There is a growing conflict between the White House and state legislatures over health insurance coverage decisions, one of the most politically volatile uses of artificial intelligence.
The debate centers on whether states can impose guardrails on insurers’ use of AI to review prior authorization applications and deny claims, or whether federal policy will wipe out such efforts. For more information on this discussion, see Recent KFF Health News Reportsdisrupts traditional partisan alignment and exposes deep bipartisan misgivings about algorithmic decision-making in health care.
President Donald Trump has positioned AI development as an issue for national competitiveness. A December executive order aims to pre-empt most state AI regulations, warning that “excessive state regulation will impede U.S. leadership in global technology competition.” The order proposes filing lawsuits against states that limit federal funding or enact overly burdensome rules.
But at the state level, lawmakers in both red and blue jurisdictions are moving in the opposite direction. At least four states – Arizona, Maryland, Nebraska and Texas – have enacted legislation in the last year restricting the use of AI by insurance companies, according to the report. Illinois and California passed similar laws the previous year. Rhode Island and North Carolina are also considering bills that would limit the role of AI in determining coverage.
The coalition is amazing. Florida Governor Ron DeSantis (R) has rolled out an AI Bill of Rights that includes limits on AI in claims processing and gives state regulators the power to inspect algorithms. DeSantis framed the issue in moral terms, arguing that states have a responsibility to ensure that AI develops in a manner consistent with “American values.” Meanwhile, lawmakers in Maryland and other Democratic-led states are similarly trying to rein in AI deniability.
The move to tighten regulations has been accelerated by growing public suspicion. A December Fox News poll found that 63% of voters were “very” or “extremely” concerned about AI, with a majority of Democrats and Republicans expressing concern. At the same time, dissatisfaction with insurers’ pre-authorization practices remains high, and investigations report Written by ProPublica and others highlighted an algorithm that quickly denies requests with limited physician review.
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Health insurance companies have denied that advanced AI systems are used to automatically deny claims. Executives from Cigna and UnitedHealth Group appeared before the House Ways and Means Committee to deny the idea that AI would facilitate deniability. Industry representatives argue that AI will streamline approvals and reduce administrative burden, and Optum recently press release “Technology-enabled pre-approval” speeds up decision-making.
Still, medical groups are siding with state regulators. The American Medical Association supports increased accountability and transparency in AI tools used for prior authorizations, citing ongoing problems such as opaque decisions and delays in treatment.
From a regulatory perspective, state authority is not absolute. As University of Minnesota law professor Daniel Schwartz pointed out, states cannot regulate employer self-insurance plans, which fall under federal jurisdiction. Additionally, many state bills require human approval of AI-generated decisions, but lack specificity about the depth of review required, raising enforcement questions.
Insurers have warned that the patchwork of state mandates could increase compliance burdens and divert resources from patient care. AHIP, an industry group representing insurance companies, called for a “consistent national approach” based on federal policy.
Legal scholars question whether the administration can unilaterally preempt state AI laws. Carmel Shachar of Harvard Law School suggested that preemption power generally resides with Congress, which has so far refused to prohibit states from regulating AI. This sets the stage for potential litigation over federalism and separation of powers.
The result is a high-stakes conflict. For many state legislators, the choice is no longer between state regulation and federal regulation, but between state oversight and a regulatory vacuum. As one New York state lawmaker put it, the question may be whether AI in health insurance will be regulated at the state level, or not at all.
For insurers and AI developers, the outcome will determine whether insurance coverage algorithms remain largely self-governed, despite Washington’s signaled intent to eliminate the sector, or whether they become subject to a new wave of state-imposed transparency, accountability, and human review requirements.
