The short answer: Health insurers are increasingly using artificial intelligence to automatically deny medical claims and prior authorization requests, prompting state and federal regulators to impose new restrictions on how these algorithms can make decisions about your healthcare coverage. This technology-driven clash is reshaping how you access and pay for medical care.
If you’ve ever had a health insurance claim denied and thought “that doesn’t make sense,” you’re not alone, and you might be dealing with an algorithm that’s working exactly as designed.
What AI Claim Processing Actually Means (And Why It Matters to You)
Let me be clear about what we’re talking about here. AI claim processing refers to automated computer systems that use artificial intelligence and machine learning algorithms to review, flag, route, and approve or deny health insurance claims and prior authorization requests without direct human oversight. These systems analyze millions of data points, your medical history, treatment codes, billing information, and policy details, to make split-second decisions about whether your insurer will pay for your care.
Think of it as a robot gatekeeper standing between you and your healthcare provider’s recommendation. And here’s what caught my attention: 84% of insurance companies now report using these AI systems to handle your claims.
The problem? These systems are denying claims at alarming rates, even when the care is medically necessary. And that’s where your money, and your health, enter the picture.
The Numbers Behind Your Denied Claims Are Worse Than You Think
You know that frustrating feeling when your insurer denies coverage for something your doctor says you need? Turns out that’s happening more frequently than ever, and the data reveals some troubling patterns.
Here’s a statistic that should make you pause: 70% of initially denied claims are ultimately paid after appeal. Let that sink in. Seven out of ten denials were wrong from the start. The insurance company said “no,” put you through the stress and hassle of an appeal, and then eventually said “yes” anyway.
In Medicare Advantage plans specifically, over 80% of denied prior authorization requests that patients bothered to appeal were successfully overturned. That means the vast majority of people who fought back won, but how many people just gave up?
The physician community has noticed. A 2025 American Medical Association survey found that 61% of doctors fear unregulated AI is increasing prior authorization denials. Another survey showed 62% of physicians believe insurers’ use of AI specifically increases denials for medically necessary care. These aren’t anti-technology Luddites, these are medical professionals watching their patients get denied care that they prescribed.
And in some documented cases, AI tools have produced denial rates 16 times higher than typical human-reviewed claims. Sixteen times.
Why Your Wallet Takes the Hit (Even When You Win)
Here’s the financial education piece you need to understand: every denied claim costs you time, stress, and often money, even when you eventually get it overturned.
When an insurer denies your claim, several things happen:
You might pay out of pocket. If you’ve already received the care, you could be stuck with a surprise bill while you navigate the appeals process. That can mean hundreds or thousands of dollars suddenly due.
Your treatment gets delayed. According to the AMA, 82% of physicians reported that prior authorization sometimes leads patients to abandon treatment altogether. That’s not just inconvenient, that’s you potentially getting sicker because fighting your insurance company feels impossible.
Administrative costs add up. Between 40% and 60% of claim denials result from administrative and technical errors, things like mismatched codes, missing signatures, or outdated eligibility information. These aren’t medical decisions; they’re paperwork problems that you end up paying for through higher premiums and delayed care.
The asymmetry here is striking. Insurance companies have invested billions in automated systems to accelerate rejections, while you and your doctor are stuck with manual processes, fax machines (yes, still fax machines), and inconsistent requirements that vary by payer.
The Regulatory Battleground: Who’s Fighting for Your Claims?
This is where things get interesting, and where state and federal governments are increasingly clashing over how to protect you from algorithmic denials.
Federal Oversight: CMS and HHS Step In
The Centers for Medicare & Medicaid Services (CMS) has laid down some ground rules. According to their regulations, AI cannot “act alone” to terminate or deny services. There must be human oversight, and the tools must be accurate and bias-free.
The HHS Office for Civil Rights has gone further, prohibiting any entity receiving federal financial assistance, which includes virtually all healthcare providers and insurers, from using AI tools that discriminate based on protected characteristics.
New CMS transparency rules are forcing insurers to disclose how decisions are made, how long they take, and how often requests are denied. This is crucial because it makes previously opaque data measurable and visible.
State Action: Six States Take the Lead
But some states aren’t waiting for federal action. At least six states, Arizona, Maryland, Nebraska, Texas, Illinois, and California, have enacted their own legislation restricting AI use in health insurance decisions.
Florida Governor DeSantis introduced an “AI Bill of Rights” that includes restrictions on algorithm use in processing insurance claims and requires state regulatory inspection of algorithms before they can be used. That’s a significant escalation, imagine insurers having to submit their secret sauce for state approval before deploying it.
This creates a patchwork of regulations that insurers must navigate, which is both good and bad for you. Good because states can move faster and impose stricter protections. Bad because if you live in a state without these protections, you’re more vulnerable.
The Industry’s Response: Denials About Denials
Here’s where the story gets almost absurd. When pressed by Congress, Cigna’s CEO David Cordani stated that AI is “never used for a denial” and that the company’s claims-denial process “is not powered by AI.”
Yet Cigna is currently being sued over its denial methods, and reporting by ProPublica and research from Stanford have documented how limited transparency and review in AI-based insurance decisions lead to wrongful care denials.
The disconnect between what executives say publicly and what the technology actually does is striking. And it’s your healthcare caught in the middle.
Major insurers like UnitedHealthcare and Cigna pledged in 2023 to reduce prior authorization requirements. The result? Only 16% of physicians reported actual reductions. The promises didn’t match the reality.
What You Can Actually Do When AI Denies Your Claim
I know this all sounds overwhelming, but you’re not powerless. Here’s your action plan:
Always appeal. Remember that 70% success rate for overturned denials? Those only happen when people fight back. Don’t assume the AI got it right.
Document everything. Keep copies of all communications, medical records, and correspondence with your insurer. You’ll need this paper trail.
Ask for specifics. Request exactly why your claim was denied and which policy provision the denial is based on. Sometimes just forcing the insurer to explain their reasoning reveals the weakness in their position.
Get your doctor involved. Physician appeals carry more weight. If your doctor documents medical necessity, it strengthens your case significantly.
Know your state laws. If you live in one of the six states with AI restrictions, reference those protections in your appeal.
File complaints. Report problematic denials to your state insurance commissioner and, if applicable, CMS. Regulators track patterns, and your complaint contributes to that data.
Looking Ahead: The Fight Isn’t Over
The clash between state and federal regulators, insurers, and patient advocates is intensifying. As AI becomes more sophisticated, the stakes get higher. We’re essentially fighting over whether algorithms or humans should make final decisions about your healthcare access.
This isn’t just a policy debate, it’s about whether you can get the medical care your doctor prescribes without fighting a computer system designed to say no first and ask questions later.
The regulatory landscape is shifting in your favor, but slowly. Until then, knowledge is your best defense. Understand that denials are often wrong, that appeals frequently succeed, and that you have both federal and potentially state protections on your side.
Your health insurance premiums are too expensive for you to simply accept algorithmic denials without question. Fight back, appeal, and make insurers justify their decisions with actual humans, not just code.
FAQs
Can health insurers use AI to automatically deny claims without human review?
No. Federal regulations require human oversight in denial decisions. AI cannot legally act alone to terminate or deny services, though enforcement varies by plan and state.
What percentage of denied claims are overturned on appeal?
Approximately 70% of initially denied claims are paid after appeal. In Medicare Advantage plans, over 80% of appealed prior authorization denials are overturned.
Which states restrict AI use in insurance claim decisions?
As of 2026, Arizona, Maryland, Nebraska, Texas, Illinois, and California have enacted legislation addressing AI use in insurance decision-making.
Why are medically necessary treatments denied?
Between 40% and 60% of denials stem from administrative or technical issues rather than medical necessity. AI systems often flag coding inconsistencies or documentation gaps automatically.
How long do I have to appeal a denied claim?
Most plans provide at least 180 days to file an internal appeal. Always verify deadlines in your denial letter, as timelines vary by insurer and state.
