Denial Rates Surge: How the AI Arms Race in Insurance Is Impacting Patients and Providers

by Michael N.Brown

In the relentless pursuit of efficiency, insurance companies are embracing Artificial Intelligence (AI) and automation to process claims faster and reduce costs. However, this technological arms race has led to a significant downside: a dramatic increase in claim denials. Instead of improving access to care, these AI systems are driving up rejection rates, burdening patients, and squeezing healthcare providers.

Rising Denial Rates: A Growing Crisis

Recent data underscores the alarming trend:

1. UnitedHealthcare has led the way with a staggering 33% claim denial rate—up from previous years¹.
2. Cigna, Aetna, and Anthem Blue Cross Blue Shield are not far behind, with denial rates ranging between 17% and 30%, depending on the plan and region².
3. According to the American Hospital Association (AHA), claim denials have increased by more than 20% over the last five years³.

The driving force? Increasing reliance on AI-driven automation to review claims, which often prioritize speed and cost reduction over accuracy and fairness.

The Role of AI in the Denial Surge

Insurance companies have invested heavily in AI technology to streamline the claims process. These systems are designed to identify patterns, flag potential fraud, and process large volumes of claims quickly. However, the limitations of AI in handling nuanced medical cases have become clear:

1. Algorithm Bias: AI systems can be biased based on the data they are trained on, leading to incorrect denials for complex conditions or treatments that fall outside standard patterns⁴.
2. Lack of Context: Automation struggles with medical claims that require contextual judgment. Subtle variations in diagnoses or treatments often lead to unjustified denials⁵.
3. Cost-Cutting Incentives: Insurers are incentivized to reduce payouts. Faster automated processing can result in denials by default, requiring providers and patients to appeal—a process that many cannot navigate effectively⁶.

Impact on Patients and Providers

The fallout from this AI-driven denial surge is severe:

1. Patients Face Higher Out-of-Pocket Costs: Denied claims often translate into unexpected medical bills, exacerbating the medical debt crisis. The Consumer Financial Protection Bureau (CFPB) reports that medical debt affects over 100 million Americans.
2. Delayed Care: Patients may postpone or forego necessary treatments due to the fear of uncovered costs, worsening health outcomes.
3. Administrative Burden on Providers: Hospitals, clinics, and doctors spend countless hours appealing denied claims. A 2022 MGMA (Medical Group Management Association) survey found that 69% of medical groups reported increased denials as a top revenue cycle challenge.

The AI Arms Race: What’s Driving It?

Insurance companies are locked in a technological arms race to enhance their bottom line. AI promises faster processing, fraud detection, and cost containment. As one insurer advances its AI capabilities, competitors rush to keep up, often at the expense of patients and providers. This race for efficiency can turn AI into a blunt instrument rather than a tool for equitable care.

Balancing Technology with Human Oversight

While AI can streamline processes, it cannot replace the judgment and empathy of human experts. The healthcare system needs to balance automation with strategic human oversight. Steps to achieve this include:

1. Transparent AI Practices: Insurers must disclose how their AI systems process claims and why denials occur.
2. Improved Appeal Processes: Simplifying the appeals process and ensuring timely reviews by human experts can mitigate wrongful denials.
3. Regulatory Oversight: Stronger regulations to ensure fair AI practices and protect patients from arbitrary denials.
4. Investment in Human Capital: Training billing professionals to work alongside AI can bridge the gap between technology and nuanced decision-making.

Conclusion: In Healthcare, Technology Should Serve the Patient, Not Just the Bottom Line

The AI arms race in insurance is a double-edged sword. While automation has the potential to make claims processing more efficient, rising denial rates reveal its shortcomings. If insurers don’t balance AI with human judgment, patients will continue to pay the price.

In a system meant to prioritize health, technology should serve patients, not hinder them. Bridging the gap between automation and human expertise is the only path to fair and just healthcare.

Footnotes

1. Forbes “UnitedHealthcare Denies More Claims Than Other Insurers — Angering Patients and Health Systems.” forbes.com.
2. U.S. News & World Report. “How Often Do Health Insurers Deny Patient Claims?” usnews.com.
3. American Hospital Association. “Payer Denial Tactics: How to Confront a $20 Billion Problem.” aha.org.
4. Consumer Financial Protection Bureau. “Medical Debt Burden in the United States.” consumerfinance.gov.
5. Kaiser Health News. “Denied Claims Lead to Delayed Treatments and Poor Outcomes.” khn.org.
6. MGMA. “2022 Survey: Denials Management a Growing Challenge.” mgma.com.