Legal Scrutiny Mounts Over Health Insurers’ Use of Algorithms in Claims Denials

Legal Scrutiny Mounts Over Health Insurers’ Use of Algorithms in Claims Denials

According to a Bloomberg Law article, a growing wave of litigation targeting the use of algorithms and artificial intelligence in health insurance claims processing is heightening legal risks for private insurers and employers. 

While plaintiffs face significant evidentiary hurdles, courts increasingly allow cases to proceed, signaling that automation tools, even those not technically considered AI, may expose insurers to liability if used to deny medically necessary services.

The article highlights a recent decision by a California federal judge in Kisting-Leung v. Cigna Corp. that illustrates the stakes. The court allowed part of a class action to move forward, despite dismissing claims from three of six plaintiffs who failed to prove that Cigna’s PxDx tool was used on their claims. The case cites ProPublica reporting that PxDx denied over 300,000 claims in just two months, showing how little is known about such tools and how difficult it can be for plaintiffs to substantiate their use. Yet the court’s partial green light underscores a growing judicial willingness to scrutinize automation in benefits determinations.

These cases unfold against a broader backdrop of mounting patient frustration and regulatory scrutiny. Lawsuits challenge algorithmic practices under a patchwork of federal and state statutes, including the Employee Retirement Income Security Act (ERISA), the Medicare Act, and various civil rights laws. While federal statutes often preempt state law claims, recent rulings show that some state laws may survive under exceptions like ERISA’s savings clause. Meanwhile, state legislatures in California, Colorado, and Utah are enacting new laws to govern automated decision-making in health care.

For managing partners, the use of algorithms, even relatively simple rule-based systems, carries increasing litigation and compliance risks. Law firms advising insurers and employers should prepare for intensified regulatory oversight and litigation strategies that probe deeply into automated systems. Transparency, documentation, and legal alignment of technology use will be essential going forward.