Health Reform: Patients Empowered in Appeal, $30 Million in Grants

The slow but steady stream of good news of the new health reform law being implemented continues.  One of the little-noticed and provisions in the new law strengthened the hands of patients and health care consumers against unjust insurance company decisions to deny care.  The provision, authored by Sen. Bob Menendez of New Jersey, provides for a full and fair internal and external review process of insurance denials and rescissions with teeth.  On Thursday, the Department of Health and Human Services released new rules enforcing this provision of law.

And the Obama administration is putting money where its mouth is.  They have announced $30 million in grants for state programs to educate and assist people about their new rights, empowering patients.

How is this reform implemented?  What we have now is that appeals process of insurance companies is unclear, drag on forever, and denials on appeals are irreversible through external appeal (except a lawsuit, which would also take forever).  Health insurers, we all know, make money by denying care - this isn't a sinister matter, but one of mathematics, really.  The less they spend on actual care, the more they make in profit.

Internal Appeal

When such denials are made, today, consumers are left with essentially no choice, and, as it happens, patients are often left to die.  Under the new rules, insurance plans renewed or issued after September 23 must provide consumers with a transparent, easy-to-understand internal appeals process that:
  • Allows consumers to appeal when a health plan denies a claim for a covered service or rescinds coverage; 
  • Gives consumers detailed information about the grounds for the denial of claims or coverage;
  • Requires plans to notify consumers about their right to appeal and instructs them on how to begin the appeals process;
  • Ensures a full and fair review of the denial; and
  • Provides consumers with an expedited appeals process in urgent cases.
Will the insurance industry try to do everything to circumvent these standards and make life difficult for consumers?  Probably.  But the standards are pretty clear cut.  Insurance companies often withhold information about the grounds for denial, give patients and families the end run around the appeals process, and use consumers' lack of knowledge to their advantage.  The new rules, by requiring insurance companies to release detailed information both on the grounds of denial and on the review process, reduces the scope of abuse in those respects.

Perhaps equally importantly, the requirement to release detailed information itself may be a deterrent against those denials and rescissions.  The case of Nataline Sarkisyan became famous in 2008.  Her insurance company's denial of a transplant she needed was eventually reversed after public scrutiny, although not before it was too late.  The appeal to California Department of Insurance in the case was delayed because - you guessed it - not enough information was available for state regulators to act.  While regulators and the family looked for detailed information, a 17 year old girl was left in limbo, and ultimately to her death.

I don't know if the new regulations would have saved Nataline.  But the detailed information about the denial sure could have helped out the state regulators in California.  And yes, the Department of Insurance in California does do their job.  When my parents' home insurance company denied a claim to fix broken water pipes, a letter to the insurance commissioner caused them to backtrack and approve the expenses.

External Appeal

The requirements for full information and a fair appeals process isn't the only thing holding health insurance companies accountable under the new rule.  It also sets up an external appeals - the expenses of which must be borne by the insurance company - process that anyone who loses an internal appeal can access.  The external process has these standards, which the states are encouraged to adopt into law:
  • External review of plan decisions to deny coverage for care based on medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit.
  • Clear information for consumers about their right to both internal and external appeals – both in the standard plan materials, and at the time the company denies a claim.
  • Expedited access to external review in some cases – including emergency situations, or cases where their health plan did not follow the rules in the internal appeal.
  • Health plans must pay the cost of the external appeal under State law, and States may not require consumers to pay more than a nominal fee.
  • Review by an independent body assigned by the State. The State must also ensure that the reviewers meet certain standards, keep written records, and are not affected by conflicts of interest.
  • Emergency processes for urgent claims, and a process for experimental or investigational treatment.
  • Final decisions must be binding so, if the consumer wins, the health plan is expected to pay for the benefit that was previously denied.
As you can see, the external appeals process does two major things: first, it incentivizes health insurance companies to actually have a fair internal appeals process, since they bear the cost for the external appeal, and since the external process is binding.  A study by the Kaiser Family Foundation in 2002 found that where available, consumers win their external appeals nearly half (45%) of the time. Since 2002, the situation with insurance company denials has only worsened, and it stands to reason that a fair, complete, and broad-ranging external review process will only reverse more denials, not less.

This broad range of the review process - applying to essentially all plans (other than grandfathered plans, which the consumer can change anytime) is important.  KFF and Consumers Union report that as of 2005, 43 states had their own external review process - the standards as well as scopes of which vary widely.  Here's a graphic demonstration of how cumbersome it currently is.

health insurance external review regulatory patchwork
The new rules will set up unified federal standards - implemented through state law or regulations, if the state is willing (even if the state isn't willing, the standards are set up anyway - more on that below), for external appeal.  As the Healthcare.gov fact sheet states,
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. And they will ensure that all consumers in new health plans have access to internal and external appeals processes that are clearly defined, impartial, and designed to ensure that, when health care is needed and covered, consumers get it.
But what if the states choose not to cooperate with these fair standards of external appeal?  The federal law has a solution for that, too.  Basically, if a state won't incorporate those fair standards into law and implement them, the federal government will implement it for them.  Not only that, plans not covered under state regulations will still not be able to escape federal external review.
If State laws don’t meet these standards, consumers in those States will be protected by comparable Federal external appeals standards. In addition, people in health plans that are not subject to State law – including new self-insured employer plans – will be protected by the new Federal standards.
The right of both internal and external appeal against health insurers is now codified in federal law.  President Obama wasn't exaggerating when he said that health reform included a patients' bill of rights on steroids.  This reform in the review process may seem relatively insignificant to some, but it is part of what constitutes essential, major reforms for the market, and fairer treatment for patients and consumers of health care.

Since the passage of the landmark health care law without a single Republican vote, the American people have been able to experience insurance reforms coming into place affecting real lives - be it the outlawing of rescission of coverage based on technical errors on applications, eliminating lifetime coverage limits, extending coverage to people under 26, or banning pre-existing condition exclusion for children.  Further reforms are on the way as the law is fully implemented to the benefit of patients and consumers.  And that is why 61% of Americans now oppose the Republican repeal agenda.