Medicare Insurers Blocked From Using AI Alone to Decide Coverage Under New Federal Rules

Federal Guidelines Restrict AI Use in Medicare Advantage Coverage Decisions

The Centers for Medicare and Medicaid Services (CMS) has issued new rules limiting how health insurers can use artificial intelligence (AI) to make coverage decisions for Medicare Advantage (MA) patients. These guidelines emphasize that AI cannot be the sole factor in determining patient care or coverage eligibility.

The CMS defines AI as a machine-based system that makes predictions, recommendations, or decisions based on human-defined objectives. Importantly, insurers are warned against relying on algorithms that prioritize broad data sets over individual patient medical histories, physician recommendations, or clinical notes.

Insurer Responsibilities and Patient Protections

According to the policy memo released on February 6, AI tools may assist Medicare Advantage plans in coverage decisions, but the organizations must ensure compliance with all applicable rules. Specifically, for inpatient admissions, AI alone cannot justify denying admission or reclassifying a stay. Each patient's unique circumstances must be considered beyond algorithmic outputs.

These protections come amid legal challenges. In November, two Medicare Advantage patients filed a lawsuit against Humana, alleging that the insurer’s AI model—called nH Predict—overrode physician recommendations and disproportionately harmed elderly beneficiaries. A similar suit targeted UnitedHealth’s use of the same AI model.

Concerns Over AI Bias and Regulatory Scrutiny

Medical and insurance sectors have explored AI to improve plan selection, predict health outcomes, and streamline payments. However, concerns about bias and inconsistency have led to calls for closer oversight.

The CMS memo highlights these risks, reminding Medicare Advantage organizations of their obligations under Section 1557 of the Affordable Care Act, which prohibits discrimination based on race, color, national origin, sex, age, or disability. Insurers must ensure AI tools do not perpetuate or introduce new biases.

Congressional Attention and Industry Impact

In late 2023, members of the House of Representatives urged the CMS to monitor AI’s role in Medicare Advantage, citing ongoing problems with prior authorization processes. They pointed out that AI and algorithmic tools have exacerbated these challenges.

Key points from the congressional letter include:

• Medicare Advantage plans must provide medically necessary care to enrollees.
• More oversight is needed to prevent inappropriate use of prior authorization, especially when AI tools are involved.

For insurance professionals, these developments underscore the need to balance technological innovation with regulatory compliance and patient-centered care. Ensuring transparency and fairness in AI-assisted decisions will remain critical as these tools become more common.

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