A recent decision from the U.S. District Court for the Western District of Michigan held that an Explanation of Benefits (EOB) form was ineffective as a health plan’s notification of a claim denial.  In Spectrum Health v. Valley Truck Parts, a health care provider sued a self-funded benefit plan and its sponsoring employer seeking payment for a plan member’s medical bills.  The defendants moved for an entry of judgment asserting that the plaintiff had failed to exhaust the administrative review process under the plan’s claims procedures.  In support of its motion, the defendants claimed that the EOB sent by the plan’s third-party administrator served as the formal claim denial.  The defendants also argued that the plaintiff failed to exhaust its administrative remedies by neglecting to submit an appeal within the plan’s 180-day appeal period following the alleged denial.

The court rejected the defendants’ arguments because the EOB failed to comply with the requirements for denial notices under both ERISA and the plan’s claims procedures.  The EOB’s specific failures included (a) failure to explain the plan’s procedures to appeal a denial and the applicable time limits to submit an appeal, and (b) failure to inform the claimant of the right to bring an action under ERISA following a denial on appeal.  The court also stated it was debatable whether the EOB identified the specific reasons for the denial.  Additionally, the third-party administrator did not make a timely benefit determination, did not comply with ERISA regulations to extend its time period for reviewing the claim, and violated both the terms of the health plan and ERISA regulations by allowing the same individual who initially denied the claim to review the plaintiff’s appeal.

In light of these failures, the court decided that it should review and decide the plaintiff’s claim for benefits rather than remanding the case to the plan administrator to conduct the review. 

ERISA regulations contain detailed requirements regarding claims procedures, including many rules that apply to the timing and content of claim denial notices.  Plan administrators should evaluate their own procedures for notifying claimants of a denial of benefits and ensure that the notices comply with both ERISA regulations and the plan’s claims procedures.  Failure to do so may render the denial ineffective and will not “start the clock” on the time limits for the claimant’s appeal.  This case also demonstrates how a failure to properly notify a claimant of a denial may result in a bypass of the plan-established appeals process and allow plaintiffs to directly pursue their claims in court.