What Insurers’ Prior Authorization Pledge Means for Employers

Some of the largest U.S. health insurers said they will make big changes to the complicated and often-criticized prior authorization process — a pledge that could have a widespread impact on insurers, patients, and employers.

Prior authorizations, a process that requires medical providers to get approval from a patient’s health insurance plan for certain medical procedures, tests, or prescription drugs, often delay care and frustrate patients, many critics say. But AHIP, a Washington, D.C.-based health insurance industry organization, on June 23 announced commitments are being implemented across insurance markets, including for those with commercial coverage, Medicare Advantage, and Medicaid managed care consistent with state and federal regulations, to streamline and reduce prior authorizations. The commitments will impact roughly 257 million Americans, AHIP said.

“The health care system remains fragmented and burdened by outdated manual processes, resulting in frustration for patients and providers alike,” said AHIP President and CEO Mike Tuffin. “Health plans are making voluntary commitments to deliver a more seamless patient experience and enable providers to focus on patient care, while also helping to modernize the system.”

In the AHIP statement, insurers including multiple Blue Cross and Blue Shield companies, Humana, Kaiser Permanente, and UnitedHealthcare said they would:

• Standardize electronic prior authorization.
• Reduce the scope of claims subject to prior authorization by Jan. 1, 2026.
• Honor existing authorizations while patients are switching to another insurance plan.
• Enhance communication and transparency about prior authorization determinations by Jan. 1, 2026.
• Ensure that at least 80% of electronic prior authorization approvals (with all needed clinical documentation) will be answered in real time by 2027.
• Ensure that medical professionals review all denials for clinical care and services.

Improving Satisfaction, Reducing Burdens

If implemented correctly, those moves “can result in higher patient/employee and provider satisfaction,” said Dr. Sadhna Paralkar, senior vice president and national medical director at HR consulting firm Segal in Chicago. “It will help patients navigate the system better and will reduce administrative burden on the providers.”  

For employers that provide health benefits for employees, the impact could also be substantial — with both upsides and a couple of downsides.

Overall, expediting and reducing prior authorizations would positively impact employers by cutting time spent on appeals and administrative work, as well as potentially leading to a healthier workforce, said Alan Cohen, co-founder and chief product officer at Centivo, a health plan for self-funded employers based in Buffalo, N.Y.

“Prior authorization processes often lead to delayed care,” he said. “If employees receive care in a more timely manner, they will receive the treatment they need more quickly, improving their health and potentially reducing absenteeism.”

The changes should reduce the number of appeals employers will have to deal with and the amount of time dedicated to addressing the appeals, Paralkar said. 

In addition to streamlining the process and reducing the administrative toll on providers, the move will ease burdens on employers managing benefits, Cohen added.

Will Pledge Lead to Higher Costs?

Although the prior authorization changes could be positive, they could also raise health care costs, which are already a pain point for organizations. Employers often rely on tactics such as prior authorization to hold down costs for pricey drugs, treatments, and procedures. For instance, many employers are implementing prior authorization requirements for GLP-1 drugs, along with other utilization management tools such as step therapy and eligibility requirements, to control the expensive yet popular drugs.  

Reducing prior authorization could also increase care utilization in general, which has the potential to drive up costs.

Cost increases for employers could be significant if prior authorization was eliminated entirely on pharmacy benefits, said Nick Conway, president of Rx Solutions at NFP, a global benefits consultant and property and casualty insurance broker in Chesterfield, Mo.

“If prior authorizations are eliminated on pharmacy benefits, there would be a rapid and dramatic increase to the cost of the U.S. health care system,” he said. “The use of lower-cost generics would be replaced at a rising rate over time by higher-cost branded therapeutics,” as providers and patients may default to branded drugs that are perceived as more effective, even when effective generics are available.

That would result in an “unsustainable increase in prescription costs for employers” and potentially the “reduction in coverage and benefits if an alternative utilization management methodology was not made available to employers,” Conway said.

He noted that pharmacy benefit managers have already been expediting prior authorizations through electronic or digital submissions for approval of prescription medications — what he calls “a progressive, positive step” that enables patients to quickly get their medication approved.  

On the flip side, Paralkar said, there is the potential that insurers could reduce their administrative costs because of fewer prior authorizations, and they could pass on those savings to employers.

Steps Employers Should Take

Although moves to taper prior authorization can be helpful, experts cautioned that employers still need to be aware and make sure they are doing their own due diligence when it comes to looking at claims and trying to hold down health costs.

“Employers should be lobbying to improve the U.S. health care infrastructure but not completely walk away from the cost management and safety tools that currently exist,” Conway said. He added that prior authorization for prescription medications in particular can help ensure that patients don’t have unsafe drug interactions or use unnecessary drugs with potentially dangerous side effects.

Paralkar agreed that eliminating all prior authorizations could result in abuse in the system, saying there is a “known positive correlation between health care fraud and no oversight.”

“Before prior authorization suspensions are considered for certain treatment codes, a medical necessity requirement should be put in place,” she said. “I also believe that a gold carding approach, where qualified physicians are exempt from prior authorization requests, is a preferred way to reform.”

Experts said that employers should embrace the changes coming from insurers on prior authorizations but should work with their health care partners to make sure they are still looking at claims and spot trends.  

“Employers should regularly ask for reports on prior authorizations and carefully review for any fraud and abuse in their claims — and hold their health plan partners accountable,” Paralkar said.