Indemnity Health Plans: Key Features of Consumer Complaint and Appeal Systems
Released: 1998-07-31T00:00:00

Letter

Background

Under traditional indemnity plans, the physician has no legal relationship to the patient’s health plan. The contractual relationships are between the patient and the physician—under which the patient is obligated to pay the physician a fee for service rendered—and between the patient and the plan—under which the plan is obligated to indemnify the patient for medical expenditures incurred according to the terms of the insurance contract. Although disputes between the patient and plan may arise over denial of payment, claims regarding the quality of services that result in medical injury are resolved in state common law tort systems under principles of medical malpractice law.

Complaint and appeal procedures are regulated by a patchwork of federal and state laws. No federal standards, however, prescribe how complaint and appeal systems are to be structured and administered. For example, the Employee Retirement Income Security Act of 1974 (ERISA), a federal law governing most employer-sponsored health plans, requires that all health plans provide a mechanism to permit participants and beneficiaries to appeal a plan’s denial of a claim. Regulations promulgated pursuant to ERISA generally require that plans approve or deny appeals within 60 days. Some states may have statutes or regulations governing indemnity plan complaint and appeal procedures; however, under ERISA the states are prevented from regulating self-funded health plans, which enroll approximately 87 percent of indemnity plan members.

Nine Elements Were Considered Important for Indemnity Plans

The groups we contacted identified 9 of the 11 elements recommended for HMO complaint and appeal systems as applicable to indemnity plans. The two HMO-related elements not considered applicable to indemnity plans were a two-level appeal process and the member’s right to appear at one appeal hearing. The elements considered important to a sound complaint and appeal process for indemnity plans fell into three general categories—timeliness, integrity of the decision-making process, and effective communication—and included the following: explicit time periods, set out in plan policies, within which plans resolve complaints or appeals. Appeals, according to the criteria, were to be resolved within 30 days; expedited review of appeals in situations in which, were a plan to follow its usual time period for processing an appeal, the patient’s health might be jeopardized. Such situations might include, for example, admission to, or discharge from, an acute-care hospital. Criteria called for expedited review to be completed within 72 hours or 2 business days of the appeal; appeal decisions made by medical professionals with appropriate appeal decisions made by individuals not involved in the initial decision; information provided about how to register a complaint or appeal; oral complaints accepted by the plan; oral appeals accepted by the plan; appeal rights included in notice of denial of coverage or payment of written notice of appeal denials, including further appeal rights where applicable. This standard would not apply in cases where members have no further appeal rights—for example, in plans that offered only one level of review.

Key Elements Were Present in at Least Half the Plans

Nearly all the recommended elements were present in the policies of at least half the plans in our study. As shown in table 1, five elements—explicit time periods for resolving member appeals, appeal decisions made by medical professionals with appropriate expertise, provision of information on how to register a complaint or appeal, plan acceptance of oral complaints, and inclusion of appeal rights in notice of denial of coverage or payment—were included in the policies of a large majority of the indemnity plans in our study. However, the remaining four elements—expedited review of appeals in urgent situations, appeal decisions made by individuals not involved in the initial decision, plan acceptance of oral appeals, and written notice of appeal denials including further appeal rights—were present in the policies of only two-thirds or fewer of the plans reporting.

We asked plans to indicate whether the complaint and appeal policies they described applied to both insured and self-funded business. Four plans provided no information on this issue, while one stated that its indemnity plan had no self-funded members. Of the five remaining plans, three stated that the complaint and appeal policies they reported to us applied to all members, insured as well as self-funded, and two stated that most self-funded purchasers follow the plans’ policies. Three plans stated that self-funded purchasers may become involved in the appeal process, generally after the member has exhausted the plan’s standard appeal process. According to an official at one plan, because such purchasers are actually responsible for the cost of care, they have the discretion to overturn denials made by the plan.

All 10 plans in our study had established time periods within which complaints and appeals were to be resolved. Two plans reported that their time period for resolving an appeal was 21 days; several allowed 30 days, and several others allowed 60 days.

Six plans (of nine included in this analysis) reported that their policies contained expedited appeal processes for use in circumstances in which delay in care might jeopardize the patient’s health. One plan’s policies called for appeals involving admission to, or services from, an acute-care hospital in a life-threatening or other serious injury situation to be resolved within 3 hours, while other types were to be resolved within 2 business days. Another plan’s policies called for expedited appeals to be resolved within 72 hours. Two plans allowed up to 3 business days, while another allowed up to 7 days. The remaining three plans stated that they did not have such expedited review policies. The final plan is excluded from our analysis of this element; an official from this plan stated that the plan does not require preauthorization of any procedures and that an expedited review process is unnecessary because all decisions regarding coverage are made after the care is received.

Nine plans reported that they included doctors or nurses on their appeal committees. We did not, however, analyze individual appeal cases and so were unable to determine whether doctors and nurses with appropriate expertise made appeal decisions in cases of denials resulting from medical necessity decisions. Five plans, out of 10 reporting, required that persons reviewing appeals not be the same individuals involved in the case earlier.

All 10 plans in our study reported that they provide written information to members describing the complaint and appeal process. We reviewed the materials provided to members—including member handbooks, member contracts, newsletters, and other forms of communication—and judged them to be clear and understandable.

Nine plans accepted oral complaints from members, while one plan required members to put complaints in writing. Only two plans, however, accepted oral appeals from members; the remaining eight required members to file appeals in writing. One plan that accepted oral appeals, however, noted in its policy that oral appeals must be filed in person. In our prior study of HMOs, some plan officials told us that they prefer members to submit appeals in writing in order to ensure that members’ concerns are accurately characterized.

Seven plans, out of nine responding, described member appeal rights when informing members of a denial of payment or authorization. Regarding denials of members’ appeals, six plans (of nine providing data) reported that they included further appeal rights, where applicable, in written notices of denial. Further appeal rights might include additional levels of appeal within the plan or the right to appeal to a state organization or the member’s employer. Two of the remaining three plans provided written notice of appeal denials but did not include further appeal rights despite offering additional internal levels of appeal, while one plan responded to members only if the appeal was resolved in the member’s favor.

Indemnity Plans Were Less Closely Aligned With Certain Key Elements Than Were HMOs

Compared with the 38 HMOs in our previous report, a smaller proportion of the 10 indemnity plans’ policies and procedures included the recommended elements. However, the disparity in the number of HMOs and indemnity plans participating in our studies might account for some of the noted differences. At the individual carrier level, in most cases, the prevalence of recommended elements was nearly the same in the indemnity plan and HMO operated by the same carrier, but several carriers had less conformance in their indemnity plan.

As shown in table 2, on the whole, a smaller percentage of indemnity plans than HMOs had the nine recommended elements applicable to both indemnity and HMO plans. Four elements were incorporated by a similar, and relatively high, proportion of plans of each type. Large differences were evident in two elements—expedited review and written notice of appeal denials, including further appeal rights—where a substantially lower proportion of indemnity plans included the elements than did HMOs. We found smaller differences in three elements: a slightly higher percentage of indemnity plans than HMOs specify that appeal decisions must be made by individuals not involved in the initial decision, and a slightly higher percentage of HMOs than indemnity plans accept oral appeals and explain appeal rights in denial notices. Regarding the remaining four elements, we noted only slight differences.

We also examined the extent to which individual insurance carriers offering both indemnity and HMO plans included recommended elements in the complaint and appeal systems for each type of plan. Figure 1 compares the prevalence of recommended elements in indemnity plans with those in place in the HMO offered by the same carrier. For 7 of the 10 carriers in our study, the indemnity plan and HMO had nearly the same proportion of recommended elements. At the remaining 3 carriers, the HMO included the greater proportion of elements, with 1 carrier showing substantial differences across plans.

Comments and Our Evaluation

In commenting on a draft of our report, NAIC officials stated that we had accurately characterized their criteria governing consumer complaint and appeal systems for indemnity health plans.

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