States Implementing Protective Legislation
California pioneered regulation in January when it enacted legislation prohibiting insurers from making coverage decisions based solely on artificial intelligence algorithms. This landmark law mandates that any denial, modification, or delay of care must be reviewed by a qualified healthcare professional, such as a physician, ensuring human oversight in critical healthcare decisions.
Following California’s lead, numerous states are developing similar protective measures. In 2025, legislative bodies in Illinois, Georgia, Texas, Rhode Island, Minnesota, and Florida have introduced bills aimed at restricting AI’s role in prior authorization decisions. These proposed regulations demonstrate a growing national concern about the potential misuse of algorithmic decision-making in healthcare. As of March 26, these bills remain under consideration, with none having completed the full legislative process.
Legal Challenges Facing Major Insurers
The insurance industry’s implementation of AI in coverage determinations has attracted significant legal scrutiny. UnitedHealth Group currently faces litigation alleging improper use of AI algorithms that resulted in wrongful denials of postacute care for Medicare Advantage enrollees.
In response to these allegations, an Optum spokesperson clarified in 2023 that naviHealth, the AI tool implicated in the lawsuit, was not used for making final coverage decisions. According to the spokesperson, “The tool is used as a guide to help us inform providers, families and other caregivers about what sort of assistance and care the patient may need both in the facility and after returning home.” They emphasized that actual coverage determinations rely on CMS criteria and the specific terms of the member’s healthcare plan.
Similarly, Humana faces legal challenges regarding alleged improper utilization of naviHealth algorithms. A company spokesperson has defended their practices, stating that Humana maintains “human in the loop” decision-making whenever artificial intelligence technologies are deployed.
Federal Oversight and Future Direction
Federal lawmakers have increasingly called for enhanced supervision of AI applications in prior authorization processes. In 2024, the Centers for Medicare & Medicaid Services (CMS) issued comprehensive guidance to Medicare Advantage plans regarding algorithmic use in coverage decisions. While the agency permits insurers to employ algorithms as decision support tools, it requires that all AI-based systems comply with established coverage decision requirements.
Mehmet Oz, MD, nominated by President Donald Trump to lead CMS, has expressed support for AI’s potential to expedite prior authorizations while advocating for reducing the overall scope of procedures requiring such approvals. During his March 14 confirmation hearing, Dr. Oz stated, “I would argue that to use AI wisely, we would make a decision which is we’re only going to pre-authorize 1,000 procedures.”
Dr. Oz further proposed that CMS should leverage AI technologies to monitor insurers’ own AI implementations, creating a regulatory feedback loop. He emphasized the importance of real-time oversight, noting, “If we see that there’s something being done, for example, inappropriate use of AI or inappropriate denial of services with AI, we should be using AI within the agency to identify that early enough that we can prevent it and we should do it real time, not six months down the road.”
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