The killing of UnitedHealthcare CEO Brian Thompson sparked a national debate over rising health care costs and claim denials.
AI is used to deny millions of health insurance claims today, while two-thirds of health care organizations plan to increase AI spending in the next three years.
The health insurance landscape and AI
“Health insurance is often the most dysfunctional, fragile and poorly functioning example of the fraught relationship between policy holders and insurers across the insurance industry,” said Dr. Katherine Hempstead, senior policy officer at the Robert Wood Johnson Foundation, at a Friday, December 20 Ethnic Media Services briefing on AI-denied health insurance claims.
“In health insurance, we have a few things that increase that mistrust,” she continued. “As opposed to a one-time claim, like in life insurance, you have ongoing contact between insurers and policy holders — often when people are ill or feel like their future health is at stake … There’s a fundamental powerlessness for policyholders when providers say something is necessary, but insurers say it’s not … and there’s a tremendous amount of fragmentation as to what’s covered between states or between plans.”
A November 2024 Gallup poll found that Americans’ rating of U.S. health care is at its lowest since 2001, with 44% saying the quality is excellent or good and 28% saying the coverage is excellent or good.
Why are Americans growing increasingly dissatisfied with this system now?
“One reason, ironically, is that more people are covered under managed care and Medicare Advantage plans – which is a great thing, but it’s one of the environments where issues around denied claims for services and often life-changing medications — like GLP drugs for diabetes and obesity — are coming to a head,” Hempstead said.
Medicare Advantage (MA) is a Medicare-approved private health plan, covering seniors and people with disabilities.
An October 2024 report released by the U.S. Senate found that the three largest MA companies — UnitedHealthcare, Humana and CVS, together covering 60% of enrollees — drastically increased algorithm-automated claim denials between 2019 and 2022 and systematically limited post-acute (PA) care, including home health services and long-term hospital care, to maximize profits.
UnitedHealthcare’s PA denial rate rose from 10.9% in 2020 to 22.7% in 2022 as the company ramped up automation; Humana’s PA denial rate was 16 times higher than its overall denials; and CVS’ PA denials were unchanged even as PA requests surged by 57.5%.
“When people appeal, and especially when the press is involved, many times the decision changes, which can drive a lot of cynicism on the part of people who feel rightly that insurers will try to get away with denying services until they’re exposed or pressured,” explained Hampstead. “That drives inequity by disadvantaging people who don’t speak English as their first language, or are lower-income or less-educated, and so are less likely to dispute a decision.”
At the heart of increasing claim denials is the use of prior authorization, the process requiring insurance approval before a patient can get a service or prescription.
“We have tools like prior authorization and automation to try to expedite delays, curb over-prescriptions and impose guardrails on health care spending, which is very high in the U.S.,” said Dr. Miranda Yaver, assistant professor of health policy and management at the University of Pittsburgh. “But errors are one thing in a low-stake setting, and quite another in health care. We’re spending a lot on health care that isn’t care at all but administration.”
Nearly $1 out of every $5 spent in the U.S. is spent on health care, which represents 17% of the national GDP; in 1960, it represented 5%, or 1$ out of every $20.
Meanwhile, 30 cents on every medical dollar spent — roughly $750 billion annually — goes to administrative costs.
Although U.S. health care spending has skyrocketed, so have out-of-pocket costs spent by all Americans, with health insurance or not, on health care not paid for by a plan.
These costs have soared from $115 in 1970 (adjusted for 2024 inflation, $677) to $1,425 per person in 2022, not including money spent on monthly health insurance premiums.
For her book “Coverage Denied: How Health Insurers Drive Inequality in the United States,” upcoming in 2026, Yaver surveyed 1,340 adults nationwide and found 36% experienced at least one claim denial, with 60% of these facing multiple.
“No matter who you are, you’re vulnerable to this, but the effects can cause the most inequities for people from marginalized groups less likely to realize they can appeal,” she said. Even when people are successful in appealing these automated denials, we need to think about the equity costs … It’s time-consuming, physically and emotionally taxing, and can be expensive.”
Limiting AI
“It’s unfortunate that we’re pretty much the only industrialized country that operates in this way,” said California State Senator Josh Becker, author of the Physicians Make Decisions Act (SB 1120) limiting the scope of AI by requiring doctors to make final decisions on what treatment patients receive, and to oversee decisions made by AI like claim requests and prior authorization.
The bill was signed by Governor Newsom last September and takes effect January 5, 2025.
“We need the human element to ensure that health care decisions prioritize patient well-being over automated processes,” he explained, adding that his bill — which faced general opposition by insurance companies and support by physicians’ groups including the California Medical Association — “flew a bit under the radar. There wasn’t as much public attention on the issue as there is now … but we’ve already had other states contact us, and had the federal government and some members of Congress reach out as well. We’re hoping that this is another example where people will follow California’s lead.”
“There will be important roles for AI in detecting disease or reading images, but we’re talking about ensuring appropriate health care decisions that only trained physicians can make, and this holds significant risks,” Becker continued.
In 2023, for example, Cigna Healthcare faced a California lawsuit on the grounds that the company used AI algorithms to refuse over 300,000 pre-approved claims over two months in the previous year, with an alleged 1.2 seconds spent to reject each claim and 80% of customer-appealed claims being overturned.
Cigna covers or administers health plans for 18 million Americans.
The suit alleged that a single Cigna medical director, Cheryl Dopke, rejected roughly 60,000 claims in one month.
That same year, in 2023, for-profit health insurance companies made $70.7 billion in profits — “maybe due in part to practices like these denials,” said Becker. “Evidently, they’re doing a pretty good job of cost containment.”
“If you’re denying claims every 1.2 seconds, you’re not really looking at what patients need,” he added. “We just shouldn’t have to spend so much of our health care dollars negotiating these claims. Let’s focus more money on care for patients who need it.”
