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New Rules Guarantee Patients' Right To Appeal Insurance Claim Denials

Jul 22, 2010

This story was produced in collaboration with wapo

Patients will find it easier to appeal the denials of health insurance claims under rules issued today by the Obama administration, which is trying to boost political support for the new health law by highlighting potential advantages for consumers.

The regulations guarantee consumers the right to appeal denials — directly to their insurers and then, if necessary, to external review boards.

The external-review requirement will apply, for the first time, to companies that are self-insured — ones that pay their employees' claims directly rather than buying insurance to cover their workers.

"This is huge," said Sara Rosenbaum, head of the department of health policy at the George Washington University School of Public Health and Health Services.

Most states already guarantee consumers the right to external appeals, though their rules vary widely and five states — North and South Dakota, Alabama, Mississippi and Nebraska — don't have laws requiring an external review.

"This is a regulation that benefits everyone -- consumers get protections, business and providers get more certainty in the rules and the need for litigation to settle these issues should be dramatically minimized," Phyllis Borzi, assistant secretary of the  Department of Labor, said at a briefing for reporters Thursday.

However, the rules don't apply to "grandfathered" plans — those that existed on March 23, when the health law was enacted. Plans can lose their "grandfathered" status if they make significant changes to their plans regarding costs or benefits.

Still, by next year, an estimated 31 million people in employer-sponsored plans and another 10 million people in individual plans will benefit from the new appeals rights, according to the White House.

Advocates hope the changes will give consumers a fairer shot at fighting back when their claims are denied. Insurers deny claims for many reasons: they may determine that a treatment is not medically necessary, for example, or that it’s experimental. Sometimes denials relate to coverage of pre-existing health conditions.

America's Health Insurance Plans, the main health insurance lobby, supports efforts to "create uniformity or consistency" in the appeals process, said spokesman Robert Zirkelbach. "We have encouraged every state to have a third-party review system," he said.

But appealing insurers' denials is easier in some states than others. Many consumers don't know that they can appeal insurers' denials. "Not enough consumers know this is an option that they have," said Angel Robinson, the consumer advocate in the Iowa Insurance Division.

To change that, the administration is providing $30 million in grants to states to strengthen consumer assistance offices.

Administration officials said they are hoping the states that do not have an external review system will set one up using the new federal rules. But if they don't a federal review system will be set up for them.

In addition, the federal rules on external appeals will apply to all types of health insurance. Currently, in 13 states those reviews apply only to HMOs.

Another advantage of the federal rules is that all decisions by external review panels will be binding on the health plan. Not all states have such a rule. 

"The rules issued today will end the patchwork of protections that apply to only some plans in some states, and simplify the system for consumers," according to a White House fact sheet.

Under the regulations, states are "encouraged" to adopt the new standards by July 2011.

The new regulations take effect for plan years beginning Sept. 23. But they won't automatically apply to residents in states that have their own existing external review laws until next July. That's to give states time to adjust to the new standards.

If states fail to change their rules by next July, their residents will then be able to rely on the federal standards. But federal officials are still figuring out the details.

The system can be hard for patients to navigate.

When Craig Washington suffered a stroke in June 2009, his health plan denied more than $28,000 in claims for the two weeks he was hospitalized in Chicago. The insurer said his stroke was due to a pre-existing condition, and since he had been uninsured before starting a new job that April as executive director of Roseland Community Hospital Foundation, the plan denied his claims. Washington lost two appeals with his health plan.

Now, he's appealing to an independent state review panel. "It's exhausting," he says.

"People think, 'I had an internal appeal, and that didn’t work, so why should I push it further?' " says Elizabeth Abbott, director of administrative advocacy for the Health Access Foundation in Sacramento. "But there’s often a very different result in external review."

But appealing the decision is often worth it. On average, about 40 percent of denials are reversed on external appeal, according to commentary that was issued along with the regulations issued today. Those reversals resulted in insurers paying about $12,400 per claim.

When Rona Dondzilo was denied coverage for treatment for endometrial cancer because her health plan said her condition was pre-existing, the Spokane, Wash., home care worker worked with the Patient Advocate Foundation in Hampton, Va., to file an external appeal. She won.

The administration expects consumers to file about 2,600 external appeals in 2011.

Consumer advocates applauded the new regulations. "It's a big move in the right direction," said DeAnn Friedholm, Consumers Union's campaign director for health reform.

Related, earlier KHN story: Changes Coming To Insurance Plans  (Appleby, 4/6)

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