In 2023, health insurers on the Affordable Care Act (ACA) marketplaces denied about 20% of all claims submitted. Out-of-network claims were denied at a higher rate of around 37%. For in-network claims, denial rates varied a lot from state to state and insurer to insurer—from as low as 1% to more than 50%. Alabama had one of the highest denial rates at 34%, while South Dakota had the lowest at 6%. Claims are often denied due to administrative errors, excluding certain services, missing prior authorizations or referrals, and sometimes disagreements over whether a medical procedure is necessary.
Even with high denial rates, less than 1% of denied claims get appealed by consumers. When appeals are made inside the insurance company, 56% of those denials are kept in place. External appeals, which are independent reviews requested by patients or providers, happen even less often and there is little data on how effective they are. The low number of appeals shows many consumers and providers don’t know how or when to appeal denials. Also, confusing or strict insurer rules make it hard for patients to get timely care and create extra work for healthcare staff.
One major reason for claim denials is the prior authorization process. This means doctors and patients need to get insurer approval before some medical treatments or medicines. A 2022 survey by the American Medical Association (AMA) found that 93% of doctors said prior authorizations delay necessary patient care. About 29% reported that these delays caused serious problems, like hospital stays or lasting injuries.
Lawmakers see this as a problem. States like Pennsylvania, North Carolina, and Arizona have started laws to make prior authorization quicker and to lower inappropriate denials. Pennsylvania started an Independent External Review (IER) group in January 2024. In its first year, this group changed half of the 517 denials it looked at. This showed some progress toward holding insurers more responsible.
Pennsylvania: The state set up an External Review system to make appeals easier and improve how prior authorizations are handled. Clear deadlines and rules were created to stop insurers from confusing providers and delaying care. The review boards include licensed doctors who know the field well, adding trust to the process.
Arizona and Michigan: These states gave regulators more power to access claims denial data from insurers. This helps them watch and enforce state rules better. More openness is meant to stop wrongful denials and encourage insurer compliance.
North Carolina: A proposed law gives regulators more oversight and sets strict deadlines for insurers to answer prior authorization requests. State officials said the current system is “out of balance” and needs oversight to protect both patients’ care and insurers’ coverage rules.
Texas: Texas started a “gold card” program to cut prior authorization work for doctors with high approval rates (90% or more). But by the end of 2023, only 3% of Texas doctors qualified for this, showing the program had limited success in reducing administrative work for providers.
Handling claim denials uses a lot of time and money for hospitals and medical offices. The American Hospital Association and McKinsey report that 40% of hospitals’ total care costs come from admin work like billing, collections, and appeals. Hospitals spend about $40 billion each year on these tasks, much of it because of denied claims.
Health systems often face delayed payments, with some claims unpaid for more than 90 days. The amount of unpaid claims varies from 27% to almost 47%. These delays hurt hospital budgets and their ability to spend on new buildings, keeping services, and hiring or keeping skilled staff.
Insurers use AI to speed up claim reviews, but this can raise errors because the AI lacks full clinical understanding. A 2018 report from the Department of Health and Human Services found 75% of denied Medicare Advantage claims were later approved on appeal. That means many initial denials were wrong.
Cyberattacks on claims systems, like the one on Change Healthcare, make problems worse. These attacks disrupt work and raise admin costs, forcing healthcare providers to spend more on cybersecurity.
Prior authorization rules, frequent denials, and admin hurdles cause real problems for patients. Providers often cannot give needed treatments on time. This can cause worse health results. The AMA survey showed that delays linked to these issues led to hospital stays and in some cases permanent injury.
Patients are often confused by complicated appeals processes. So many do not challenge denials. This leaves important care decisions to computers without proper clinical checks. Providers also feel frustrated as they try to handle these problems while still focusing on patient care.
AI is becoming more involved in insurer decisions. This brings both problems and possibilities. AI can quickly process many claims, but using it to deny claims automatically without clinical review has caused justified criticism.
Medical practice managers and IT staff can use AI to reduce insurer delays. AI tools can handle phone calls, appointment scheduling, and insurance checks—helping lower staff workloads and speed admin tasks. For example, AI services like Simbo AI automate front-office tasks to free staff for more complex work.
By automating simple tasks, staff can spend more time on tough billing and clinical questions. AI might also be used to detect risky insurer demands early. This helps teams get the right paperwork ready in time and avoid denials.
There is growing talk about improving AI in insurers to make it rely more on medical details and less just on data. Suggestions include adding patient clinical info to AI reviews, requiring human review for claim denials related to care, and making sure prior authorization follows clear and fast rules.
New electronic prior authorization (ePA) systems support federal goals. The Biden administration plans to require electronic claims approval for Medicare and Medicaid by 2026. Offices that use these systems will have fewer delays and better follow regulations.
The mix of insurer rules, AI, state laws, and clinical practices is shaping how claims are managed. State efforts to add oversight and more openness are important to make access to care fairer and faster. Still, admin problems show healthcare groups need smarter tech and methods. Practice managers, owners, and IT staff must understand these changes to keep finances steady, improve workflows, and support patient care.
Prior authorization is the process by which patients and doctors must obtain approval from health insurers before proceeding with certain medical procedures or drugs.
Health insurers are accused of using AI bots and algorithms to swiftly deny claims for routine or lifesaving care without human review, leading to significant patient and doctor frustrations.
States are considering measures to limit AI use in claims review, exclude certain medications from prior authorization, and ensure timely decisions for emergency care.
A survey by the American Medical Association found that 93% of doctors indicated that insurers’ prior authorization practices delayed necessary care for patients.
In 2023, insurers selling marketplace plans under the Affordable Care Act denied an average of 20% of all claims, with 73 million in-network claims denied.
The Biden administration is implementing rules for a streamlined electronic claims review process for Medicare and Medicaid starting in 2026 to reduce delays.
States have limited authority over only state-regulated health plans and cannot directly regulate employer-sponsored health plans, giving insurers an advantage.
Pennsylvania created an Independent External Review organization to allow patients to request reviews for denied services, leading to significant overturns of denials.
As of the end of 2023, only 3% of Texas physicians earned ‘gold card’ status, indicating limited effectiveness of the legislation designed to ease prior authorization.
States like Arizona, Michigan, and Pennsylvania have given insurance regulators more authority to access claims denial information to enforce state rules more effectively.
Simbo is using AI agents to automate all phone related workflows. Connect now to know more.
Schedule AI Agents Demo Now© Since 2019, Simbo AI.
