New State Laws Put Limits on AI Use in Utilization Review and Insurance Decisions

Upcoming Utilization Review Restrictions in Light of Emerging Artificial Intelligence

State legislatures are increasingly addressing the role of artificial intelligence (AI) in healthcare, particularly within utilization review (UR) processes. Texas recently passed Senate Bill (SB) 815, which imposes stricter limits on AI use in UR and coverage decisions. California had already enacted similar legislation, signaling a growing trend toward regulating AI applications in insurance coverage determinations. These new rules will start affecting healthcare providers and insurers in Texas beginning January 1, 2026.

AI Software Use in Utilization Review

Insurers are adopting AI algorithms to speed up medical necessity determinations—the critical step where health plans approve or deny coverage for patient services. However, states like Texas and California emphasize the importance of human oversight. Under Texas law, automated decision systems cannot solely make adverse determinations, which include denials based on medical necessity, appropriateness, or whether a service is investigational.

The law distinguishes between AI used for decision-making and AI used for administrative tasks such as fraud detection. An AI system is defined as any machine learning system that generates content, predictions, or recommendations impacting decisions. Automated decision systems use data analytics to suggest or make judgments, but these cannot replace human review for adverse decisions.

When an adverse determination is made, the insured must be informed about the criteria and review methods behind the decision. Additionally, the use of AI in UR is subject to audits to verify compliance with the regulations under SB 815.

What This Means Going Forward

While AI promises faster decision-making, these restrictions may limit its impact on adverse determinations since human review remains mandatory. AI's role may be confined to administrative support and fraud detection, ensuring decisions are carefully reviewed before finalization.

Insurers in Texas must prepare for stringent oversight and possible audits of AI-assisted adverse determinations to avoid errors caused by technology. Other states are expected to follow California and Texas in introducing AI-focused insurance regulations.

For professionals in healthcare and insurance, staying informed about these evolving regulations is crucial. The balance between AI efficiency and human judgment is key to maintaining fair and accurate coverage decisions.

Stay updated on AI applications and compliance by exploring resources and courses on AI in healthcare and insurance at Complete AI Training.