A recent report from KFF Health News highlights the ongoing conflict between state officials and the federal government over the regulation of AI in the health insurance industry. Traditional partisan lines are being blurred as states—regardless of political affiliation—move to restrict how insurers use AI, while the Trump administration pushes for a deregulated environment to maintain American technological dominance.
The Push for Deregulation
President Trump argues that domestic companies must be free to innovate without the burden of state regulations. To enforce this vision, a December executive order seeks to preempt state-level AI governance, even threatening to sue or withhold federal funding from states that implement restrictions. This federal stance treats AI as a tool for efficiency, exemplified by a Medicare pilot program that uses AI for prior authorization.
The State-Level “Revolt”
In contrast to the federal approach, many states are enacting their own guardrails. Arizona, Maryland, Nebraska, Texas, Illinois and California have all passed various forms of legislation to rein in AI’s role in health insurance. This has created a rare alliance between conservative leaders like Florida Governor Ron DeSantis—who introduced an “AI Bill of Rights”—and Democratic-led governments like Maryland’s.
State legislators argue that insurance decisions are already difficult to understand and adding opaque algorithms only worsens the problem for patients. Common state requirements include:
-
Mandating human sign-offs on AI-suggested denials.
-
Prohibiting AI from being the sole basis for a coverage decision.
-
Requiring transparency and data collection on how technology is used.
Public and Professional Concerns
The drive for regulation is fueled by widespread public skepticism. Polls indicate that over 60% of voters across the political spectrum are concerned about AI. Furthermore, medical professionals, represented by groups like the American Medical Association (AMA), are cheering for state intervention. Doctors report that insurers use AI to rapidly deny claims and prior authorization requests, often without meaningful medical review, leading to delayed patient care and increased administrative burdens.
Industry Pushback and Legal Hurdles
Health insurance companies and their trade groups argue that individual sets of of state laws create a regulatory burden. They claim AI is intended to reduce friction and speed up approvals, not just generate denials. They advocate for a unified federal framework rather than individual state mandates.
However, the legal path for the Trump administration’s preemption effort is murky. Legal experts suggest the executive order may be unconstitutional because the authority to preempt state law generally resides with Congress—which has twice declined to pass legislation barring states from regulating AI.
Learn more from KFF Health News
Author
