The Patient Protection and Affordable Care Act, Public Law 111-148, was enacted on March 23, 2010; the Health Care and Education Reconciliation Act, Public Law 111-152, was enacted on March 30, 2010 (collectively known as the “Affordable Care Act”). The Affordable Care Act reorganizes, amends, and adds to the provisions in part A of title XXVII of the Public Health Service Act (PHS Act) relating to group health plans and health insurance issuers in the group and individual markets. The term “group health plan” includes both insured and self-insured group health plans.^[1] The Affordable Care Act adds section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue Code (the Code) to incorporate the provisions of part A of title XXVII of the PHS Act into ERISA and the Code, and make them applicable to group health plans, and health insurance issuers providing health insurance coverage in connection with group health plans. The PHS Act sections incorporated by this reference are sections 2701 through 2728. PHS Act sections 2701 through 2719A are substantially new, though they incorporate some provisions of prior law. PHS Act sections 2722 through 2728 are sections of prior law renumbered, with some, mostly minor, changes.

On July 23, 2010, the Departments of Health and Human Services (HHS), Labor, and the Treasury (the Departments) issued interim final regulations implementing PHS Act section 2719 at 75 FR 43330 (July 2010 regulations), regarding internal claims and appeals and external review processes for group health plans and health insurance issuers offering coverage in the group and individual markets. The requirements of PHS Act section 2719 and the July 2010 regulations do not apply to grandfathered health plans under section 1251 of the Affordable Care Act.^[2]

With respect to internal claims and appeals processes for group health plans and health insurance issuers offering group health insurance coverage, PHS Act section 2719 provides that plans and issuers must initially incorporate the internal claims and appeals processes set forth in regulations promulgated by the Department of Labor (DOL) at 29 CFR 2560.503-1 (the DOL claims procedure regulation) and update such processes in accordance with standards established by the Secretary of Labor. Similarly, with respect to internal claims and appeals processes for individual health insurance coverage, issuers must initially incorporate the internal claims and appeals processes set forth in applicable State law and update such processes in accordance with standards established by the Secretary of HHS.

The July 2010 regulations provided such updated standards for compliance and invited comment on the updated standards. In particular, the July 2010 regulations provided the following additional standards^[3] for internal claims and appeals processes:

On September 20, 2010, based on a preliminary review of comments from stakeholders which indicated that they believed more time was needed to come into compliance with PHS Act section 2719 and the additional internal claims and appeal standards in the July 2010 regulations, the Department of Labor issued Technical Release 2010-02 (T.R. 2010-02), which set forth an enforcement grace period until July 1, 2011 for compliance with certain new provisions with respect to internal claims and appeals.^[7]

Specifically, T.R. 2010-02 set forth an enforcement grace period until July 1, 2011 with respect to standard #2 above (regarding the timeframe for making urgent care claims decisions), standard #5 above (regarding providing notices in a culturally and linguistically appropriate manner), standard #6 above (requiring broader content and specificity in notices), and standard #7 above (regarding exhaustion). T.R. 2010-02 also stated that, during that period, the Department of Labor and the Internal Revenue Service (IRS) would not take any enforcement action against a group health plan, and HHS would not take any enforcement action against a self-funded nonfederal governmental health plan that is working in good faith to implement such additional standards but does not yet have them in place.^[8]

Based on further review of the comments received on the July 2010 regulations and T.R. 2010-02, and other feedback from interested stakeholders, on March 18, 2011, the Department of Labor issued Technical Release 2011-01^[9] (T.R. 2011-01), which modified and extended the enforcement grace period set forth in T.R. 2010-02. Specifically, T.R. 2011-01 extended the enforcement grace period until plan years beginning on or after January 1, 2012 with respect to standard #2 above (regarding the timeframe for making urgent care claims decisions), standard #5 above (regarding providing notices in a culturally and linguistically appropriate manner), and standard #7 above (regarding exhaustion). Moreover, whereas T.R. 2010-02 required plans to be working in good faith to implement such standards for the enforcement grace period to apply, T.R. 2011-01 stated that no such requirement would apply for either the extended or the original enforcement grace period.

With respect to standard #6 above (requiring broader content and specificity in notices), T.R. 2011-01 extended the enforcement grace period only in part. Specifically, with respect to the requirement to disclose diagnosis codes and treatment codes (and their corresponding meanings), T.R. 2011-01 extended the enforcement grace period until plan years beginning on or after January 1, 2012.^[10]With respect to the other disclosure requirements of standard #6, the enforcement grace period was extended from July 1, 2011 until the first day of the first plan year beginning on or after July 1, 2011 (which is January 1, 2012 for calendar year plans), affecting: (a) the disclosure of information sufficient to identify a claim (other than the diagnosis and treatment information), (b) the reasons for an adverse benefit determination, (c) the description of available internal appeals and external review processes, and (d) for plans and issuers in States in which an office of health consumer assistance program or ombudsman is operational, the disclosure of the availability of, and contact information for, such program.^[11]

T.R. 2011-01 also stated the Departments’ intent to issue an amendment to the July 2010 regulations that would take into account comments and other feedback received from stakeholders and make modifications to certain provisions of the July 2010 regulations. T.R. 2011-01 went on to state that the relief was intended to act as a bridge until an amendment to the July 2010 regulations was issued.

This amendment to the July 2010 regulations makes changes with respect to the provisions subject to the enforcement grace period under T.R. 2011-01. At the expiration of the enforcement grace period, the Departments will begin enforcing the relevant requirements of the July 2010 regulations, as amended by this rulemaking.

PHS Act section 2719, the July 2010 regulations, and technical guidance issued by the Departments^[12] provide a system with respect to applicability of either a State external review process or a Federal external review process for non-grandfathered plans and issuers. How this impacts plans and issuers varies, depending on the type of coverage:

In the case of self-insured plans subject to ERISA and/or the Code, a Federal external review process supervised by DOL and Treasury applies (the “private accredited IRO process”^[13]). On August 23, 2010, the Department of Labor issued Technical Release 2010-01 (T.R. 2010-01), which set forth an interim enforcement safe harbor for self-insured plans not subject to a State external review process or to the HHS-supervised process (the “HHS-administered process”).^[14] This interim enforcement safe harbor essentially permits a private contract process under which plans contract with accredited independent review organizations (IROs) to perform reviews. Separate guidance being issued contemporaneous with the publication of this amendment makes adjustments to, and provides clarifications regarding, the operation of the private accredited IRO process.

In the case of health insurance issuers in the group and individual market, the July 2010 regulations set forth 16 minimum consumer protections based on the Uniform External Review Model Act promulgated by the National Association of Insurance Commissioners (NAIC) that, if provided by a State external review process, will result in the State’s process applying in lieu of a Federal external review process. Moreover, for insured group health plans, as provided under paragraph (c)(1) of the July 2010 regulations, if a State external review process applies to and is binding on the plan’s health insurance issuer under paragraph (c) of the July 2010 regulations (regarding State standards for external review), then the insured group health plan is not required to comply with either the State external review process or the Federal external review process. The July 2010 regulations provided a transition period for plan years (in the individual market, policy years) beginning before July 1, 2011, during which any existing State external review process will be considered sufficient (and will apply to health insurance issuers in that State). During the transition period, in States and territories without an existing State external review process (Alabama, Mississippi, and Nebraska, Guam, American Samoa, U.S. Virgin Islands and the Northern Mariana Islands), HHS guidance generally provided that health insurance issuers will participate in the HHS-administered process. As explained later in this preamble, this amendment to the July 2010 regulations modifies the transition period originally issued as part of the July 2010 regulations so that the last day of the transition period for all health insurance issuers offering group and individual health insurance coverage is December 31, 2011.

In addition, the July 2010 regulations provided that, following the conclusion of the transition period, health insurance issuers in a State that does not meet the minimum consumer protection standards set forth in paragraph (c) of the July 2010 regulations will participate in an external review process under Federal standards similar to the process under the NAIC Uniform Model Act, such as the HHS-administered process. Separate guidance being issued contemporaneous with the publication of this amendment announces standards under which, until January 1, 2014, a State may also operate such an external review process under Federal standards similar to the process under the NAIC Uniform Model Act (an “NAIC-similar process”). Accordingly, if HHS determines that a State has neither implemented the minimum consumer protections required under paragraph (c) of the July 2010 regulations, nor an NAIC-similar process, issuers in the State will have the choice of participating in either the HHS-administered process or the private accredited IRO process. HHS is adopting this approach to permit States to operate their external review processes under standards established by the Secretary until January 1, 2014, avoiding unnecessary disruption, while States work to adopt an “NAIC-parallel process,” consistent with the consumer protections set forth in paragraph (c) of the July 2010 regulations.

For self-insured, nonfederal governmental plans (which are subject to the PHS Act, but not ERISA or the Code), previous HHS guidance generally provided that they follow the private accredited IRO process.^[15] (In States and territories that did not have an existing external review process (Alabama, Mississippi, and Nebraska, Guam, American Samoa, U.S. Virgin Islands and the Northern Mariana Islands), previous HHS guidance generally provided that such plans may choose to follow the HHS-administered process or follow the private accredited IRO process.) Separate guidance being issued contemporaneous with the publication of this amendment generally treats self-insured nonfederal governmental plans the same as health insurance issuers. That is, a State may temporarily operate such an external review process applicable to a self-insured nonfederal governmental plan under Federal standards similar to the process under the NAIC Uniform Model Act. If no such State-operated process exists, self-insured nonfederal governmental plans have the choice of participating in either the HHS-administered process or the private accredited IRO process.

While the process varies depending on the type of coverage, so does the scope of claims eligible for external review. That is, for insurance coverage and self-insured nonfederal governmental plans subject to a State external review process (either an NAIC-parallel process or an NAIC-similar process), the State determines the scope of claims eligible for external review.^[16] For coverage subject to either the HHS-administered process or the private accredited IRO process, the July 2010 regulations provided that any adverse benefit determination (or final internal adverse benefit determination) could be reviewed unless it related to a participant’s or beneficiary’s failure to meet the requirements for eligibility under the terms of a group health plan. As explained later in this preamble, this amendment to the July 2010 regulations modifies the scope of claims eligible for external review under the Federal external review process.

1. Expedited notification of benefit determinations involving urgent care (paragraph (b)(2)(ii)(B) of the July 2010 regulations).

The July 2010 regulations provided that a plan or issuer must notify a claimant of a benefit determination (whether adverse or not) with respect to a claim involving urgent care (as defined in the DOL claims procedure regulation)^[17] as soon as possible, taking into account the medical exigencies, but not later than 24 hours after the receipt of the claim by the plan or issuer, unless the claimant fails to provide sufficient information to determine whether, or to what extent, benefits are covered or payable under the plan or health insurance coverage. This was a change from the DOL claims procedure regulation, which generally requires a determination not later than 72 hours after receipt of the claim by a group health plan for urgent care claims. The preamble to the July 2010 regulations stated that the Departments expected electronic communication would enable faster decision-making than in the year 2000, when the DOL claims procedure regulation was issued.^[18]

While some commenters supported the 24-hour rule (particularly consumer advocates and medical associations, including mental health providers who noted the 24-hour standard was especially important for people in psychiatric crisis), concerns were raised by many plans and issuers regarding the burden of a 24-hour turnaround. Some commenters argued that some of the claims constituting “urgent care” and thus qualifying for the expedited timeframe really do not need to be made within 24 hours. Moreover, a number of commenters highlighted that the 72-hour provision was intended only to serve as a “backstop”; as the general rule under both the July 2010 regulations and the DOL claims procedure regulation requires a decision as soon as possible consistent with the medical exigencies involved, making the change to a 24-hour timeframe unnecessary for the most serious medical cases. Some commenters cited the Emergency Medical Treatment and Labor Act (EMTALA)^[19], which generally requires hospitals to provide emergency care to individuals with or without insurance or preauthorization and, therefore, mitigates the need for expedited pre-service emergency claims determinations in many situations.Finally, some commenters stated that a firm 24-hour turnaround for urgent care claims will adversely affect claimants, as plans and issuers will not have sufficient time to properly review a claim, adversely affecting the quality of the review process in cases where the provider cannot be consulted in time, and leading to unnecessary denials of claims.

After considering the comments, and the costs and benefits of an absolute 24-hour decision-making deadline for pre-service urgent care claims, this amendment permits plans and issuers to follow the original rule in the DOL claims procedure regulation (requiring decision-making in the context of pre-service urgent care claims as soon as possible consistent with the medical exigencies involved but in no event later than 72 hours), provided that the plan or issuer defers to the attending provider with respect to the decision as to whether a claim constitutes “urgent care.” At the same time, the Departments underscore that the 72-hour timeframe remains only an outside limit and that, in cases where a decision must be made more quickly based on the medical exigencies involved, the requirement remains that the decision should be made sooner than 72 hours after receipt of the claim.

2. Additional notice requirements for internal claims and appeals (paragraph (b)(2)(ii)(E) of the July 2010 regulations).

The July 2010 regulations also provided additional content requirements for any notice of adverse benefit determination or final internal adverse benefit determination. The July 2010 regulations required a plan or issuer to:

(a) Ensure that any notice of adverse benefit determination or final internal adverse benefit determination includes information sufficient to identify the claim involved. Under the July 2010 regulations, this information included the date of service, the health care provider, and the claim amount (if applicable)^[20], as well as the diagnosis code (such as an ICD-9 code, ICD-10 code, or DSM-IV code)^[21], the treatment code (such as a CPT code)^[22], and the corresponding meanings of these codes.

(b) Ensure that the description of the reason or reasons for the adverse benefit determination or final internal adverse benefit determination includes the denial code (such as a CARC and RARC)^[23] and its corresponding meaning. It must also include a description of the plan’s or issuer’s standard, if any, that was used in denying the claim (for example, if a plan applies a medical necessity standard in denying a claim, the notice must include a description of the medical necessity standard). In the case of a notice of final internal adverse benefit determination, this description must include a discussion of the decision.

(c) Provide a description of available internal appeals and external review processes, including information regarding how to initiate an appeal.

(d) Disclose the availability of, and contact information for, any applicable office of health insurance consumer assistance or ombudsman established under PHS Act section 2793 to assist enrollees with the internal claims and appeals and external review processes.^[24]

Many comments received on the July 2010 regulations raised concerns about the additional content required to be included in the notices. Comments by a range of stakeholders, including plans, issuers, and consumer advocacy organizations focused heavily on the automatic provision of the diagnosis and treatment codes (and their meanings). Concerns were raised about privacy (because explanations of benefits (EOBs) often are sent to an individual who is not the patient, such as an employee who is the patient’s spouse or parent), interference with the doctor-patient relationship,^[25] and high costs.^[26] More specifically, commenters highlighted that sensitive issues such as mental health treatments would be identified by specific treatment or diagnosis codes and that privacy concerns are magnified for adult dependents under age 26 who may be covered by their parent’s health plan. Others pointed out that there are over 20,000 treatment and diagnosis codes in use today, presenting a costly administrative and operational challenge for plans and issuers. Comments also questioned the efficacy of providing the codes, which some argued are often very difficult for the average patient to understand.^[27]

Other comments were received in support of the coding provisions. Consumer advocates commented positively on the requirement that denial notices include information for consumers about their right to appeal denials and the availability of state consumer assistance programs (CAPs) that will help consumers file appeals. There were also positive comments on the requirement to provide a rationale for the denial (including a description of the plan’s or issuer’s standard (such as “medical necessity”), if any, that was used denying the claim). With respect to the provision of coding information, some commented that this would be helpful to consumers because coding errors and missing coding information often are the basis for denying claims.

After considering all of the comments, and the costs and benefits of the additional disclosure, this amendment eliminates the requirement to automatically provide the diagnosis and treatment codes as part of a notice of adverse benefit determination (or final internal adverse benefit determination) and instead substitutes a requirement that the plan or issuer must provide notification of the opportunity to request the diagnosis and treatment codes (and their meanings) in all notices of adverse benefit determination (and notices of final internal adverse benefit determination), and a requirement to provide this information upon request.^[28] This amendment also clarifies that, in any case, a plan or issuer must not consider a request for such diagnosis and treatment information, in itself, to be a request for (and therefore trigger the start of) an internal appeal or external review.

3. Deemed exhaustion of internal claims and appeals processes (paragraph (b)(2)(ii)(F) of the July 2010 regulations).

The courts generally require claimants to exhaust administrative proceedings before going to court or seeking external review. When plans and issuers offer full and fair internal procedures for resolving claims, it is reasonable to insist that claimants first turn to those procedures before seeking judicial or external review of benefit denials. There is less justification, however, for insisting that a claimant exhaust administrative procedures that do not comply with the law. Accordingly, the July 2010 regulations permitted claimants to immediately seek review if a plan or issuer failed to “strictly adhere” to all of the July 2010 regulations’ requirements for internal claims and appeals processes, regardless of whether the plan or issuer asserted that it “substantially complied” with the July 2010 regulations. The July 2010 regulations also clarified that, in such circumstances, the reviewing tribunal should not give special deference to the plan’s or issuer’s decision, but rather should resolve the dispute de novo. Consumer groups generally supported this “strict adherence” approach, but the approach received a number of negative comments from some issuers and plan sponsors, who advocate a “substantial compliance” approach.

The Departments continue to believe that claimants should not have to follow an internal claims and appeals procedure that is less than full, fair, and timely, as set forth in the July 2010 regulations. In response to comments, the Departments are retaining the general approach to this requirement, but this amendment also adds a new paragraph (b)(2)(ii)(F)(2) to the July 2010 regulations to provide an exception to the strict compliance standard for errors that are minor and meet certain other specified conditions. The new paragraph will also protect claimants whose attempts to pursue other remedies under paragraph (b)(2)(ii)(F)(1) of the interim final regulations are rejected by a reviewing tribunal. Under the amended approach, any violation of the procedural rules of the July 2010 regulations pertaining to internal claims and appeals would permit a claimant to seek immediate external review or court action, as applicable, unless the violation was:

(1) De minimis;

(2) Non-prejudicial;

(3) Attributable to good cause or matters beyond the plan’s or issuer’s control;

(4) In the context of an ongoing good-faith exchange of information; and

(5) Not reflective of a pattern or practice of non-compliance.

In addition, the claimant would be entitled, upon written request, to an explanation of the plan’s or issuer’s basis for asserting that it meets this standard, so that the claimant could make an informed judgment about whether to seek immediate review. Finally, if the external reviewer or the court rejects the claimant’s request for immediate review on the basis that the plan met this standard, this amendment would give the claimant the right to resubmit and pursue the internal appeal of the claim.

4. Form and manner of notice (paragraph (e) of the July 2010 regulations).

PHS Act section 2719 requires group health plans and health insurance issuers to provide relevant notices in a culturally and linguistically appropriate manner. The July 2010 regulations set forth a requirement to provide notices in a non-English language based on separate thresholds of the number of people who are literate in the same non-English language. In the group market, the threshold set forth in the July 2010 regulations differs depending on the number of participants in the plan:

These thresholds were adapted from the DOL regulations regarding style and format for a summary plan description, at 29 CFR 2520.102-2(c) for participants who are not literate in English. For the individual market, the threshold is 10 percent of the population residing in the county being literate only in the same non-English language. The individual market threshold was generally adapted from the approach used under the Medicare Advantage program, which required translation of materials in languages spoken by more than 10 percent of the general population in a service area at the time the threshold was established.

Under the July 2010 regulations, if an applicable threshold is met with respect to a non-English language, the plan or issuer must provide the notice upon request in the non-English language. Additionally, the plan or issuer must include a statement in the English versions of all notices, prominently displayed in the non-English language, offering the provision of such notices in the non-English language. Finally, to the extent the plan or issuer maintains a customer assistance process (such as a telephone hotline) that answers questions or provides assistance with filing claims and appeals, the plan or issuer must provide such assistance in the non-English language.

Comments received in response to the July 2010 regulations raised several concerns about this requirement. One group of commenters stated that the thresholds for the group market were difficult to comply with, especially for small plans (where an individual or a small number of individuals could cause a plan to change status with respect to the threshold) and insured plans (where the issuer may be in a very difficult position to determine the English literacy of an employer’s workforce). Some commenters stated that the threshold requirements for the group and individual markets should be consistent.

Other commenters were concerned with the high costs of compliance with this rule, particularly the “tagging and tracking requirement” to the extent that individuals who request a document in a non-English language would need to be “tagged” and “tracked” so that any future notices would be provided automatically in the non-English language. Some of these commenters cited the high costs associated with implementing translation requirements pursuant to California State law and the low take-up rates of translated materials in California. Some commenters also cited the importance of having written translation of documents available (at a minimum, upon request), as well as having oral language services for customer assistance.

Following review of the comments submitted on this issue and further review and consideration of the provisions of PHS Act section 2719, the Departments have determined it is appropriate to amend the provisions of the July 2010 regulations related to the provision of notices in a culturally and linguistically appropriate manner. This amendment establishes a single threshold with respect to the percentage of people who are literate only in the same non-English language for both the group and individual markets. With respect to group health plans and health insurance issuers offering group or individual health insurance coverage, the threshold percentage of people who are literate only in the same non-English language will be set at 10 percent or more of the population residing in the claimant’s county, as determined based on American Community Survey data published by the United States Census Bureau.^[29] The Departments will update this guidance annually on their website if there are changes to the list of the counties determined to meet this 10 percent threshold for the county’s population being literate only in the same non-English language.^[30]

This amendment to the July 2010 regulations requires that each notice sent by a plan or issuer to an address in a county that meets this threshold include a one-sentence statement in the relevant non-English language about the availability of language services. The Departments have provided guidance with sample sentences in the relevant languages in separate guidance being issued contemporaneous with the publication of this amendment. For ease of administration, some plans and issuers may choose to use a one-sentence statement for all notices within an entire State (or for a particular service area) that reflects the threshold language or languages in any county within the State or service area. For example, statewide notices in California could include the relevant one-sentence statement in Spanish and Chinese because, using the data from Table 2, Spanish meets the 10 percent threshold in Los Angeles County and 22 other counties and Chinese meets the 10 percent threshold in San Francisco County. This would be a permissible approach to meeting the rule under this amendment.

In addition to including a statement in all notices in the relevant non-English language, this amendment requires a plan or issuer to provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon request. For this purpose, plans and issuers are permitted to direct claimants to the same customer service telephone number where representatives can first attempt to address the consumer’s questions with an oral discussion, but also provide a written translation upon request in the threshold non-English language. Finally, this amendment removes any “tagging and tracking” requirement that would have otherwise applied under the July 2010 regulations.

This amendment to the July 2010 regulations provides standards for providing culturally and linguistically appropriate notices that balance the objective of protecting consumers by providing understandable notices to individuals who speak primary languages other than English with the goal of simplifying information collection burdens on plans and issuers. (Note, nothing in these regulations should be construed as limiting an individual’s rights under Federal or State civil rights statutes, such as Title VI of the Civil Rights Act of 1964 (Title VI) which prohibits recipients of Federal financial assistance, including issuers participating in Medicare Advantage, from discriminating on the basis of race, color, or national origin. To ensure non-discrimination on the basis of national origin, recipients are required to take reasonable steps to ensure meaningful access to their programs and activities by limited English proficient persons. For more information, see, “Guidance to Federal Financial Assistance Recipients Regarding Title VI Prohibition Against National Origin Discrimination Affecting Limited English Proficient Persons,” available at http://www.hhs.gov/ocr/civilrights/resources/specialtopics/lep/ policyguidancedocument.html.)

The Departments welcome comments on this amendment, including whether it would be appropriate to include a provision in the final rules requiring health insurance issuers providing group health insurance coverage to provide language services in languages that do not meet the requisite threshold for an applicable non-English language, if requested by the administrator or sponsor of the group health plan to which the coverage relates. For example, if Chinese does not meet the 10 percent threshold in New York County, but an employer with a large Chinese-speaking population asks the health insurance issuer providing its group health insurance coverage to provide language services in Chinese (as described in the amendment), the Departments invite comment on what obligations should be imposed on the issuer, if any, to provide language services in Chinese.

1. Duration of transition period for State external review processes.

In general, if State laws do not meet the minimum consumer protections of the NAIC Uniform Model Act^[31], as set forth in paragraph (c)(2) of the July 2010 regulations, insurance coverage (as well as self-insured nonfederal governmental plan and church plan coverage) is subject to the requirements of an external review process under Federal standards similar to the process under the NAIC Uniform Model Act, such as the HHS-administered process. Paragraph (c)(3) of the July 2010 regulations provided a transition period for plan years (in the individual market, policy years) beginning before July 1, 2011 in order to allow States time to amend their laws to meet or go beyond the minimum consumer protections of the NAIC Uniform Model Act set forth in paragraph (c)(2) of the July 2010 regulations. HHS has been working closely with States regarding enactment of laws to conform to paragraph (c)(2) and much progress has been made. However, enacting State legislation and regulations can often be a complex and time-consuming process. Accordingly, the Departments are modifying the transition period under paragraph (c)(3) of the July 2010 regulations so that the last day of the transition period is December 31, 2011 to give States, which are making substantial progress in implementing State external review processes that conform to paragraph (c)(2), the requisite time to complete that process. Because the July 2010 regulations would have ended the transition period for plan years (in the individual market, policy years) beginning on or after July 1, 2011, the Departments note that ending the transition period on December 31, 2011 will reduce the length of the transition period for plans and policies with plan years (in the individual market, policy years) beginning after January 1 but before July 1. When the July 2010 regulations were published, the Departments anticipated that issuers in every State that had not enacted laws to conform to paragraph (c)(2) of the July 2010 regulations would need to participate in the HHS-administered process. Now, the Departments have decided that issuers may continue to participate in a State external review process under Federal standards similar to the process under the NAIC Uniform Model Act (an NAIC-similar process), which the Departments anticipate will reduce market disruption when the transition period ends. Therefore, based on the Departments’ concerns for making the consumer protections of the Affordable Care Act available without undue delay and for ensuring as much uniformity as possible in the availability of those protections regardless of the form of a consumer’s health coverage, the Departments have decided to end the transition period on December 31, 2011. Therefore, this amendment to the July 2010 regulations provides that, before January 1, 2012, an applicable State external process will apply in lieu of the requirements of the Federal external review process. PHS Act section 2719(c) authorizes the Departments to deem an external review process “in operation as of the date of enactment” of the Affordable Care Act as compliant with the external review requirements of PHS Act section 2719(b). Through December 31, 2011, any currently effective State external review process satisfies the requirements of either PHS Act section 2719(c) or section 2719(b)(2). If there is no applicable State external review process, separate guidance being issued contemporaneous with the publication of this amendment generally provides a choice between the HHS-administered process or the private accredited IRO process.

2. Scope of the Federal External Review Process

Paragraph (d)(1) of the July 2010 regulations sets forth the scope of claims eligible for external review under the Federal external review process. Specifically, any adverse benefit determination (including a final internal adverse benefit determination) could be reviewed unless it related to a participant’s or beneficiary’s failure to meet the requirements for eligibility under the terms of a group health plan (i.e., worker classification and similar issues were not within the scope of the Federal external review process).

Comments received in response to the July 2010 regulations were mixed on the scope of claims eligible for external review. Some commenters argued that PHS Act section 2719 requires the Federal external review process to be “similar to” the NAIC Uniform Model Act and that the broader scope of claims eligible for the Federal external review process is a major departure from the NAIC Uniform Model Act. In addition, some comments from plans and issuers stated that the IROs that are used in the private accredited IRO process traditionally have expertise in adjudicating medical claims, and questioned IROs’ experience and expertise with legal and contractual claims. Other comments from IROs and the IRO industry stated that these organizations do currently conduct reviews that involve both medical judgment issues and legal and contractual issues, and that there is sufficient capacity for conducting reviews of such disputes.

Some plan and issuer comments highlighted that, with a limited number of accredited IROs and increased demand for their services, the cost of external review for self-insured group health plans will likely increase. By contrast, an IRO association group commented that member organizations are not at capacity with regard to the volume of work they can perform, and that they are confident that the number of accredited IROs can adequately handle the volume of reviews anticipated for the Federal external review process.

Some plans and issuers stated that handing plan document interpretation and legal interpretation issues over to an IRO may raise issues of consistency of interpretations within a plan, unwarranted consistency across plans that have unique standards, ERISA fiduciary responsibility concerns, and possible conflicts. At the same time, other comments generally supported the broad scope of claims eligible for the Federal external review process as set forth in the July 2010 regulations. These commenters argued very strongly that it is nearly impossible to adjudicate contractual claims through traditional ERISA enforcement (which generally relies on Federal court adjudication), leaving plan participants and beneficiaries with no effective means of enforcing their rights to benefits under a plan. Consumer organizations further commented that external review finally provides the free, independent means of enforcement to level the playing field of claims adjudication and, therefore, the scope of claims eligible for the Federal external review process should be as broad as possible.

After considering all the comments, with respect to claims for which external review has not been initiated before September 20, 2011, the amendment suspends the original rule in the July 2010 regulations regarding the scope of claims eligible for external review for plans using a Federal external review process (regardless of which type of Federal process), temporarily replacing it with a different scope. Specifically, this amendment suspends the broad scope of claims eligible for the Federal external review process and narrows the scope to claims that involve (1) medical judgment (excluding those that involve only contractual or legal interpretation without any use of medical judgment), as determined by the external reviewer; or (2) a rescission of coverage. The more narrow scope under this amendment is more similar to the scope of claims eligible for external review under the NAIC Uniform Model Act. This amendment provides an example describing a plan that generally only provides 30 physical therapy visits but will provide more with an approved treatment plan. The plan’s rejection of a treatment plan submitted by a provider for the 31^st visit based on a failure to meet the plan’s standard for medical necessity involves medical judgment and, therefore, the claim is eligible for external review. Similarly, another example describes a plan that generally does not provide coverage for services provided on an out-of-network basis, but will provide coverage if the service cannot effectively be provided in network. In this example, again, the plan’s rejection of a claim for out-of-network services involves medical judgment. Additional examples of situations in which a claim is considered to involve medical judgment include adverse benefit determinations based on:

The suspension is intended to give the marketplace time to adjust to providing external review. It will also allow the Departments time to evaluate IROs’ capacity for handling external reviews; to consider whether current accreditation standards are sufficient to ensure that IROs are capable of making accurate and consistent decisions (both across different plans and across different IROs) regarding legal and contractual issues that do not involve medical judgment or rescissions; and to assess the mechanics of the Federal external review process (and any potential adjustments). The Departments solicit comments on these issues, including on whether limiting the scope of claims during the suspension period will impose administrative costs in determining whether a claim is eligible for external review. The Departments also welcome any data on external review claims actually performed to date under private contracts pursuant to the private accredited IRO process for implementing PHS Act § 2719(b), including number of claims reviewed, type of review (such as whether it involved any medical judgment or not), and costs associated with the review. The Departments expect that the suspension will be lifted by January 1, 2014, when other consumer protections under the Affordable Care Act take effect. Moreover, if, after taking into account all the relevant information, including public comments, the Departments decide to return to the original rule providing for a broad scope of claims or permanently modify the scope of claims through rulemaking, the Departments will give sufficient advance notice to enable plans, their service providers, IROs, and other affected parties sufficient time to comply with a new rule.

Separate guidance being issued contemporaneous with the publication of this amendment announces standards under which, until January 1, 2014, a State may operate an external review process under Federal standards similar to the process under the NAIC Uniform Model Act (an NAIC-similar process). The Departments are adopting this approach to permit States to operate their external review processes under standards established by the Departments until January 1, 2014, avoiding unnecessary disruption, while States work to adopt the consumer protections set forth in paragraph (c) of the July 2010 regulations. Paragraph (d)(1) of the July 2010 regulations, as amended, will govern the scope of a State external review process under Federal standards similar to the process under the NAIC Uniform Model Act. Because the amended paragraph (d)(1) creates a broader scope of external review than is required under the NAIC Uniform Model Act, and because it would be illogical to require States to make changes to their process to encompass the broader scope of paragraph (d)(1) in their external review process while they work to adopt the consumer protections of the NAIC Uniform Model Act (which has a narrower scope), the Departments are also amending paragraph (d)(1) to permit the Secretaries to modify the scope of the Federal external review process in future guidance to permit State external review processes (both NAIC-similar processes and NAIC-parallel processes) to the scope that applies under the NAIC Uniform Model Act.

The Departments have received a number of comments on the requirement that an IRO decision be binding on parties. Specifically, the July 2010 regulations provided that an external review decision by an IRO is binding on the plan or issuer, as well as the claimant, except to the extent that other remedies are available under State or Federal law.^[35] This binding requirement is also one of the minimum consumer protections set forth in paragraph (c) of the July 2010 regulations.^[36]

Some comments received in response to the July 2010 regulations highlighted the importance of this consumer protection and expressed approval that this requirement would minimize delays that could further hurt claimants, as the plan or issuer must provide coverage or payment for the claim immediately upon receipt of a notice of a final external review decision. Other commenters questioned whether the requirement that external review is binding eliminates the plan’s or issuer’s option to choose to pay a claim at any time during or after the external review process.

Nothing in PHS Act section 2719(b), the July 2010 regulations, or related guidance precludes a plan or issuer from choosing to provide coverage or payment for a benefit. Instead, the Departments read the requirement of the NAIC Uniform Model Act, which is incorporated into the July 2010 regulations, to require plans and issuers to provide a benefit if that is the decision of the IRO. A plan or issuer may not delay payment because the plan disagrees and intends to seek judicial review. Instead, while the plan may be entitled to seek judicial review, it must act in accordance with the IRO’s decision (including by making payment on the claim) unless or until there is a judicial decision otherwise. However, the requirement that the IRO’s decision be binding does not preclude the plan or issuer from making payment on the claim or otherwise providing benefits at any time, including following a final external review decision that denies the claim or otherwise fails to require such payment or benefits.

After considering all the comments on the requirement that an IRO decision be binding on the plan and issuer, as well as the claimant, this amendment clarifies the language in paragraphs (c)(2)(xi) (regarding the minimum standards for State external review processes) and (d)(2)(iv) (regarding Federal external review process standards). Specifically, these two provisions are amended to add language stating that, for purposes of the binding provision, the plan or issuer must provide benefits (including by making payment on the claim) pursuant to the final external review decision without delay, regardless of whether the plan or issuer intends to seek judicial review of the external review decision and unless or until there is a judicial decision otherwise. The Departments welcome comments as to whether any additional clarifications about the binding provision would be helpful.

Separate technical guidance is being issued by the Departments contemporaneous with the publication of this amendment. This technical guidance addresses both State- and Federally-administered external review processes. An appendix to this technical guidance contains revised versions of the three model notices issued by the Departments in connection with the July 2010 regulations. The updated versions of the model notice of adverse benefit determination, model notice of final internal adverse benefit determination, and model notice of final external review decision reflect the requirements contained in the provisions of this amendment and the guidance. This technical guidance will be available at http://www.dol.gov/ebsa/healthreform and http://cciio.cms.gov.

HHS is issuing also two additional technical guidance documents. The first provides instructions for self-insured nonfederal governmental plans and health insurance issuers with respect to election of a Federal external review process. The second provides, for transparency purposes, updated information on how the county-level estimates pertaining to the 10 percent threshold were calculated for the rules related to culturally and linguistically appropriate notices. Both of these documents will be available at http://cciio.cms.gov.

Section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act authorize the Secretaries of the Treasury, Labor, and HHS (collectively, the Secretaries) to promulgate any interim final rules that they determine are appropriate to carry out the provisions of chapter 100 of the Code, part 7 of subtitle B of title I of ERISA, and part A of title XXVII of the PHS Act, which include PHS Act sections 2701 through 2728 and the incorporation of those sections into ERISA section 715 and Code section 9815. The amendments promulgated in this rulemaking carry out the provisions of these statutes. Therefore, the foregoing interim final rule authority applies to these amendments.

Under the Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.), while a general notice of proposed rulemaking and an opportunity for public comment is generally required before promulgation of regulations, this is not required when an agency, for good cause, finds that notice and public comment thereon are impracticable, unnecessary, or contrary to the public interest. The provisions of the APA that ordinarily require a notice of proposed rulemaking do not apply here because of the specific authority to issue interim final rules granted by section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. Moreover, even if the APA requirements for notice and comment were applicable to this regulation, they have been satisfied. This is because the matters that are the subject of these amendments have already been subjected to public notice and comment, as they were addressed in the July 2010 regulations, and are a logical outgrowth of that document. The amendments made in this interim final rule are being made in response to public comments received on the July 2010 regulations. While the Departments have determined that, even if the APA were applicable, an additional opportunity for public comment is unnecessary in the case of these amendments, the Departments are issuing these amendments as an interim final rule so as to provide the public with an opportunity for public comment on these modifications.

As stated earlier in this preamble, the Departments previously issued the July 2010 regulations implementing PHS Act section 2719, which were published in the Federal Register on July 23, 2010 (75 FR 43330). The July 2010 regulations set forth rules with respect to internal claims and appeals and external appeals processes for group health plans and health insurance issuers that are not grandfathered health plans.

As described in detail in Section II of this preamble, after the July 2010 regulations were issued, the Departments received public comments expressing concerns about the burdens associated with several of the regulations’ provisions. In response to such comments, the Departments are hereby amending the following provisions of the July 2010 regulations:

The Departments crafted these amendments to the July 2010 regulations to secure the protections intended by Congress. In accordance with OMB Circular A-4, the Departments have quantified the costs of these amendments where feasible and provided a qualitative discussion of some of the benefits and costs that may stem from them.

The Departments believe that (i) the costs associated with the amended rules are less than the costs associated with the July 2010 regulations, (ii) the amended rules adequately protect the rights of participants, beneficiaries, and policyholders, and (iii) the benefits of the amended rules justify their costs relative to the pre-Affordable Care Act baseline and the July 2010 regulations.

Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget.

The Departments provide an assessment of the potential costs and benefits associated with each amended regulatory provision below, as summarized in Table 1.

For purposes of estimating the entities affected by these amendments to the July 2010 regulations, the Departments have defined a large group health plan as an employer plan with 100 or more workers and a small group plan as an employer plan with fewer than 100 workers. The Departments make the following estimates about plans and issuers affected by these amendments: (1) there are approximately 72,000 large and 2.8 million small ERISA-covered group health plans with an estimated 97.0 million participants in large group plans and 40.9 million participants in small group plans;^[38] (2) there are 126,000 governmental plans with 36.1 million participants in large plans and 2.3 million participants in small plans;^[39] and (3) there are 16.7 million individuals under age 65 covered by individual health insurance policies.^[40]

The actual number of affected individuals depends on several factors, including whether (i) a health plan retains its grandfather status, (ii) the plan is subject to ERISA, (iii) benefits provided under the plan are self-funded or financed by the purchase of an insurance policy, (iii) the applicable State has enacted an internal claims and appeals law, and (iv) the applicable State has enacted an external review law, and if so the scope of such law, and (v) the number of new plans and enrollees in such plans.

The benefits and costs of the amendments to the July 2010 regulations are discussed together under this section, because the primary effect of the amendments is to reduce the cost of compliance.

a. Expedited notification of benefit determination involving urgent care. As discussed in detail above, the July 2010 regulations generally provide that a plan or issuer must notify a claimant of a benefit determination with respect to an urgent care claim as soon as possible taking into account the medical exigencies, but no later than 24 hours after the receipt of the claim by the plan or issuer. This was a change from the DOL claims procedure regulation, which requires an urgent care determination to be made not later than 72 hours after receipt of the claim by a group health plan. The Departments received several comments regarding the burdens associated with meeting the 24-hour turnaround. Some commenters argued that some of the claims constituting “urgent care” and thus qualifying for the expedited timeframe really do not need to be decided within 24 hours. Moreover, a number of commenters highlighted that the 72-hour provision was never anything more than a “backstop”; the general rule under both the July 2010 regulations and the DOL claims procedure regulation is for a decision as soon as possible consistent with the medical exigencies involved, making the change to a 24-hour timeframe unnecessary for the most serious medical cases. Finally, some commenters cited the Emergency Medical Treatment and Labor Act (EMTALA)^[41], which generally requires emergency room care to be treated with or without insurance or preauthorization and, therefore, mitigates much of the need for expedited pre-service emergency claims determinations in many situations.

After considering the comments, and the costs and benefits of an absolute 24-hour decision-making deadline, the amendment permits plans and issuers to follow the original rule in the DOL claims procedure regulation (requiring decision-making in the context of pre-service urgent care claims as soon as possible consistent with the medical exigencies involved but in no event no later than 72 hours), provided the plan or issuer defers to the attending provider with respect to the decision as to whether a claim constitutes “urgent care.”

The Departments expect that this amendment will ensure urgent care benefit determinations are made in a timely manner while reducing burden on plans and issuers for several reasons. ERISA-covered plans were already subject to this requirement; therefore, there is no additional burden imposed on such plans from the pre-Affordable Care Act baseline. For self-insured nonfederal governmental plans and issuers in the individual market, the 72-hour requirement would increase burden from a pre-Affordable Care Act baseline to the extent that such plans and issuers are not already meeting this standard. The Departments do not have sufficient data to estimate the fraction of plans and issuers that were not already in compliance with this standard. Many claims filed with self-insured nonfederal governmental plans and individual market issuers already could have been meeting this requirement for urgent care claims, because ERISA claims constitute a large portion of health claims, and the Departments understand that, in general, issuers and service providers apply the same claims and appeals standards to ERISA-covered and non-ERISA-covered plans.

Plans and issuers that previously were not subject to the DOL claims procedure regulation and that are not already meeting the claims and appeals standard under the DOL claims procedure regulation, could incur additional costs to become compliant with the 72-hour standard, but the Departments expect these costs to be less than those associated with a 24-hour standard. Speeding up the notification process for these determinations to meet the 72-hour standard could necessitate incurring additional cost to add more employees or find other ways to shorten the timeframe, but again such costs are expected to be less than the costs associated with meeting the 24-hour standard provided in the July 2010 regulations. Additional costs for claimants may be associated with this requirement if meeting the 72-hour timeframe results in more claims being denied than would have been denied under a longer notification period, but again such costs are expected to be less than the costs associated with meeting the 24-hour standard provided in the July 2010 regulations. The Departments do not have sufficient data to estimate such costs.

b. Additional notice requirements for internal claims and appeals. As discussed above, the July 2010 regulations had additional content requirements for the required notices. The Departments received comments addressing the requirements to include the diagnosis code (such as an ICD-9 code, ICD-10 code, or DSM-IV code), the treatment code (such as a CPT code), and the corresponding meanings of these codes. Concerns were raised about patient privacy, interference with the doctor-patient relationship, and high costs. Commenters also pointed out that there are currently over 20,000 treatment and diagnosis codes in use today, presenting a costly administrative and operational challenge for plans and issuers. Comments also questioned the efficacy of providing codes which some argued are often very difficult for the average patient to understand.

After considering all the comments, and the costs and benefits of the additional disclosure, the amendment to the July 2010 regulations eliminates the requirement to automatically provide the diagnosis and treatment codes as part of a notice of adverse benefit determination (or final internal adverse benefit determination) and instead requires plans and issuers to provide notification of the opportunity to request the diagnosis and treatment codes (and their meanings) in all notices of adverse benefit determination (and notices of final internal adverse benefit determination) and to provide this information upon request.

Making the codes only available upon request protects patients’ privacy while reducing the burden for plans and issuers to redesign notices. However, plans and issuers will still incur costs to establish procedures to receive, process, and mail the requests. The Departments do not have a basis to estimate the net cost associated with this amendment, because they do not have sufficient data available to estimate the savings that will result from plans and issuers not needing to redesign notices or calculate the number of future requests.

c. Deemed exhaustion of internal claims and appeals process. The July 2010 regulations provide that claimants can immediately seek judicial or external review if a plan or issuer failed to “strictly adhere” to all of the July 2010 regulations’ requirements for internal claims and appeals processes, regardless of whether the plan or issuer asserted that it “substantially complied” with the July 2010 regulations. This approach received a number of negative comments from some issuers and plan sponsors, who prefer a “substantial compliance” approach, especially in cases where deviations from the regulatory standards were minor.

In response to these comments, the Departments are retaining the approach to this requirement, but this amendment also adds a new paragraph (b)(2)(ii)(F)(2) to the July 2010 regulations to provide an exception to the strict compliance standard for errors that are minor and meet certain other specified conditions. The new paragraph will also protect claimants whose attempts to pursue other remedies under paragraph (b)(2)(ii)(F)(1) of the interim final regulations are rejected by a reviewing tribunal. Under the amended approach, any violation of the procedural rules of July 2010 regulations pertaining to internal claims and appeals would permit a claimant to seek immediate external review or court action, as applicable, unless the violation was:

(1) De minimis;

(2) Non-prejudicial;

(3) Attributable to good cause or matters beyond the plan’s or issuer’s control;

(4) In the context of an ongoing good-faith exchange of information; and

(5) Not reflective of a pattern or practice of non-compliance.^[42]

The Departments expect that this amendment will protect patients’ right to proceed to external review while lowering costs based on the assumption that internal appeals are less expensive than external reviews or litigation. However, the amendment may add some costs, because participants and policyholders now may face uncertainty regarding whether a particular violation is minor. Many claimants may incur a cost to seek professional advice, because they will not be able to make this judgment on their own behalf. Alternatively, some claimants might seek immediate external review or judicial review and be denied it. The Departments do not have a sufficient basis to estimate these costs.

d. Culturally and Linguistically Appropriate Notices. PHS Act section 2719 requires group health plans and health insurance issuers to provide relevant notices in a culturally and linguistically appropriate manner. The July 2010 regulations set forth a requirement to provide notices in a non-English language based on separate thresholds of the number of people who are literate in the same non-English language. In the group market, the threshold set forth in the July 2010 regulations differs depending on the number of participants in the plan as follows:

For the individual market, the threshold is 10 percent of the population residing in the county being literate only in the same non-English language.^[44]

Under the July 2010 regulations, if an applicable threshold is met with respect to a non-English language, the plan or issuer must provide the notice upon request in the non-English language. Additionally, the plan or issuer must include a statement in the English versions of all notices, prominently displayed in the non-English language, offering the provision of such notices in the non-English language. Finally, to the extent the plan or issuer maintains a customer assistance process (such as a telephone hotline) that answers questions or provides assistance with filing claims and appeals, the plan or issuer must provide such assistance in the non-English language.

As discussed earlier in this preamble, the Departments received comments that raised concerns regarding the burdens imposed by this provision. In response to these comments, the Departments have decided to amend the July 2010 regulations’ provisions related to the provision of notices in a culturally and linguistically appropriate manner to establish a single threshold with respect to the number of people who are literate only in the same non-English language for both the group and individual markets. Under the amended provision, for group health plans and health insurance issuers offering group or individual health insurance coverage, the threshold percentage of people who are literate only in the same non-English language will be set at 10 percent or more of the population residing in the claimant’s county, as determined based on American Community Survey (ACS) data published by the United States Census Bureau. Table 2, below provides a chart listing those 255 U.S. counties (78/255 are in Puerto Rico) in which at least 10 percent of the population speak a particular non-English language and speak English less than “very well.” These data are applicable for 2011 and are calculated using 2005-2009 ACS data. The Departments will update this guidance annually on their website if there are changes to the list of the counties determined to meet this 10 percent threshold for the county’s population being literate only in the same non-English language.

These amendments also require each notice sent by a plan or issuer to an address in a county that meets this threshold to include a one-sentence statement in the relevant non-English language about the availability of language services to be provided by the Departments. The Departments have provided guidance with sample sentences in the relevant languages in separate guidance being issued contemporaneous with the publication of this amendment.

In addition to including a statement in all notices in the relevant non-English language, a plan or issuer would be required to provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon request.

The Departments expect that the largest cost associated with the amended rules for culturally and linguistically appropriate notices will be for plans and issuers to provide notices in the applicable non-English language upon request. Based on the ACS data, the Departments estimate that there are about 12 million individuals living in covered counties that are literate in a non-English Language. The ACS did not start collecting insurance coverage information until 2008. Therefore, to estimate the percentage of the 12 million affected individuals that were insured, the Departments used the percentage of the population in the State that reported being insured by private or public employer insurance or in the individual market from the 2009 Current Population Survey (CPS). ^[45] This results in an estimate of approximately seven million individuals who are eligible to request translation services.

In discussions with the regulated community, the Departments found that experience in California, which has a State law requirement for providing translation services, indicates that requests for translations of written documents averages 0.098 requests per 1,000 members. While the California law is not identical to the amendment to the July 2010 regulations, and the demographics for California do not match other counties, for purposes of this analysis, the Departments used this percentage to estimate of the number of translation service requests that plan and issuers can expect to receive. Industry experts also told the Departments that while the cost of translation services varies, $500 per document is a reasonable approximation of translation cost.

Using the ACS and the CPS, the Departments estimate 34 million insured lives in the affected counties. Based on the foregoing, the Departments estimate that the cost to provide translation services will be approximately $1.7 million annually (34,087,000 lives * 0.098/1000 * $500).

e. Duration of the transition period for State external review processes. These amendments to the July 2010 regulations modify the transition period under paragraph (c)(3) so that the last day of the transition period is December 31, 2011. Modifying the transition period gives states additional time to implement State external review processes that conform to paragraph (c)(2). This modification produces benefits and costs to participants and beneficiaries depending upon which state they live in and the timing of the beginning of the plan year. HHS is working closely with states to help them have external review processes that meet the requirements of paragraph (c)(2). The July 2010 regulations would have participants living in states with laws that do not meet the minimum consumer protections in paragraph (c)(2) entering the Federal external review process that would provide more consumer protections. However, this requirement to enter the Federal external review process would take effect upon the start of a new plan year beginning on or after July 1, 2011.

This modification delays coverage of external review for participants whose plan year would have started between July 1, 2011 and December 31, 2011, but provides coverage sooner for participants in plans with plan years beginning after January 1, 2012, and has no change for participants in plans with plan years beginning on January 1, 2012.

The annual reporting form for certain ERISA covered health plans, the Form 5500, has information on health plan year end dates and also the number of participants in health plans. While most health plans with less than 100 participants are not required to file the Form 5500, the Departments are able to observe the plan year end dates and hence the plan year start dates for large plans. The Departments looked at the dispersion of plan year start dates for plans that filed the Form 5500 and found that nearly 76 percent of participants are in plans with a plan year start date of January 1, 2012 and hence will not be effected by the change in the rule; nearly 13 percent of participants are in plans that could possibly see a delay in receiving the protections of external review, while just over 10 percent of participants will be able to access the protections sooner. These estimates did not take into account the state in which the plan was located. The Departments do not have data on the start date of policies in the individual market. While on net about 2.4 percent of participants in affected plans could see a delay in receiving the protections, these costs are offset by giving states, and issuers additional time, and hence lower costs, to prepare for complying with the rule.

f. Scope of Federal External Review. Paragraph (d)(1) of the July 2010 regulations provides that any adverse benefit determination (including a final internal adverse benefit determination) could be brought to the Federal external review process unless it related to a participant’s or beneficiary’s failure to meet the requirements for eligibility under the terms of a group health plan (i.e., worker classification and similar issues were not within the scope of the Federal external review process). As discussed earlier in this preamble, comments received in response to the July 2010 regulations indicate that the scope of external review claims was too broad.

After considering all the comments, with respect to plans subject to the Federal external review process, for claims for which external review has not been initiated before September 20, 2011, the amendment suspends the original rule in the July 2010 regulations regarding the scope of claims eligible for external review for plans using the Federal process, temporarily replacing it with a different scope. Specifically, this amendment suspends the broad scope of claims eligible for external review and narrows the scope to those that involve (1) medical judgment (excluding those that involve only contractual or legal interpretation without any use of medical judgment), as determined by the external reviewer; or (2) a rescission of coverage. The suspension is intended to give the marketplace time to adjust to providing external review. The Departments believe that, once the market has so adjusted, it will become clear that the benefits of the July 2010 regulations’ broader scope would be likely to justify its costs.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the APA (5 U.S.C. 551 et seq.) and that are likely to have a significant economic impact on a substantial number of small entities. Under Section 553(b) of the APA, a general notice of proposed rulemaking is not required when an agency, for good cause, finds that notice and public comment thereon are impracticable, unnecessary, or contrary to the public interest. The interim final regulations were exempt from the APA, because the Departments made a good cause finding that a general notice of proposed rulemaking is not necessary earlier in this preamble. Therefore, the RFA did not apply and the Departments were not required to either certify that the regulations or this amendment would not have a significant economic impact on a substantial number of small entities or conduct a regulatory flexibility analysis.

Nevertheless, the Departments carefully considered the likely impact of the rule on small entities in connection with their assessment under Executive Order 12866. Consistent with the policy of the RFA, the Departments encourage the public to submit comments that suggest alternative rules that accomplish the stated purpose of the Affordable Care Act and minimize the impact on small entities.

Notwithstanding the determinations of the Department of Labor and Department of Health and Human Services, for purposes of the Department of the Treasury, it has been determined that this Treasury decision is not a significant regulatory action for purposes of Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the APA (5 U.S.C. chapter 5) does not apply to these temporary regulations. For the applicability of the RFA, refer to the Special Analyses section in the preamble to the cross-referencing notice of proposed rulemaking published elsewhere in this issue of the Bulletin. Pursuant to section 7805(f) of the Code, these temporary regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

Currently, the Departments are soliciting 60 days of public comments concerning these disclosures. The Departments have submitted a copy of these interim final regulations to OMB in accordance with 44 U.S.C. 3507(d) for review of the information collections. The Departments and OMB are particularly interested in comments that:

Comments should be sent to the Office of Information and Regulatory Affairs, Attention: Desk Officer for the Employee Benefits Security Administration either by fax to (202) 395-7285 or by email to oira_submission@omb.eop.gov. A copy of the ICR may be obtained by contacting the PRA addressee: G. Christopher Cosby, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue, NW, Room N-5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free numbers. E-mail: ebsa.opr@dol.gov. ICRs submitted to OMB also are available at reginfo.gov (http://www.reginfo.gov/public/do/PRAMain).

These amendments make two changes to the interim final regulations that affect the paperwork burden. The first is an amendment no longer requiring that diagnosis and treatment codes be included on notices of adverse benefit determination and final internal adverse benefit determination. Instead, they must notify claimants of the opportunity to receive the codes on request and plans and issuers must provide the codes upon request. The Departments expect that this change will lower costs, because plans and issuers no longer will have to provide the codes on the notices. Plans and issuers will incur a cost to establish procedures for receive, process, and mail the codes upon request; however, the Departments are unable to estimate such cost due to a lack of a basis for an estimate of the number of requests that will be made for the codes.

The amendments also change the method for determining who is eligible to receive a notice in a culturally and linguistically appropriate manner, and the information that must be provided to such persons. The previous rule was based on the number of employees at a firm. The new rule is based on whether a participant or beneficiary resides in a county where ten percent or more of the population residing in the county is literate only in the same non-English language.

Participants and beneficiaries residing in an affected county and speaking an applicable non-English language will now receive a one-sentence statement in all notices written in the applicable non-English language about the availability of language services. In addition to including the statement, plan and issuers are required to provide a customer assistance process (such as a telephone hotline) with oral language services in the non-English language and provide written notices in the non-English language upon requests.

The Departments understand that oral translation services are already provided for nearly all covered participants and beneficiaries. Therefore, no additional burden is associated with this requirement of the amendment. The Departments estimate that plans will incur an annual cost burden of $1.2 million to translate written notices into the relevant non-English language.^[46]

Based on the foregoing, the Departments have adjusted the total estimated cost burden for this information collection. The cost burden is $243,000 in 2011, $1.7 million in 2012, and $1.8 million in 2013.

Type of Review: Revised collection.

Agencies: Employee Benefits Security Administration, Department of Labor; Internal Revenue Service, U.S. Department of the Treasury,

Title: Affordable Care Act Internal Claims and Appeals and External Review Disclosures for Non-Grandfathered Plans

OMB Number: 1210-0144; 1545-2182.

Affected Public: Business or other for-profit; not-for-profit institutions.

Total Respondents: 1,020,000 (three-year average).

Total Responses: 111,000 (three-year average).

Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours: 233 hours (Employee Benefits Security Administration); 233 hours (Internal Revenue Service) (three-year average).

Estimated Total Annual Burden Cost: $628,900 (Employee Benefits Security Administration); $628,900 (Internal Revenue Service) (three-year average).

As discussed above in the Department of Labor and Department of the Treasury PRA section, these amendments make two changes to the interim final regulations that affect the paperwork burden. The first is an amendment no longer requiring that diagnosis and treatment codes be included on notices of adverse benefit determination and final internal adverse benefit determination. Instead these codes are available upon request. The Departments expect that this change will lower costs compared to the July 2010 regulations because plans and issuers no longer will have to provide the codes on the notices. Plans and issuers will incur a cost to establish procedures for receiving, processing, and mailing the codes upon request; however, the Departments are unable to estimate such cost due to lack of a basis for an estimate of the number of requests that will be made for the codes. Second, the amendments also changes who is eligible to receive a notice in a culturally or linguistically appropriate manner.

The Departments estimated the new cost burden of providing the translation of requested notices into the applicable non-English language. The annual cost burden is estimated to be $430,000 annually starting in 2012. The derivation of this estimate was discussed above in the Economic Impact section.

Due to the amendments, the Department has adjusted the total estimated costs of this information collection. The Department estimates that State and local governmental plans and issuers offering coverage in the individual market will incur a total hour burden of 570,804 hours in 2011, 998,807 hours in 2012, and 1.22 million hours in 2013 to comply with equivalent costs of $28.2 million in 2011, $57.4 million in 2012, and $70.5 million in 2013. The total cost burden for those plans that use service providers, including the cost of mailing all responses is estimated to be $20.7 million in 2011, $37.9 million in 2012, and $51.7 million in 2013.

The hour and cost burden is summarized below:

Type of Review: Revised collection.

Agency: Department of Health and Human Services.

Title: Affordable Care Act Internal Claims and Appeals and External Review Disclosures

OMB Number: 0938-1099.

Affected Public: Business; State, Local, or Tribal Governments.

Respondents: 46,773 (three-year average).

Responses: 218,650,000 (three-year average).

Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours: 929,870 hours (three-year average).

Estimated Total Annual Burden Cost: $36,600,000 (three-year average).

We have requested emergency OMB review and approval of the aforementioned information collection requirements by July 1, 2011. To obtain copies of the supporting statement and any related forms for the proposed paperwork collections referenced above, access CMS’ Web site at http://www.cms.gov/ PaperworkReductionActof1995/PRAL/list.asp#TopOfPage or email your request, including your address, phone number, OMB number, and CMS document identifier, to Paperwork@cms.hhs.gov, or call the Reports Clearance Office at 410-786-1326.

If you comment on any of these information collection requirements, please do either of the following:

1. Submit your comments electronically as specified in the ADDRESSES section of this proposed rule; or

2. Submit your comments to the Office of Information and Regulatory Affairs, Office of Management and Budget,

Attention: CMS Desk Officer, CMS-9993-IFC2

Fax: (202) 395-6974; or

Email: OIRA_submission@omb.eop.gov

These amendments to the interim final regulations are subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and have been transmitted to Congress and the Comptroller General for review.

The Unfunded Mandates Reform Act of 1995 (Public Law 104-4) requires agencies to prepare several analytic statements before proposing any rules that may result in annual expenditures of $100 million (as adjusted for inflation) by State, local and tribal governments or the private sector. These amendments to the interim final regulations are not subject to the Unfunded Mandates Reform Act because they are being issued as interim final regulations. However, consistent with the policy embodied in the Unfunded Mandates Reform Act, the regulation has been designed to be the least burdensome alternative for State, local and tribal governments, and the private sector, while achieving the objectives of the Affordable Care Act.

Executive Order 13132 outlines fundamental principles of federalism, and requires the adherence to specific criteria by Federal agencies in the process of their formulation and implementation of policies that have “substantial direct effects” on the States, the relationship between the national government and States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have federalism implications must consult with State and local officials, and describe the extent of their consultation and the nature of the concerns of State and local officials in the preamble to the regulation.

In the Departments’ view, these amendments to the interim final regulations have federalism implications, because they have direct effects on the States, the relationship between the national government and States, or on the distribution of power and responsibilities among various levels of government. However, in the Departments’ view, the federalism implications of these interim final regulations are substantially mitigated because, with respect to health insurance issuers, the Departments expect that the majority of States will enact laws or take other appropriate action to implement an internal and external appeals process that will meet or exceed federal standards.

In general, through section 514, ERISA supersedes State laws to the extent that they relate to any covered employee benefit plan, and preserves State laws that regulate insurance, banking, or securities. While ERISA prohibits States from regulating a plan as an insurance or investment company or bank, the preemption provisions of section 731 of ERISA and section 2724 of the PHS Act (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a)) apply so that the HIPAA requirements (including those of the Affordable Care Act) are not to be “construed to supersede any provision of State law which establishes, implements, or continues in effect any standard or requirement solely relating to health insurance issuers in connection with group health insurance coverage except to the extent that such standard or requirement prevents the application of a requirement” of a Federal standard. The conference report accompanying HIPAA indicates that this is intended to be the “narrowest” preemption of State laws. (See House Conf. Rep. No. 104-736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018.) States may continue to apply State law requirements except to the extent that such requirements prevent the application of the Affordable Care Act requirements that are the subject of this rulemaking. State insurance laws that are more stringent than the Federal requirements are unlikely to “prevent the application of” the Affordable Care Act, and be preempted. Accordingly, States have significant latitude to impose requirements on health insurance issuers that are more restrictive than the Federal law. Furthermore, the Departments have opined that, in the instance of a group health plan providing coverage through group health insurance, the issuer will be required to follow the external review procedures established in State law (assuming the State external review procedure meets the minimum standards set out in these interim final rules).

In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have federalism implications or limit the policy making discretion of the States, the Departments have engaged in efforts to consult with and work cooperatively with affected State and local officials, including attending conferences of the National Association of Insurance Commissioners (NAIC), meeting with NAIC staff counsel on issues arising from the interim final regulations and consulting with State insurance officials on an individual basis. It is expected that the Departments will act in a similar fashion in enforcing the Affordable Care Act requirements, including the provisions of section 2719 of the PHS Act. Throughout the process of developing these amendments to the interim final regulations, to the extent feasible within the specific preemption provisions of HIPAA as it applies to the Affordable Care Act, the Departments have attempted to balance the States’ interests in regulating health insurance issuers, and Congress’ intent to provide uniform minimum protections to consumers in every State. By doing so, it is the Departments’ view that they have complied with the requirements of Executive Order 13132.

Pursuant to the requirements set forth in section 8(a) of Executive Order 13132, and by the signatures affixed to these regulations, the Departments certify that the Employee Benefits Security Administration and the Centers for Medicare and Medicaid Services have complied with the requirements of Executive Order 13132 for the attached amendment to the interim final regulations in a meaningful and timely manner.

The Department of the Treasury temporary regulations are adopted pursuant to the authority contained in sections 7805 and 9833 of the Code.

The Department of Labor interim final regulations are adopted pursuant to the authority contained in 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L.104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; Secretary of Labor’s Order 6-2009, 74 FR 21524 (May 7, 2009).

The Department of Health and Human Services interim final regulations are adopted pursuant to the authority contained in sections 2701 through 2763, 2791, and 2792 of the PHS Act (42 USC 300gg through 300gg-63, 300gg-91, and 300gg-92), as amended.

* * * * *

Approved June 21, 2011.

Paragraph 1. The general authority citation for part 54 continues to read as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 54.9815-2719T is amended by:

1. Revising paragraphs (b)(2)(ii)(B), (b)(2)(ii)(E)(1), (b)(2)(ii)(F), (c)(2)(xi), (c)(3), (d)(1), (d)(2)(iv) and (e).

2. Redesignating (b)(2)(ii)(E)(2), (b)(2)(ii)(E)(3), and (b)(2)(ii)(E)(4) as (b)(2)(ii)(E)(3), (b)(2)(ii)(E)(4), and (b)(2)(ii)(E)(5), respectively.

3. Adding new paragraph (b)(2)(ii)(E)(2).

The revisions and addition read as follows:

The IRS will begin accepting FFI applications through its electronic submissions process no later than January 1, 2013. An FFI must enter into an FFI Agreement by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow U.S. withholding agents to refrain from withholding beginning on January 1, 2014. Because of the time needed for the IRS to process FFI applications and for U.S. withholding agents to verify whether a payee is a participating FFI, FFIs that enter into FFI Agreements after June 30, 2013, but before January 1, 2014, will be participating FFIs with respect to 2014, but might not be identified as such in time to prevent withholding beginning on January 1, 2014. The effective date of an FFI Agreement entered into any time before July 1, 2013, will be July 1, 2013. The effective date of an FFI Agreement entered into after June 30, 2013, will be the date the FFI enters into the FFI Agreement.

A participating FFI will be required to put in place account opening procedures described in Notice 2010-60, as implemented in regulations, to identify U.S. accounts among accounts opened on or after the effective date of its FFI Agreement.

Within one year of the effective date of its FFI Agreement, a participating FFI will be required to have completed Step 3 of the pre-existing account due diligence procedures described in Section I.A.2 of Notice 2011-34 (the private banking procedures), for all accounts opened before the effective date of its FFI Agreement that are associated with a private banking relationship (including individual and entity accounts) and that have a balance or value of at least $500,000 on the effective date of the FFI Agreement.

A participating FFI will be required by the later of December 31, 2014, or the date that is one year after the effective date of its FFI Agreement, to complete the private banking procedures for all accounts opened before the effective date of its FFI Agreement that are associated with a private banking relationship and are not described in (i), above.

For all pre-existing accounts not covered in sections (i) and (ii) above, a participating FFI must complete due diligence procedures as prescribed in Notice 2010-60, Notice 2011-34, and forthcoming regulations within two years of the effective date of its FFI Agreement.

Regulations will provide further guidance on the scope of the private banking procedures and the associated search of account holder files. Regulations will also provide that, for purposes of applying the private banking procedures: (1) although private banking relationship managers must identify any client for which such relationship managers have actual knowledge that the client is a U.S. person and request a Form W-9 from such person, as set forth in Notice 2011-34, the review of account files may be completed by any person designated by the participating FFI; and (2) accounts subject to due diligence procedures and identified as either U.S. accounts or non-U.S. accounts under such procedures will not be subject to additional due diligence procedures in subsequent years unless the account undergoes a change of circumstance.

An account for which a participating FFI has received a Form W-9 from the account holder (or, with respect to an account held by a U.S. owned foreign entity, from a substantial U.S. owner of such entity) by June 30, 2014, must be reported to the IRS as a U.S. account by September 30, 2014. These accounts generally will include: (1) private banking accounts identified as U.S. accounts under the procedures set forth above and for which a Form W-9 has been collected by June 30, 2014; (2) new U.S. accounts opened after the effective date of the FFI’s FFI Agreement and for which a Form W-9 has been collected; (3) documented U.S. accounts described in Section I.A.2 Step 1 of Notice 2011-34; and (4) existing U.S. accounts documented pursuant to Section 1.A.2 Steps 4 and 5 of Notice 2011-34 for which a Form W-9 is obtained by June 30, 2014. With respect to these identified U.S. accounts, a participating FFI that does not elect to report under section 1471(c)(2) must report in accordance with Notice 2011-34, except that for this first year of reporting, the participating FFI will only be required to report the following information:

The reporting described above is intended to provide participating FFIs greater flexibility to satisfy the reporting requirements of section 1471(c) and section IV.B of Notice 2011-34, and is not intended to change the information that generally must be reported as set forth in Notice 2011-34. Accordingly, reporting in 2014 will be made on the same forms as will be used in subsequent years to report all required information, and participating FFIs may elect for 2014 to report any or all of the additional information described in section IV.B of Notice 2011-34 with respect to U.S. accounts. With respect to a participating FFI that elects reporting under section 1471(c)(2) for such accounts, the FFI may report only the items listed in (i) and (iii), above, for its report filed by September 30, 2014.

In accordance with its normal practice, the IRS will assess the accuracy of the reported information and communicate with the FFI to resolve discrepancies in the information, such as those regarding U.S. TINs. Unresolved discrepancies could result in an account being treated as held by a recalcitrant account holder.

For each account for which the participating FFI is not able to report the information above, because, for example, the account holder has not waived any applicable reporting restrictions, the FFI will report the account among its recalcitrant account holders with U.S. indicia in accordance with section IV.F of Notice 2010-60 and as prescribed in future guidance. The reporting with respect to recalcitrant account holders identified by June 30, 2014, will be required to be filed with the IRS by September 30, 2014.

Reporting with respect to 2014 and subsequent years will be required as contemplated in Notice 2010-60 and Notice 2011-34 and as implemented in future regulations.

Pursuant to the phased implementation procedures contemplated in this notice, regulations under Chapter 4 will implement withholding by withholding agents on withholdable payments in two phases. For payments made on or after January 1, 2014, withholding agents (whether domestic or foreign, including participating FFIs) will be obligated to withhold under section 1471(a) and section 1472(a) only on U.S. source FDAP payments. For payments made on or after January 1, 2015, withholding agents will be obligated to withhold under section 1471(a) and section 1472(a) on all withholdable payments (including both U.S. source FDAP payments and gross proceeds described in section 1473(1)(A)(ii)).

Participating FFIs will be obligated to withhold on withholdable payments of U.S. source FDAP under section 1471(a) and section 1472(a) for payments made on or after January 1, 2014, but will not be required to withhold under section 1471(b)(1)(D) with respect to other passthru payments made before January 1, 2015. Accordingly, the obligations of participating FFIs with respect to computing and publishing their passthru payment percentage as set forth in Notice 2011-34 will not begin before the first calendar quarter of 2014.

All qualified intermediary agreements, withholding foreign partnership agreements, and withholding foreign trust agreements of entities qualifying as FFIs that expire on December 31, 2012, will be automatically extended until December 31, 2013. Any FFI that enters into an FFI Agreement on or before December 31, 2013, will be considered to have renewed its qualified intermediary agreement, withholding foreign partnership agreement, or withholding foreign trust agreement, as the case may be.

Section 501(d)(2) of the Act provides that Chapter 4 shall not require any amount to be deducted or withheld from any payment under any obligation outstanding on March 18, 2012, or from the gross proceeds of any disposition of such an obligation. Section I of Notice 2010-60 defined the term “obligation” for this purpose to mean any legal agreement that produces or could produce withholdable payments, but not including any instrument treated as equity for U.S. tax purposes, or any legal agreement that lacks a definitive expiration or term. Questions have been raised regarding whether legal agreements that give rise to passthru payments other than withholdable payments are excluded from the definition of “obligation” for this purpose. Treasury and the IRS intend to issue regulations clarifying that, for purposes of section 501(d)(2) of the Act, the term “obligation” means any legal agreement that produces or could produce passthru payments (including withholdable payments), but not including any instrument treated as equity for U.S. tax purposes, or any legal agreement that lacks a definitive expiration or term.

The principal author of this notice is John Sweeney of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Mr. Sweeney at (202) 622-3840 (not a toll-free call).

The temporary regulations published elsewhere in this issue of the Bulletin amend §54.9815-2719T of the Miscellaneous Excise Tax Regulations. The proposed and temporary regulations are being published as part of a joint rulemaking with the Department of Labor and the Department of Health and Human Services (the joint rulemaking). The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this proposed regulation. It is hereby certified that the collections of information contained in this notice of proposed rulemaking will not have a significant impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Section 54.9815-2719T of the temporary regulations, as amended, requires both group health insurance issuers and group health plans to establish internal claims and appeals and external review processes for adverse benefit determinations. Those processes require the plan and issuer to disclose evidence relied upon in making an adverse benefit determination, to disclose any new rationale for upholding an adverse benefit determination as part of an internal appeal, to provide notice of an adverse benefit determination and of a final internal adverse benefit determination, and to disclose the right to an external review. Under the temporary regulations, if a health insurance issuer satisfies the obligations to have effective internal claims and appeals and external review processes (including these information collection requirements that are an inherent part of those processes), those obligations are satisfied not just for the issuer but also for the group health plan. For group health plans maintained by small entities, it is anticipated that the health insurance issuer will satisfy those obligations to have effective internal claims and appeals and external review processes (including these information collection requirements that are an inherent part of those processes) for both the plan and the issuer in almost all cases. For this reason, these information collection requirements will not impose a significant impact on a substantial number of small entities. Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. Comments are specifically requested on the clarity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register.

Paragraph 1. The authority citation for part 54 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Proposed section 54.9815-2719 as published on July 23, 2010, 75 FR 43330, is amended by:

1. Revising paragraphs (b)(2)(ii)(B), (b)(2)(ii)(E)(1), (b)(2)(ii)(F), (c)(2)(xi), (c)(3), (d)(1), (d)(2)(iv), and (e).

2. Redesignating (b)(2)(ii)(E)(2), (b)(2)(ii)(E)(3), and (b)(2)(ii)(E)(4) as (b)(2)(ii)(E)(3), (b)(2)(ii)(E)(4), and (b)(2)(ii)(E)(5), respectively.

3. Adding new paragraph (b)(2)(ii)(E)(2).

The revisions and addition read as follows: