims proce-dure regulation (requiring decision-mak-ing in the context of pre-service urgentcare claims as soon as possible consistentwith the medical exigencies involved butin no event later than 72 hours), providedthat the plan or issuer defers to the attend-ing provider with respect to the decisionas to whether a claim constitutes “urgentcare.” At the same time, the Departmentsunderscore that the 72-hour timeframeremains only an outside limit and that, incases where a decision must be made morequickly based on the medical exigenciesinvolved, the requirement remains thatthe decision should be made sooner than72 hours after receipt of the claim.

2. Additional notice requirements forinternal claims and appeals (paragraph(b)(2)(ii)(E) of the July 2010 regulations).

The July 2010 regulations also pro-vided additional content requirements forany notice of adverse benefit determi-nation or final internal adverse benefitdetermination. The July 2010 regulationsrequired a plan or issuer to:

(a) Ensure that any notice of adversebenefit determination or final internal ad-verse benefit determination includes in-formation sufficient to identify the claiminvolved. Under the July 2010 regula-tions, this information included the date

16 Under paragraphs (c)(2)(i) and (c)(2)(xvi) of the July 2010 regulations, State processes must provide external review for adverse benefit determinations (including final internal adversebenefit determinations) that are based on issuer’s (or plan’s) requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit; or thatinvolve experimental or investigational treatment. (A State external review process may also provide for external review of a broader scope of adverse benefit determinations.) At the same,time, paragraph (c)(3) of the July 2010 regulations provides a transition period during which a State external review process will be considered binding on an issuer (or a plan), in lieu of therequirements of any Federal external review process, even if the State process does not meet all the requirements of paragraph (c)(2) of the July 2010 regulations. That transition period isbeing modified by this amendment, as described below.

17 Under the DOL claims procedure regulation, a “claim involving urgent care” is a claim for medical care or treatment with respect to which the application of the time periods for makingnon-urgent care determinations could seriously jeopardize the life or health of the claimant or the ability of the claimant to regain maximum function; or, in the opinion of a physician withknowledge of the claimant’s medical condition, would subject the claimant to severe pain that cannot be adequately managed without the care or treatment that is the subject of the claim.

18 75 FR 43330, 43333 (July 23, 2010).

19 42 U.S.C. § 1395dd.

August 8, 2011 100 2011–32 I.R.B.

of service, the health care provider, andthe claim amount (if applicable)20, as wellas the diagnosis code (such as an ICD–9code, ICD–10 code, or DSM-IV code)21,the treatment code (such as a CPT code)22,and the corresponding meanings of thesecodes.

(b) Ensure that the description of thereason or reasons for the adverse bene-fit determination or final internal adversebenefit determination includes the denialcode (such as a CARC and RARC)23 andits corresponding meaning. It must also in-clude a description of the plan’s or issuer’sstandard, if any, that was used in denyingthe claim (for example, if a plan appliesa medical necessity standard in denying aclaim, the notice must include a descrip-tion of the medical necessity standard). Inthe case of a notice of final internal ad-verse benefit determination, this descrip-tion must include a discussion of the deci-sion.

(c) Provide a description of availableinternal appeals and external review pro-cesses, including information regardinghow to initiate an appeal.

(d) Disclose the availability of, and con-tact information for, any applicable officeof health insurance consumer assistanceor ombudsman established under PHS Actsection 2793 to assist enrollees with the in-ternal claims and appeals and external re-view processes.24

Many comments received on the July2010 regulations raised concerns aboutthe additional content required to be in-cluded in the notices. Comments by arange of stakeholders, including plans,issuers, and consumer advocacy organi-

zations focused heavily on the automaticprovision of the diagnosis and treatmentcodes (and their meanings). Concernswere raised about privacy (because expla-nations of benefits (EOBs) often are sentto an individual who is not the patient,such as an employee who is the patient’sspouse or parent), interference with thedoctor-patient relationship,25 and highcosts.26 More specifically, commentershighlighted that sensitive issues such asmental health treatments would be iden-tified by specific treatment or diagnosiscodes and that privacy concerns are mag-nified for adult dependents under age 26who may be covered by their parent’shealth plan. Others pointed out that thereare over 20,000 treatment and diagnosiscodes in use today, presenting a costly ad-ministrative and operational challenge forplans and issuers. Comments also ques-tioned the efficacy of providing the codes,which some argued are often very difficultfor the average patient to understand.27

Other comments were received in sup-port of the coding provisions. Consumeradvocates commented positively on the re-quirement that denial notices include infor-mation for consumers about their right toappeal denials and the availability of stateconsumer assistance programs (CAPs) thatwill help consumers file appeals. Therewere also positive comments on the re-quirement to provide a rationale for the de-nial (including a description of the plan’sor issuer’s standard (such as “medical ne-cessity”), if any, that was used denyingthe claim). With respect to the provisionof coding information, some commentedthat this would be helpful to consumers be-

cause coding errors and missing coding in-formation often are the basis for denyingclaims.

After considering all of the comments,and the costs and benefits of the additionaldisclosure, this amendment eliminates therequirement to automatically provide thediagnosis and treatment codes as part of anotice of adverse benefit determination (orfinal internal adverse benefit determina-tion) and instead substitutes a requirementthat the plan or issuer must provide noti-fication of the opportunity to request thediagnosis and treatment codes (and theirmeanings) in all notices of adverse bene-fit determination (and notices of final in-ternal adverse benefit determination), anda requirement to provide this informationupon request.28 This amendment also clar-ifies that, in any case, a plan or issuer mustnot consider a request for such diagnosisand treatment information, in itself, to be arequest for (and therefore trigger the startof) an internal appeal or external review.

3. Deemed exhaustion of internalclaims and appeals processes (paragraph(b)(2)(ii)(F) of the July 2010 regulations).

The courts generally require claimantsto exhaust administrative proceedings be-fore going to court or seeking externalreview. When plans and issuers offer fulland fair internal procedures for resolv-ing claims, it is reasonable to insist thatclaimants first turn to those proceduresbefore seeking judicial or external reviewof benefit denials. There is less justifica-tion, however, for insisting that a claimantexhaust administrative procedures that donot comply with the law. Accordingly, theJuly 2010 regulations permitted claimants

20 The amount of the claim may not be knowable or available at the time, such as in a case of preauthorization, or there may be no specific claim, such as in a case of rescission that is notconnected to a claim.

21 ICD–9 and ICD–10 codes refer to the International Classification of Diseases, 9th revision and 10th revision, respectively. The DSM-IV codes refer to the Diagnostic and Statistical Manualof Mental Disorders, Fourth Edition.

22 CPT refers to Current Procedural Terminology.

23 CARC refers to Claim Adjustment Reason Code and RARC refers to Remittance Advice Remark Code.

24 To assist plans and issuers in making these disclosures, the Departments provided a current list of relevant consumer assistance programs and ombudsmen in the Appendix to T.R. 2011–01.Plans and issuers with July 1 plan years may rely upon the list in that Appendix when developing their notices of adverse benefit determination and final internal adverse benefit determinationfor plan years beginning on July 1, 2011. The Departments are committed to reviewing and updating this list. The first update is being made available contemporaneous with publication of thisamendment. The first update is available (and any future updates will be made available) at www.dol.gov/ebsa/healthreform and http://cciio.cms.gov/programs/consumer/capgrants/index.html.

25 Several commenters raised concerns that providers’ initial or suspected diagnosis may not match the ultimate diagnosis or patients’ perception of their diagnosis. One commenter gave theexample of a patient who has a biopsy procedure. In that case, the patient would receive an EOB with an initial diagnosis code of cancer, however the results of the biopsy may rule out cancer.In that situation, the EOB can result in confusion and unnecessary mental anguish.

26 In particular, comment letters cited concerns with respect to programming aspects of providing diagnosis codes at a time when plans and issuers are changing over from ICD–9 diagnosiscodes to more extensive and technical ICD–10 codes.

27 Several commenters noted that technical ICD–9 and/or ICD–10 codes can be confusing and/or cause worry. One commenter gave the example of a patient presenting with a white coatingon his tongue, who is told not to worry and to brush the tongue with a toothbrush. The diagnosis code is 529.3, hypertrophy of tongue papillae, a term not used by the patient’s doctor duringthe office visit and, therefore, prone to cause confusion and/or concern.

28 As discussed earlier, in footnote 9, information related to diagnosis and treatment codes (and/or their meanings) is, however, generally required to be provided to claimants upon requestunder existing DOL claims procedures, which is also incorporated in the July 2010 regulations. See 29 CFR 2560.503–1(h)(2)(iii) and paragraph (b)(2)(i) of the July 2010 regulations.

2011–32 I.R.B. 101 August 8, 2011

to immediately seek review if a plan orissuer failed to “strictly adhere” to all ofthe July 2010 regulations’ requirementsfor internal claims and appeals processes,regardless of whether the plan or issuer as-serted that it “substantially complied” withthe July 2010 regulations. The July 2010regulations also clarified that, in such cir-cumstances, the reviewing tribunal shouldnot give special deference to the plan’s orissuer’s decision, but rather should resolvethe dispute de novo. Consumer groupsgenerally supported this “strict adherence”approach, but the approach received anumber of negative comments from someissuers and plan sponsors, who advocate a“substantial compliance” approach.

The Departments continue to believethat claimants should not have to followan internal claims and appeals procedurethat is less than full, fair, and timely, as setforth in the July 2010 regulations. In re-sponse to comments, the Departments areretaining the general approach to this re-quirement, but this amendment also adds anew paragraph (b)(2)(ii)(F)(2) to the July2010 regulations to provide an exceptionto the strict compliance standard for er-rors that are minor and meet certain otherspecified conditions. The new paragraphwill also protect claimants whose attemptsto pursue other remedies under paragraph(b)(2)(ii)(F)(1) of the interim final reg-ulations are rejected by a reviewing tri-bunal. Under the amended approach, anyviolation of the procedural rules of theJuly 2010 regulations pertaining to inter-nal claims and appeals would permit aclaimant to seek immediate external re-view or court action, as applicable, unlessthe violation was:

(1) De minimis;(2) Non-prejudicial;(3) Attributable to good cause or mat-

ters beyond the plan’s or issuer’s control;(4) In the context of an ongoing good-

faith exchange of information; and(5) Not reflective of a pattern or practice

of non-compliance.In addition, the claimant would be en-

titled, upon written request, to an explana-tion of the plan’s or issuer’s basis for as-serting that it meets this standard, so thatthe claimant could make an informed judg-ment about whether to seek immediate re-view. Finally, if the external reviewer orthe court rejects the claimant’s request forimmediate review on the basis that the plan

met this standard, this amendment wouldgive the claimant the right to resubmit andpursue the internal appeal of the claim.

4. Form and manner of notice (para-graph (e) of the July 2010 regulations).

PHS Act section 2719 requires grouphealth plans and health insurance issuersto provide relevant notices in a culturallyand linguistically appropriate manner. TheJuly 2010 regulations set forth a require-ment to provide notices in a non-Englishlanguage based on separate thresholds ofthe number of people who are literate in thesame non-English language. In the groupmarket, the threshold set forth in the July2010 regulations differs depending on thenumber of participants in the plan:

• For a plan that covers fewer than 100participants at the beginning of a planyear, the threshold is 25 percent of allplan participants being literate only inthe same non-English language.

• For a plan that covers 100 or moreparticipants at the beginning of a planyear, the threshold is the lesser of 500participants, or 10 percent of all planparticipants, being literate only in thesame non-English language.

These thresholds were adapted fromthe DOL regulations regarding styleand format for a summary plan de-scription, at 29 CFR 2520.102–2(c)for participants who are not literate inEnglish. For the individual market, thethreshold is 10 percent of the populationresiding in the county being literateonly in the same non-English language.The individual market threshold wasgenerally adapted from the approach usedunder the Medicare Advantage program,which required translation of materials inlanguages spoken by more than 10 percentof the general population in a service areaat the time the threshold was established.

Under the July 2010 regulations, if anapplicable threshold is met with respect toa non-English language, the plan or issuermust provide the notice upon request in thenon-English language. Additionally, theplan or issuer must include a statement inthe English versions of all notices, promi-nently displayed in the non-English lan-guage, offering the provision of such no-tices in the non-English language. Finally,to the extent the plan or issuer maintainsa customer assistance process (such as a

telephone hotline) that answers questionsor provides assistance with filing claimsand appeals, the plan or issuer must pro-vide such assistance in the non-Englishlanguage.

Comments received in response to theJuly 2010 regulations raised several con-cerns about this requirement. One group ofcommenters stated that the thresholds forthe group market were difficult to complywith, especially for small plans (where anindividual or a small number of individu-als could cause a plan to change status withrespect to the threshold) and insured plans(where the issuer may be in a very difficultposition to determine the English literacyof an employer’s workforce). Some com-menters stated that the threshold require-ments for the group and individual marketsshould be consistent.

Other commenters were concerned withthe high costs of compliance with this rule,particularly the “tagging and tracking re-quirement” to the extent that individualswho request a document in a non-Englishlanguage would need to be “tagged” and“tracked” so that any future notices wouldbe provided automatically in the non-Eng-lish language. Some of these commenterscited the high costs associated with imple-menting translation requirements pursuantto California State law and the low take-uprates of translated materials in California.Some commenters also cited the impor-tance of having written translation of doc-uments available (at a minimum, upon re-quest), as well as having oral language ser-vices for customer assistance.

Following review of the comments sub-mitted on this issue and further review andconsideration of the provisions of PHS Actsection 2719, the Departments have deter-mined it is appropriate to amend the pro-visions of the July 2010 regulations re-lated to the provision of notices in a cul-turally and linguistically appropriate man-ner. This amendment establishes a sin-gle threshold with respect to the percent-age of people who are literate only in thesame non-English language for both thegroup and individual markets. With re-spect to group health plans and health in-surance issuers offering group or individ-ual health insurance coverage, the thresh-old percentage of people who are liter-ate only in the same non-English languagewill be set at 10 percent or more of the pop-ulation residing in the claimant’s county, as

August 8, 2011 102 2011–32 I.R.B.

determined based on American Commu-nity Survey data published by the UnitedStates Census Bureau.29 The Departmentswill update this guidance annually on theirwebsite if there are changes to the list ofthe counties determined to meet this 10percent threshold for the county’s popula-tion being literate only in the same non-English language.30

This amendment to the July 2010 reg-ulations requires that each notice sentby a plan or issuer to an address in acounty that meets this threshold includea one-sentence statement in the relevantnon-English language about the availabil-ity of language services. The Departmentshave provided guidance with sample sen-tences in the relevant languages in separateguidance being issued contemporaneouswith the publication of this amendment.For ease of administration, some plans andissuers may choose to use a one-sentencestatement for all notices within an entireState (or for a particular service area)that reflects the threshold language orlanguages in any county within the Stateor service area. For example, statewidenotices in California could include the rel-evant one-sentence statement in Spanishand Chinese because, using the data fromTable 2, Spanish meets the 10 percentthreshold in Los Angeles County and 22other counties and Chinese meets the 10percent threshold in San Francisco County.This would be a permissible approach tomeeting the rule under this amendment.

In addition to including a statementin all notices in the relevant non-Englishlanguage, this amendment requires a planor issuer to provide a customer assistanceprocess (such as a telephone hotline) withoral language services in the non-Englishlanguage and provide written notices inthe non-English language upon request.For this purpose, plans and issuers arepermitted to direct claimants to the samecustomer service telephone number whererepresentatives can first attempt to ad-dress the consumer’s questions with anoral discussion, but also provide a writtentranslation upon request in the thresh-old non-English language. Finally, this

amendment removes any “tagging andtracking” requirement that would haveotherwise applied under the July 2010regulations.

This amendment to the July 2010 reg-ulations provides standards for providingculturally and linguistically appropriatenotices that balance the objective ofprotecting consumers by providing under-standable notices to individuals who speakprimary languages other than English withthe goal of simplifying information collec-tion burdens on plans and issuers. (Note,nothing in these regulations should beconstrued as limiting an individual’s rightsunder Federal or State civil rights statutes,such as Title VI of the Civil Rights Act of1964 (Title VI) which prohibits recipientsof Federal financial assistance, includingissuers participating in Medicare Advan-tage, from discriminating on the basis ofrace, color, or national origin. To ensurenon-discrimination on the basis of nationalorigin, recipients are required to take rea-sonable steps to ensure meaningful accessto their programs and activities by limitedEnglish proficient persons. For moreinformation, see, “Guidance to FederalFinancial Assistance Recipients Regard-ing Title VI Prohibition Against NationalOrigin Discrimination Affecting LimitedEnglish Proficient Persons,” availableat http://www.hhs.gov/ocr/civilrights/resources/specialtopics/lep/policyguidancedocument.html.)

The Departments welcome commentson this amendment, including whether itwould be appropriate to include a provi-sion in the final rules requiring health in-surance issuers providing group health in-surance coverage to provide language ser-vices in languages that do not meet the req-uisite threshold for an applicable non-Eng-lish language, if requested by the adminis-trator or sponsor of the group health planto which the coverage relates. For exam-ple, if Chinese does not meet the 10 per-cent threshold in New York County, butan employer with a large Chinese-speakingpopulation asks the health insurance issuerproviding its group health insurance cov-erage to provide language services in Chi-

nese (as described in the amendment), theDepartments invite comment on what obli-gations should be imposed on the issuer, ifany, to provide language services in Chi-nese.

B. External Review

1. Duration of transition period forState external review processes.

In general, if State laws do not meetthe minimum consumer protections ofthe NAIC Uniform Model Act31, as setforth in paragraph (c)(2) of the July 2010regulations, insurance coverage (as wellas self-insured nonfederal governmentalplan and church plan coverage) is subjectto the requirements of an external reviewprocess under Federal standards similarto the process under the NAIC UniformModel Act, such as the HHS-administeredprocess. Paragraph (c)(3) of the July 2010regulations provided a transition period forplan years (in the individual market, pol-icy years) beginning before July 1, 2011in order to allow States time to amendtheir laws to meet or go beyond the min-imum consumer protections of the NAICUniform Model Act set forth in paragraph(c)(2) of the July 2010 regulations. HHShas been working closely with States re-garding enactment of laws to conformto paragraph (c)(2) and much progresshas been made. However, enacting Statelegislation and regulations can often bea complex and time-consuming process.Accordingly, the Departments are modify-ing the transition period under paragraph(c)(3) of the July 2010 regulations so thatthe last day of the transition period is De-cember 31, 2011 to give States, which aremaking substantial progress in implement-ing State external review processes thatconform to paragraph (c)(2), the requisitetime to complete that process. Becausethe July 2010 regulations would haveended the transition period for plan years(in the individual market, policy years)beginning on or after July 1, 2011, the De-partments note that ending the transitionperiod on December 31, 2011 will reducethe length of the transition period for plans

29 At the time of publication of this amendment, 255 U.S. counties (78 of which are in Puerto Rico) meet this threshold. The overwhelming majority of these are Spanish; however, Chinese,Tagalog, and Navajo are present in a few counties, affecting five states (specifically, Alaska, Arizona, California, New Mexico, and Utah). A full list of the affected U.S. counties in 2011 isincluded in Table 2 later in this preamble, under the heading, “IV. Economic Impact and Paperwork Burden.”

30 This information will be made available at www.dol.gov/ebsa/healthreform and http://cciio.cms.gov/.

31 The NAIC Uniform Model Act in place on July 23, 2010 provides external review for claims involving medical necessity, appropriateness, health care setting, level of care, effectiveness(of a covered benefit), whether a treatment is experimental, and whether a treatment is investigational.

2011–32 I.R.B. 103 August 8, 2011

and policies with plan years (in the in-dividual market, policy years) beginningafter January 1 but before July 1. Whenthe July 2010 regulations were published,the Departments anticipated that issuersin every State that had not enacted lawsto conform to paragraph (c)(2) of the July2010 regulations would need to participatein the HHS-administered process. Now,the Departments have decided thatissuers may continue to participate ina State external review process underFederal standards similar to the processunder the NAIC Uniform Model Act(an NAIC-similar process), which theDepartments anticipate will reduce marketdisruption when the transition period ends.Therefore, based on the Departments’concerns for making the consumerprotections of the Affordable Care Actavailable without undue delay and forensuring as much uniformity as possiblein the availability of those protectionsregardless of the form of a consumer’shealth coverage, the Departments havedecided to end the transition period onDecember 31, 2011. Therefore, thisamendment to the July 2010 regulationsprovides that, before January 1, 2012,an applicable State external processwill apply in lieu of the requirementsof the Federal external review process.PHS Act section 2719(c) authorizes theDepartments to deem an external reviewprocess “in operation as of the date ofenactment” of the Affordable Care Actas compliant with the external reviewrequirements of PHS Act section 2719(b).Through December 31, 2011, anycurrently effective State external reviewprocess satisfies the requirements ofeither PHS Act section 2719(c) or section2719(b)(2). If there is no applicableState external review process, separateguidance being issued contemporaneouswith the publication of this amendmentgenerally provides a choice between theHHS-administered process or the privateaccredited IRO process.

2. Scope of the Federal External ReviewProcess

Paragraph (d)(1) of the July 2010 reg-ulations sets forth the scope of claims el-igible for external review under the Fed-eral external review process. Specifically,any adverse benefit determination (includ-ing a final internal adverse benefit deter-mination) could be reviewed unless it re-

lated to a participant’s or beneficiary’s fail-ure to meet the requirements for eligibil-ity under the terms of a group health plan(i.e., worker classification and similar is-sues were not within the scope of the Fed-eral external review process).

Comments received in response to theJuly 2010 regulations were mixed on thescope of claims eligible for external re-view. Some commenters argued that PHSAct section 2719 requires the Federal ex-ternal review process to be “similar to”the NAIC Uniform Model Act and thatthe broader scope of claims eligible forthe Federal external review process is amajor departure from the NAIC UniformModel Act. In addition, some commentsfrom plans and issuers stated that the IROsthat are used in the private accredited IROprocess traditionally have expertise in ad-judicating medical claims, and questionedIROs’ experience and expertise with legaland contractual claims. Other commentsfrom IROs and the IRO industry stated thatthese organizations do currently conductreviews that involve both medical judg-ment issues and legal and contractual is-sues, and that there is sufficient capacityfor conducting reviews of such disputes.

Some plan and issuer comments high-lighted that, with a limited number of ac-credited IROs and increased demand fortheir services, the cost of external reviewfor self-insured group health plans willlikely increase. By contrast, an IRO asso-ciation group commented that member or-ganizations are not at capacity with regardto the volume of work they can perform,and that they are confident that the numberof accredited IROs can adequately handlethe volume of reviews anticipated for theFederal external review process.

Some plans and issuers stated thathanding plan document interpretation andlegal interpretation issues over to an IROmay raise issues of consistency of in-terpretations within a plan, unwarrantedconsistency across plans that have uniquestandards, ERISA fiduciary responsibilityconcerns, and possible conflicts. At thesame time, other comments generally sup-ported the broad scope of claims eligiblefor the Federal external review processas set forth in the July 2010 regulations.These commenters argued very stronglythat it is nearly impossible to adjudicatecontractual claims through traditionalERISA enforcement (which generally re-

lies on Federal court adjudication), leavingplan participants and beneficiaries with noeffective means of enforcing their rightsto benefits under a plan. Consumer orga-nizations further commented that externalreview finally provides the free, indepen-dent means of enforcement to level theplaying field of claims adjudication and,therefore, the scope of claims eligible forthe Federal external review process shouldbe as broad as possible.

After considering all the comments,with respect to claims for which exter-nal review has not been initiated beforeSeptember 20, 2011, the amendmentsuspends the original rule in the July2010 regulations regarding the scope ofclaims eligible for external review forplans using a Federal external reviewprocess (regardless of which type ofFederal process), temporarily replacingit with a different scope. Specifically,this amendment suspends the broadscope of claims eligible for the Federalexternal review process and narrows thescope to claims that involve (1) medicaljudgment (excluding those that involveonly contractual or legal interpretationwithout any use of medical judgment), asdetermined by the external reviewer; or (2)a rescission of coverage. The more narrowscope under this amendment is moresimilar to the scope of claims eligible forexternal review under the NAIC UniformModel Act. This amendment provides anexample describing a plan that generallyonly provides 30 physical therapy visitsbut will provide more with an approvedtreatment plan. The plan’s rejection of atreatment plan submitted by a provider forthe 31st visit based on a failure to meetthe plan’s standard for medical necessityinvolves medical judgment and, therefore,the claim is eligible for external review.Similarly, another example describesa plan that generally does not providecoverage for services provided on anout-of-network basis, but will providecoverage if the service cannot effectivelybe provided in network. In this example,again, the plan’s rejection of a claimfor out-of-network services involvesmedical judgment. Additional examplesof situations in which a claim is consideredto involve medical judgment includeadverse benefit determinations based on:

August 8, 2011 104 2011–32 I.R.B.

• The appropriate health care setting forproviding medical care to an individ-ual (such as outpatient versus inpatientcare or home care versus rehabilitationfacility);

• Whether treatment by a specialist ismedically necessary or appropriate(pursuant to the plan’s standard formedical necessity or appropriateness);

• Whether treatment involved “emer-gency care” or “urgent care”, affectingcoverage or the level of coinsurance;

• A determination that a medical condi-tion is a preexisting condition;

• A plan’s general exclusion of an itemor service (such as speech therapy), ifthe plan covers the item or service incertain circumstances based on a med-ical condition (such as, to aid in therestoration of speech loss or impair-ment of speech resulting from a med-ical condition);

• Whether a participant or beneficiaryis entitled to a reasonable alternativestandard for a reward under the plan’swellness program;32

• The frequency, method, treatment, orsetting for a recommended preventiveservice, to the extent not specified,in the recommendation or guidelineof the U.S. Preventive Services TaskForce, the Advisory Committee onImmunization Practices of the Centersfor Disease Control and Prevention,or the Health Resources and ServicesAdministration (as described in PHSAct section 2713 and its implementingregulations);33 and

• Whether a plan is complying withthe nonquantitative treatment limita-tion provisions of the Mental HealthParity and Addiction Equity Act andits implementing regulations, whichgenerally require, among other things,parity in the application of medicalmanagement techniques.34

The suspension is intended to give themarketplace time to adjust to providing

external review. It will also allow the De-partments time to evaluate IROs’ capacityfor handling external reviews; to considerwhether current accreditation standardsare sufficient to ensure that IROs are ca-pable of making accurate and consistentdecisions (both across different plans andacross different IROs) regarding legaland contractual issues that do not involvemedical judgment or rescissions; and toassess the mechanics of the Federal ex-ternal review process (and any potentialadjustments). The Departments solicitcomments on these issues, including onwhether limiting the scope of claims dur-ing the suspension period will impose ad-ministrative costs in determining whethera claim is eligible for external review. TheDepartments also welcome any data onexternal review claims actually performedto date under private contracts pursuantto the private accredited IRO process forimplementing PHS Act § 2719(b), includ-ing number of claims reviewed, type ofreview (such as whether it involved anymedical judgment or not), and costs asso-ciated with the review. The Departmentsexpect that the suspension will be liftedby January 1, 2014, when other consumerprotections under the Affordable CareAct take effect. Moreover, if, after takinginto account all the relevant information,including public comments, the Depart-ments decide to return to the original ruleproviding for a broad scope of claims orpermanently modify the scope of claimsthrough rulemaking, the Departments willgive sufficient advance notice to enableplans, their service providers, IROs, andother affected parties sufficient time tocomply with a new rule.

Separate guidance being issued con-temporaneous with the publication of thisamendment announces standards underwhich, until January 1, 2014, a State mayoperate an external review process underFederal standards similar to the processunder the NAIC Uniform Model Act (anNAIC-similar process). The Departments

are adopting this approach to permit Statesto operate their external review processesunder standards established by the De-partments until January 1, 2014, avoidingunnecessary disruption, while States workto adopt the consumer protections setforth in paragraph (c) of the July 2010regulations. Paragraph (d)(1) of the July2010 regulations, as amended, will gov-ern the scope of a State external reviewprocess under Federal standards similarto the process under the NAIC UniformModel Act. Because the amended para-graph (d)(1) creates a broader scope ofexternal review than is required under theNAIC Uniform Model Act, and becauseit would be illogical to require States tomake changes to their process to encom-pass the broader scope of paragraph (d)(1)in their external review process while theywork to adopt the consumer protections ofthe NAIC Uniform Model Act (which hasa narrower scope), the Departments arealso amending paragraph (d)(1) to permitthe Secretaries to modify the scope of theFederal external review process in futureguidance to permit State external reviewprocesses (both NAIC-similar processesand NAIC-parallel processes) to the scopethat applies under the NAIC UniformModel Act.

3. Clarification regarding requirementthat external review decision be binding

The Departments have received a num-ber of comments on the requirement thatan IRO decision be binding on parties.Specifically, the July 2010 regulations pro-vided that an external review decision byan IRO is binding on the plan or issuer,as well as the claimant, except to the ex-tent that other remedies are available un-der State or Federal law.35 This binding re-quirement is also one of the minimum con-

32 See 26 CFR 54.9802–1(f)(2)(iv)(A), 29 CFR 2590.702(f)(2)(iv)(A), and 45 CFR 146.121(f)(2)(iv)(A), requiring that wellness programs that require individuals to satisfy a standard relatedto a health factor in order to obtain a reward allow a reasonable alternative standard (or waiver of the otherwise applicable standard) for obtaining the reward for any individual for whom, forthat period, it is either unreasonably difficult due to a medical condition to satisfy the otherwise applicable standard, or medically inadvisable to attempt to satisfy the otherwise applicablestandard.

33 See 26 CFR 54.9815–2713T, 29 CFR 2590.715–2713, and 45 CFR 147.130; see also FAQ 8, FAQs About the Affordable Care Act Implementation Part II, regarding the scope, set-ting, or frequency of the items or services to be covered under the preventive health services recommendations and guidelines (available at http://www.dol.gov/ebsa/faqs/faq-aca2.html andhttp://cciio.cms.gov/resources/factsheets/aca_implementation_faqs2.html).

34 See Code section 9812 and 26 CFR 54.9812–1T, ERISA section 712 and 29 CFR 2590.712, and PHS Act section 2726 and 45 CFR 146.136.

35 See 26 CFR 54.9815–2719T(d)(2)(iv), 29 CFR 2590.715–2719(d)(2)(iv), and 45 CFR 147.136(d)(2)(iv).

2011–32 I.R.B. 105 August 8, 2011

sumer protections set forth in paragraph (c)of the July 2010 regulations.36

Some comments received in responseto the July 2010 regulations highlightedthe importance of this consumer protectionand expressed approval that this require-ment would minimize delays that couldfurther hurt claimants, as the plan or is-suer must provide coverage or payment forthe claim immediately upon receipt of anotice of a final external review decision.Other commenters questioned whether therequirement that external review is bind-ing eliminates the plan’s or issuer’s optionto choose to pay a claim at any time duringor after the external review process.

Nothing in PHS Act section 2719(b),the July 2010 regulations, or related guid-ance precludes a plan or issuer from choos-ing to provide coverage or payment for abenefit. Instead, the Departments read therequirement of the NAIC Uniform ModelAct, which is incorporated into the July2010 regulations, to require plans and is-suers to provide a benefit if that is the de-cision of the IRO. A plan or issuer maynot delay payment because the plan dis-agrees and intends to seek judicial review.Instead, while the plan may be entitled toseek judicial review, it must act in accor-dance with the IRO’s decision (includingby making payment on the claim) unlessor until there is a judicial decision other-wise. However, the requirement that theIRO’s decision be binding does not pre-clude the plan or issuer from making pay-ment on the claim or otherwise providingbenefits at any time, including following afinal external review decision that deniesthe claim or otherwise fails to require suchpayment or benefits.

After considering all the comments onthe requirement that an IRO decision bebinding on the plan and issuer, as wellas the claimant, this amendment clarifiesthe language in paragraphs (c)(2)(xi) (re-garding the minimum standards for Stateexternal review processes) and (d)(2)(iv)(regarding Federal external review processstandards). Specifically, these two provi-sions are amended to add language stat-ing that, for purposes of the binding provi-sion, the plan or issuer must provide ben-efits (including by making payment on theclaim) pursuant to the final external re-view decision without delay, regardless of

whether the plan or issuer intends to seekjudicial review of the external review de-cision and unless or until there is a judicialdecision otherwise. The Departments wel-come comments as to whether any addi-tional clarifications about the binding pro-vision would be helpful.

C. Separate, Contemporaneous TechnicalGuidance

Separate technical guidance is beingissued by the Departments contempora-neous with the publication of this amend-ment. This technical guidance addressesboth State- and Federally-administeredexternal review processes. An appendixto this technical guidance contains re-vised versions of the three model noticesissued by the Departments in connec-tion with the July 2010 regulations. Theupdated versions of the model noticeof adverse benefit determination, modelnotice of final internal adverse benefitdetermination, and model notice of finalexternal review decision reflect the re-quirements contained in the provisions ofthis amendment and the guidance. Thistechnical guidance will be available athttp://www.dol.gov/ebsa/healthreform andhttp://cciio.cms.gov.

HHS is issuing also two additional tech-nical guidance documents. The first pro-vides instructions for self-insured nonfed-eral governmental plans and health insur-ance issuers with respect to election of aFederal external review process. The sec-ond provides, for transparency purposes,updated information on how the county-level estimates pertaining to the 10 percentthreshold were calculated for the rules re-lated to culturally and linguistically appro-priate notices. Both of these documentswill be available at http://cciio.cms.gov.

III. Interim Final Rules

Section 9833 of the Code, section 734of ERISA, and section 2792 of the PHSAct authorize the Secretaries of the Trea-sury, Labor, and HHS (collectively, theSecretaries) to promulgate any interim fi-nal rules that they determine are appro-priate to carry out the provisions of chap-ter 100 of the Code, part 7 of subtitleB of title I of ERISA, and part A of ti-tle XXVII of the PHS Act, which include

PHS Act sections 2701 through 2728 andthe incorporation of those sections intoERISA section 715 and Code section 9815.The amendments promulgated in this rule-making carry out the provisions of thesestatutes. Therefore, the foregoing interimfinal rule authority applies to these amend-ments.

Under the Administrative ProcedureAct (APA) (5 U.S.C. 551 et seq.), whilea general notice of proposed rulemakingand an opportunity for public commentis generally r

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