Health Insurers Face Scrutiny Over AI Use in Claims Denials
State regulators are deploying new oversight tools as litigation mounts and data shows 12% of health insurers use AI to deny prior authorizations.
Regulators zero in on AI-powered claims management
A public dispute between Mark Cuban and Marc Andreessen over AI's medical capabilities has refocused attention on how health insurers actually deploy the technology—not for diagnosis, but for claims management and denial.
When Andreessen claimed on July 12 that "AI is already a better doctor than 99.99% of human doctors," Cuban pushed back, arguing that diagnostic prowess means little when insurers build AI systems designed to slow or reject claims. The exchange highlighted operational realities that regulators and courts are now addressing directly.
According to the National Association of Insurance Commissioners' most recent survey of 93 health insurers across 16 states, 84% currently use AI or machine learning in some capacity. Twelve percent specifically apply it to denying prior authorizations, according to Insurance Business, which first reported the details.
State and federal authorities diverge
California's Physicians Make Decisions Act, effective January 2025, prohibits health insurers from denying medically necessary care based solely on an algorithm and mandates licensed human review of such denials. Nearly 30 states have adopted versions of the NAIC's model bulletin on AI governance.
The NAIC's AI Systems Evaluation Tool has been piloted in 12 states since March 2026, with nationwide rollout planned for later this year. That state-level momentum has collided with federal policy: the NAIC publicly criticized a December 2025 White House executive order on AI, warning it introduces legal uncertainty that could delay consumer protections and weaken the insurance market.
Litigation is already underway
Cigna faces a federal lawsuit, Kisting-Leung v. Cigna, whose complaint references 2023 ProPublica reporting that its PxDx algorithm denied more than 300,000 claims over two months in 2022, with an average review time of approximately 1.2 seconds per claim. Cigna has called the lawsuit baseless and says PxDx is not AI-powered and applies to only a narrow subset of claims. A federal judge allowed the case to proceed in March 2025. UnitedHealthcare and Humana face similar legal challenges.
Meanwhile, KFF's analysis of federal marketplace data found that fewer than 1% of denied Affordable Care Act claims were appealed in 2023, and insurers upheld 56% of the denials that were challenged.
Why it matters
Health insurers deploying AI in utilization review face a compliance landscape that is tightening rapidly. Nearly a third of health insurers do not regularly test their models for bias or discrimination, despite NAIC guidance recommending it since December 2023. With the NAIC's evaluation tool approaching full national rollout and federal litigation advancing, insurers have a narrowing window to document governance processes and demonstrate compliance with emerging standards. The operational requirement is immediate, not theoretical.
Insurance Business provided the details in its original reporting.
This is an original analysis by the Omega editorial team. Source reporting: AI Watch.
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