Prior authorization pledge seen as negligible to insurer finances

Modern Healthcare – Tuesday, June 24, 2025
By Nona Tepper

The health insurance industry’s promise to cut red tape for providers and patients isn’t likely to cost them very much, financial analysts said.

Wall Street, which has hammered companies such as UnitedHealth Group in recent months over lackluster earnings, reacted with a shrug. That suggests investors don’t expect the new practices insurers pledged to adopt will significantly increase spending on medical care, even if they help repair contentious relationships with providers and members.

“It will have very little financial impact. It’s an operational change. Hopefully, it makes things go faster and it’s easier for providers. But this hardly sounds transformational to the practice of medicine in America,” said Ari Gottlieb, an independent healthcare consultant.

The insurance groups AHIP and the Blue Cross and Blue Shield Association and 48 companies announced a plan Monday to ease the prior authorization burden amid negative publicity and scrutiny from Congress, federal regulators and state legislatures.

Over the course of 2026 and 2027, insurers including UnitedHealth Group subsidiary UnitedHealthcare, CVS Health subsidiary Aetna and Cigna intend to eliminate many prior authorization requirements, accelerate response times, adopt standard electronic tools for processing requests and claims, and improve communication about denials.

Although the industry groups unveiled the initiative Monday, the Wall Street Journal first reported on it Friday and Bloomberg News confirmed the plan the following day.

When the New York Stock Exchange opened Monday, shares for publicly traded insurers were up a collective 0.1% from Friday’s closing prices.

The plan represents a nice headline for an industry that has faced fury over claims denials since the fatal shooting of UnitedHealthcare CEO Brian Thompson in December — and for President Donald Trump’s administration, said Robert Blendon, professor emeritus at the Harvard University School of Public Health.

“Given the backlash over denials, it’s in the interest of the administration to find some way to deal with this issue so they can move on. It will relieve the need of the administration to have some sort of legislation,” Blendon said.

‘Violence in the streets’

Health and Human Services Secretary Robert F. Kennedy Jr. and Centers for Medicare and Medicaid Services Administrator Dr. Mehmet Oz touted the announcement at a news conference Monday, where they highlighted their work with insurance and provider groups to secure the agreement.

“There’s violence in the streets over these issues,” Oz said. “Americans are upset about it.”

Prior authorization is often referred to as a necessary evil that insurance companies use to constrain costs and ensure patients receive appropriate care.

Providers and policyholders are inclined to view prior authorization as insurance companies second-guessing clinical decisions and patient preferences.

The bureaucratic nature of the practice has always frustrated providers, who contend insurers have introduced more and more friction into the system in recent years to boost profit margins. Watchdogs such as the Health and Human Services Office of the Inspector General have conducted investigations that support this notion.

These complaints appear to conflict with financial conditions in the health insurance sector, where narrow margins are the norm, said Brad Ellis, a senior director at Fitch Ratings.

“It’s not like these insurance companies are just stacking up profits. They’re just trying to hold down costs, and therefore the premiums of insured people,” Ellis said.

Consequently, Ellis said, any additional spending arising from health plans approving more care would simply be passed on to members in the form of higher premiums.

Upgrading technology

The technological elements of the insurance industry plan may prove the most meaningful.

By 2027, insurers say they will adopt Fast Healthcare Interoperability Resources, or FHIR, for processing transactions. This builds on broader efforts to promote interoperability in the sector.

Health insurance companies often use different workflows for exchanging patient health information and processing billing requests, said Wes Sanders, founder of Evensun Consulting, which advises insurers on technology.

“As long as there’s not a standard, it’s really hard to do consistent electronic prior auth,” Sanders said.

Just 35% of insurers processed prior authorization requests electronically in 2024, according to survey findings the industry-backed Council for Affordable Quality Healthcare published last year. Shifting to fully electronic processes would save at least $515 million annually, the group estimates.

Providers can find it difficult to keep track of a mixture of electronic processes, telephone calls and faxes, which contributes to errors in prior authorization requests that delay care, Sanders said.

“Most carriers have some kind of portal. But that becomes a real pain if you’re a provider because you’re having to go into 10 different portals, all with different login rules,” Sanders said.

The health insurance sector was already moving toward interoperable electronic prior authorizations, in part because of a CMS rule finalized last year. Under that regulation, insurers participating in programs such as Medicare and Medicaid must implement FHIR by 2027.

CMS oversight

Although the prior authorizations agreement is mostly voluntary, some current and pending CMS regulations apply similar limits to the process, and Congress may include legislation restricting prior authorizations in the One Big Beautiful Bill Act of 2025.

Moreover, Oz said the agency and AHIP will create a public dashboard to track insurance company compliance with their promises. The tool will include information on what billing codes no longer require preapproval, how timely responses are and whether companies are using standardized technology, he said.

“If the insurance industry cannot address the needs of preauthorization by themselves, there are government opportunities to get involved. They might not be as nimble, but they will be used if we are forced to use them,” Oz said.

Oz acknowledged that insurers have not always followed through on similar pledges in the past.

In 2018, for example, AHIP, the Blue Cross Blue Shield Association, the American Hospital Association, the American Medical Association, the Medical Group Management Association and the American Pharmacists Association produced a “consensus statement” on how to make the process less burdensome. Providers weren’t satisfied with the results.

And in the past several years, insurers attempted to appease providers and members by reducing prior authorizations and automating more approvals. Providers say improvement has been minimal.

This time will be different, Oz said, because of the number of insurers participating, the prevailing negative public sentiment and the commitment to interoperability.

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