When Insurers Use AI to Deny Care: What New Federal Rules and Investigations Mean for Patients

If your care is denied, was it a person — or a computer?

Imagine this: your doctor recommends a CT scan, rehabilitation stay, or specialist visit. A few days later, you learn your Medicare Advantage plan denied the request. You’re told it did not meet the plan’s criteria. You may wonder: was this decision made by a doctor, or by an algorithm?

Insurance companies, including Medicare Advantage plans, increasingly use algorithms and automated systems to review prior authorization requests and claims. These tools can sort, flag, and sometimes recommend approvals or denials. But under federal law, insurers cannot rely on internal algorithms to override Medicare’s coverage rules.

In recent years, federal watchdogs and regulators have taken a closer look at how these systems are used. New rules aim to make prior authorization faster and more transparent — and to ensure that coverage decisions follow Medicare standards.

Here’s what that means for patients and families.

How prior authorization works — and where algorithms fit in

Prior authorization is when your health plan requires approval before you receive certain services, such as advanced imaging, inpatient rehabilitation, or some medications. Medicare Advantage plans — private plans that contract with Medicare — are allowed to use prior authorization for some services.

Today, many plans use computer systems to:

Screen incoming requests for missing information.
Compare requests to coverage rules and clinical criteria.
Flag cases for further review by nurses or physicians.
Identify claims that may not match billing or documentation standards.

These tools can speed up routine approvals. But concerns arise when automated systems are used in ways that restrict access to medically necessary care.

Importantly, federal rules do not ban the use of algorithms. They require that coverage decisions comply with Medicare coverage criteria and be subject to appropriate clinical review.

What a federal watchdog found about denials

In a detailed analysis, the U.S. Department of Health and Human Services Office of Inspector General (OIG) reviewed a sample of Medicare Advantage prior authorization and payment denials. The report found that some denials met Medicare coverage rules and billing requirements and therefore should likely have been approved.

Specifically, the OIG estimated that a portion of prior authorization denials — and a smaller share of payment denials — were for services that met Medicare’s coverage rules. The agency described these as “potentially inappropriate denials” based on its case review and medical record analysis.

The OIG did not conclude that all denials were improper or that insurers intentionally misused automation. Rather, it identified system-level concerns, including use of clinical criteria that were more restrictive than traditional Medicare and errors in applying rules.

For patients, the practical takeaway is this: some denied services may in fact meet Medicare’s coverage standards — and appeals can succeed.

How common is prior authorization in Medicare Advantage?

Prior authorization is not rare. According to a national analysis by KFF, Medicare Advantage plans process millions of prior authorization requests each year. A share of those requests are denied initially, though most beneficiaries do not file appeals.

That scale matters. Even if only a small percentage of denials are later found to be inappropriate, thousands of people could face delays or barriers to care.

At the same time, many requests are approved, and some are approved quickly. The policy question is not whether prior authorization exists — but how it is implemented and overseen.

What CMS now requires of Medicare Advantage plans

The Centers for Medicare & Medicaid Services (CMS) clarified its expectations in a recent Medicare Advantage final rule. CMS stated that plans must follow Medicare coverage criteria when making prior authorization decisions. They cannot use proprietary or internal algorithms to create coverage standards that are more restrictive than Medicare’s rules.

In plain language: an internal computer model cannot legally override what Medicare says is covered.

CMS also emphasized that prior authorization policies must be transparent and reviewed annually. Decisions must be based on publicly available coverage criteria, and medical necessity determinations require appropriate clinical oversight.

This does not eliminate disputes. But it reinforces that automated tools are supposed to support — not replace — compliance with federal coverage rules.

New federal rules to speed up and track decisions

CMS also finalized an Interoperability and Prior Authorization rule that affects certain insurers, including Medicare Advantage plans. The rule requires electronic prior authorization systems and sets standards for response times.

Among the key provisions:

Electronic prior authorization processes to reduce paperwork and delays.
Required timeframes for decisions, including shorter timelines for urgent requests.
Public reporting of certain prior authorization metrics, increasing transparency.
Data-sharing requirements to improve communication between plans and providers.

For patients, the goal is fewer administrative delays and clearer tracking of requests. Whether these changes reduce inappropriate denials will depend on implementation and oversight.

If your care is denied: what you can do

If you are enrolled in Medicare Advantage and receive a denial, you have appeal rights. The process generally includes:

Requesting a reconsideration (internal appeal) from your health plan. You can submit additional medical documentation from your doctor.
If denied again, requesting review by an Independent Review Entity that is not part of your health plan.
Further levels of appeal, including an administrative law judge hearing, depending on the amount at stake.

If your doctor believes waiting could seriously harm your health, you can request an expedited appeal, which requires faster review.

Practical tips:

Ask for the denial reason in writing.
Request the specific coverage rule or criteria used.
Keep copies of medical records, test results, and prior approvals.
Ask your provider to submit a detailed explanation of medical necessity.

Many appeals succeed, especially when additional documentation clarifies why a service meets Medicare’s coverage criteria.

Access and equity concerns

Automation can improve efficiency, but it can also widen gaps if not carefully monitored.

Older adults, people with disabilities, and those with limited English proficiency or limited internet access may face extra barriers navigating electronic systems. If automated denials are not clearly explained, patients may not realize they can appeal.

Community clinics and caregivers often play a critical role in helping patients understand their rights. Transparency, clear notices, and human assistance remain essential — especially as digital systems expand.

The bottom line

Artificial intelligence and algorithms are increasingly used in health insurance administration, including Medicare Advantage prior authorization and claims review. Federal watchdog findings have shown that some denials may not align with Medicare coverage rules. In response, CMS has clarified that plans must follow Medicare standards and cannot rely solely on internal algorithms to restrict coverage.

New federal rules aim to make prior authorization more electronic, transparent, and timely. But oversight — and patient engagement — remain important.

If you receive a denial, it does not necessarily mean the care is uncovered. You have the right to understand the reason, to appeal, and to request expedited review when your health is at risk.

AI may help process paperwork. It does not replace your rights under Medicare.

Sources

This article is for general informational purposes only and is not medical advice. Research findings can be early, limited, or subject to change as new evidence emerges. For personal guidance, diagnosis, or treatment, consult a licensed clinician. For current outbreak or public health guidance, follow your local health department, the CDC, or another relevant public health authority.