A widening clash between the White House and statehouses is emerging over one of the most politically volatile uses of artificial intelligence: health insurance coverage decisions.
At the center of the dispute is whether states can impose guardrails on insurers’ use of AI to review prior authorization requests and deny claims, or whether federal policy will sweep those efforts aside. The debate, detailed in a recent KFF Health News report, is scrambling traditional partisan alignments and exposing deep bipartisan unease over algorithmic decision-making in health care.
President Donald Trump has positioned AI development as a matter of national competitiveness. A December executive order seeks to preempt most state AI regulation, warning that “excessive State regulation thwarts” U.S. leadership in a global technological race. The order proposes restricting federal funding or pursuing litigation against states that enact what it characterizes as overly burdensome rules.
Yet at the state level, lawmakers in both red and blue jurisdictions are moving in the opposite direction. According to the report, at least four states — Arizona, Maryland, Nebraska and Texas — enacted legislation last year limiting insurers’ use of AI. Illinois and California passed similar measures the year before. Rhode Island and North Carolina have also considered bills restricting AI’s role in coverage decisions.
The coalition is striking. Florida Gov. Ron DeSantis, a Republican, has rolled out an “AI Bill of Rights” that includes restrictions on AI in insurance claims processing and authorizes state regulators to inspect algorithms. DeSantis framed the issue in moral terms, arguing that the state has a responsibility to ensure AI develops in ways consistent with “American values”. In Maryland and other Democratic-led states, meanwhile, lawmakers have likewise sought to curb AI-driven denials.
The regulatory push is fueled by mounting public skepticism. A December Fox News poll found 63% of voters are “very” or “extremely” concerned about AI, with majorities of both Democrats and Republicans expressing qualms. At the same time, dissatisfaction with insurers’ prior authorization practices remains high, and investigative reporting by ProPublica and others has highlighted algorithms that rapidly deny requests with limited physician review.
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Health insurers have denied that advanced AI systems are used to automatically deny claims. Executives from Cigna and UnitedHealth Group, appearing before the House Ways and Means Committee, rejected the notion that AI drives denials. Industry representatives argue that AI can streamline approvals and reduce administrative burdens, with Optum recently promoting in a press release “tech-powered prior authorization” to accelerate decisions.
Still, medical groups have sided with state regulators. The American Medical Association supports greater accountability and transparency for AI tools used in prior authorization, citing ongoing problems such as opaque decisions and delayed care.
From a regulatory standpoint, the states’ authority is not absolute. As University of Minnesota law professor Daniel Schwarcz noted, states cannot regulate self-insured employer plans, which fall under federal jurisdiction. Moreover, many state bills require a human sign-off on AI-generated decisions but lack specificity about the depth of review required, raising enforcement questions.
Insurers warn that a patchwork of state mandates could increase compliance burdens and divert resources from patient care. Trade group AHIP, which represents insurance providers, has called for a “consistent, national approach” anchored in federal policy.
Legal scholars question whether the administration can unilaterally preempt state AI laws. Carmel Shachar of Harvard Law School suggested that preemption authority generally rests with Congress, which has previously declined to bar states from regulating AI. That sets the stage for potential litigation over federalism and separation of powers.
The result is a high-stakes standoff. For many state lawmakers, the choice is no longer between state and federal regulation, but between state oversight and regulatory vacuum. As one New York legislator put it, the question may be whether AI in health insurance is regulated at the state level “or not at all.”
For insurers and AI developers, the outcome will determine whether coverage algorithms remain largely self-governed or become subject to a new wave of state-imposed transparency, accountability and human review mandates, even as Washington signals its intent to clear the field.
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