The Kentucky Department of Insurance warns that many self-funded health benefit plans fail to provide an external review process which violates the Kentucky Insurance Code. On January 21, 2015, the Department issued Advisory Opinion 2015-01, which stated the Department’s position that non-ERISA self-funded health benefit plans must provide an external review of any adverse benefit determination made pursuant to the plan’s internal appeal process. Further, the external review process must be outlined in the self-funded plan’s summary plan description documents. The Department issued the Advisory Opinion after discovering that many self-funded health benefit plans fall short of satisfying the external review requirements. For purposes of external review, the Department considers non-ERISA self-funded plans to be “insurers.”

The external review process allows a covered individual (or the covered individual’s authorized representative or provider) to request that the Department review an adverse benefit determination rendered by the insurer under the insurer’s internal appeal process. The Department assigns an Independent Review Entity to determine if the requested healthcare services are medically necessary covered services, and accordingly, must be covered by the health benefit plan. The Independent Review Entity’s decision binds the insurer. All insurers must offer external review of adverse benefit determinations if: (1) the covered individual completed the insurer’s internal appeal process or the insurer failed to make a timely benefit determination;¹ and (2) the individual was covered by the benefit plan on the date of service.²

To be clear, non-ERISA self-funded health benefit plans must comply with all utilization review requirements in Chapter 304, Subtitle 17A, including both the external review requirements outlined above and all internal review process requirements. These requirements are comprehensive and are often overlooked or misunderstood. In fact, many of the requirements have changed since the enactment of the Patient Protection and Affordable Care Act.

As many large employers in Kentucky, ranging from physician practices to manufacturers, offer non-ERISA self-funded health benefit plans to their employees instead of contracting with commercial insurers, the effects of Advisory Opinion 2015-01 and its underlying regulations are far-reaching. Accordingly, it is important for all employers to investigate whether their health benefit plans are self-funded and, if so, confirm that their plans comply with the Kentucky Insurance Code.

For a professional review of your self-funded health benefit plan, you may contact Dustyn Jones, Janet Craig, or Kelly White Bryant in Stites & Harbison’s Insurance Regulatory Compliance practice group. Dustyn can be reached at 859-223-2278 or [email protected]. Janet can be reached at 859-223-2377 or [email protected]. Kelly can be reached at 502-779-5808 or [email protected].

¹ This requirement is waived if the covered individual is pursuing an expedited external review while simultaneously pursuing an expedited internal appeal, and either: (1) the claim is for emergency services; or (2) the claim is for services denied by the insurer because they are investigational or experimental. See Advisory Bulletin 2011-04.

²Section 2719 of the Patient Protection and Affordable Care Act preempted the requirement in KRS 304.17A-623(3)(d) requiring that the entire course of treatment or service cost at least $100 if the covered person had no insurance. That provision no longer applies. See Advisory Bulletin 2011-04.