Why do so many Americans get their health care claims denied?

Many Americans are struggling to pay their medical bills due to inadequate health insurance coverage or claim denials at the hands of private insurers.

After the fatal shooting of UnitedHealthcare CEO Brian Thompson earlier this month, many people took to social media to express their anger with the country’s health care system and shared stories about how insurers have denied coverage of life-saving medications and emergency surgeries. 

Insurers deny between 10% and 20% of health care claims they receive, although government data is limited, ProPublica reported in 2023. 

About 1 in 5 adults said their insurer denied a claim in the past year, according to a separate 2023 report from KFF, a nonprofit health research organization. Out of adults who use health care the most, more than 1 in 4 had claims denied. 

“Health insurers are at the center of the system, deciding how medicine’s practiced, what’s covered, what’s not covered, what a standardized blueprint treatment looks like,” said Christy Ford Chapin, an associate professor of history at the University of Maryland, Baltimore County and author of the book “Ensuring America’s Health.” 

People are frustrated that the insurers make key health care decisions – not the patients or the doctors, Chapin said. 

Why health care claims are denied

One way insurers manage costs is by denying claims, said Timothy McBride, co-director of the Center for Advancing Health Services, Policy & Economics Research at Washington University in St. Louis. 

There are a variety of reasons your claim wasn’t approved: it might not be covered by your insurance in the first place, it’s not considered medically necessary, you needed to get prior authorization or your physician wasn’t in the insurer’s network, McBride said. 

Private, for-profit insurers are now focusing on denying claims in order to make profits following the passage of the Affordable Care Act, or Obamacare, said Beatrix Hoffman, a history professor at Northern Illinois University and author of the book “Health Care for Some.” 

That’s because prior to the ACA, health insurance companies could simply refuse to cover you if you had a pre-existing condition, Hoffman said. The ACA can neither refuse coverage nor charge you more if you have health problems. 

Plaintiffs filed separate lawsuits against UnitedHealth and Humana last year for allegedly using faulty AI tools to deny coverage to elderly patients. 

The “unfortunate incident” with the UnitedHealthcare CEO has elicited “a lot of pent-up anger” toward our health insurance system, which has become increasingly privatized, McBride said. 

More than half of Medicare beneficiaries are enrolled in Medicare Advantage plans, which are private health insurance plans funded by the government. 

“Even if you’re in a public program now, you’re likely to have private insurance,” McBride said.

Insurance companies have codes associated with a specific drug or procedure, which they use to determine if they’ll grant prior authorization, but these codes aren’t standardized across insurers. 

“We’re not being well served by having each individual insurer have their own 5,000 set of codes,” said David Cutler, a health economist at Harvard University.  “Every insurer is allowed to have a different prior authorization system for, say, routine drugs, routine anti-hypertensives or something like that.”

All insurers should have to provide a response within a certain timeframe so patients and physicians aren’t left waiting, Cutler said. Having standardized codes could also prevent insurers from cheating their patients, Cutler said.  They wouldn’t be able to deny patients procedures and drugs they should be covering. 

If you are ever denied a claim, you do have a right to appeal, according to Healthcare.gov. You can file an appeal with your insurance company or with an independent third party.

How we got here 

Following World War II, President Harry Truman endorsed a universal health care system, but it drew backlash from the American Medical Association, which dubbed it “socialized medicine.” It never got off the ground.

In the early 20th century, a variety of health care models existed in the U.S. They were run by consumer groups, trade unions and African American mutual aid societies, Chapin said. 

The pre-paid doctor group, supported by progressives and customers, was one popular model. Instead of going to a general practitioner, then the cardiologist, then the orthopedist, imagine you could access all these doctors in one place, Chapin said. 

“They were also the insurers. You paid your monthly or quarterly fee, not to an insurance company, but to that group,” Chapin said. 

But physicians who participated in this model could have their licenses taken away by the American Medical Association, which had much more power back then, Chapin said. 

The AMA feared that doctor groups and insurance “would invariably usher in corporate domination of health care followed by government control,” Chapin wrote in her book “Ensuring America’s Health.”

Large corporations rose during the end of the 19th century and the 20th century, threatening the independence of medical practitioners, Chapin explained. “Doctors didn’t want to get stuck working in a corporate hierarchy, with non-physicians calling the shots,” she said. 

But the AMA made compromises during the Great Depression and agreed to insurance that would only be available to low-income families. In 1938, it invented the private insurance company model that we still use today. One key feature of that model is it requires insurers to pay physicians for each service they render.

“They devised the model because they came under so much political pressure during the Great Depression.  There was so much talk of reforming health care since it was obvious low-hanging fruit as New Deal reforms were being passed,” Chapin said.

A health care paradox: Millions of Americans struggle, yet spending is high

Physicians get a fee if you go to the doctor’s office, another fee for giving you a shot and another fee for running your labs, Chapin said. It’s understandable that they end up running up patient bills because they might think they’re just providing “gold-standard treatment” for patients like they would with any family member, Chapin said. 

Or they may feel like they’re being shortchanged in compensation if they have, for example, Medicaid patients, she added. Medicaid payment rates tend to be lower than other forms of insurance. 

“They are acting rationally for the incentives they’re given. They’re acting in a way anybody would act in their position,” Chapin said. 

But this model encourages overspending. Having a pre-paid doctor group prevents their ability to run up the bill because they would have to pay for any labs or procedures out of their own pocket. But because physicians earn a set salary under this model and a portion of the group’s profits, they won’t want to ration care either. 

“They’re there in the room with the patient. That’s where you want decisions made. You don’t want them made at some corporation headquartered many states away,” Chapin said. 

Our health care system excludes people, yet at the same time, we have the most expensive health care system in the world, Hoffman pointed out. 

In 2022, health expenditures amounted to 16.6% of U.S. GDP. But other wealthy countries spent an average of 11.2% of their GDP, according to a health system tracker from the Peterson Center on Healthcare and KFF. 

“People always say, ‘Well, we can’t afford to cover everybody.’ But, in fact, we can’t afford not to cover everybody,” Hoffman said. 

Universal health care, which would provide health care to everyone, would actually be cheaper because everyone would be paying into the system, Hoffman said. The government could also negotiate drug prices with providers. (Medicare can currently only directly negotiate prices with drugmakers for 10 drugs.) 

“Countries with universal systems have the power to negotiate with pharmaceutical companies and get more reasonable prices for their people,” Hoffman said. 

A universal health care system funded by one entity, in what’s known as a single-payer system, could lead to 13% in savings, or more than $450 billion a year, according to a paper published in the medical journal The Lancet.

“We have to take the profit motive out of health care. It shouldn’t have entered it in the first place,” Hoffman said.