How Insurance Claim Denials Harm Patients’ Health, Finances

When health insurance denies coverage for essential medications, the consequences can be severe. From formulary exclusions to step therapy hurdles, patients face barriers that often contradict clinical best practices. As policy changes aim to streamline prior authorization, patients and physicians must act quickly when faced with a denial.

Importantly, claim denials have increased 16% from 2018 to 2024, particularly for generic drugs like insulin and albuterol, according to insights by Arif Nathoo, CEO and cofounder of Komodo Health, in an interview with The American Journal of Managed Care^® (AJMC^®).

“It sounds very daunting, but the reality is that every time you go see your doctor, you generate this claim that’s reflective of the work that the doctor does for you, and that medical claim has a story to it,” said Nathoo.

The increase in insurance claim denials, particularly for pharmacy claims, can be attributed to several factors, including the rise of expensive new drug classes that offer significant benefits but come with high upfront costs, Nathoo explained to AJMC. Payers and pharmacy benefit managers have increasingly used mechanisms like prior authorizations and medical necessity requirements to control costs, particularly with medications that have long-term benefits but may not align with short-term financial goals.

This trend reflects a larger systemic challenge where insurers face pressure to balance cost savings with patient care, often leading to higher rejection rates for necessary treatments.

Insurance claim denials and appeals in Affordable Care Act Marketplace plans are especially relevant given the significant impact these denials have on patients’ access to care. In 2023, 20% of all claims for qualified health plans on HealthCare.gov were denied, with notable variation across insurers and states, according to KFF.¹ Despite these high denial rates, patients rarely appeal these decisions, which underscores the need for increased transparency and advocacy to improve patient access to treatments.

Impact of Insurance Claim Denials on Patient Care

Insurance claim denials can significantly impact patient care in several ways, ranging from clinical to financial and mental effects, explained Christopher Gold, DO, an internal medicine physician at Mount Sinai, New York, in an interview with AJMC. Clinically, denials can cause delays in starting or continuing essential treatments, such as insulin for diabetes or inhalers for asthma. These disruptions often lead to suboptimal management of medical conditions, exacerbating symptoms and potentially causing avoidable complications.

“The idea behind the denials and the prioritization is to lower costs in the short-term, but sometimes treatment delays or lapses can potentially increase costs with preventable complications, emergency, and more frequent primary care office visits,” Gold said.

Real-World Consequences for Patients, Providers

The real-world consequences of insurance claim denials extend far beyond administrative challenges, affecting both patients and providers in significant ways. For patients, denials or delays in medications can lead to increased symptoms, avoidable complications, and disruptions in continuity of care, especially when they are forced to try new medications or deal with medication changes due to cost issues, Gold told AJMC.

For providers, the administrative burden of dealing with insurance prioritization processes and forms takes valuable time away from direct patient care. This strain can delay timely medication adjustments, exacerbate patient symptoms, and create a sense of frustration for both the health care team and the patient.

“If we’re doing a lot of administrative stuff with prioritizations, forms, and whatnot, it takes away valuable time with patients that we would otherwise prefer to be doing—having positive interactions with patient care, talking about their underlying issues and their concerns, [and] discussing how to manage it properly,” said Gold. “Having to go through all the paperwork, it increases the strain on health care.”

Additionally, these delays can erode the trust in the patient-provider relationship, as patients may incorrectly perceive the provider as the cause of the delays, when in fact the issue lies within the insurance processes.

Common Reasons for Denials and Alignment With Clinical Best Practices

Insurance claim denials are often caused by a variety of factors, as outlined in the KFF analysis of CMS data.¹ Denials can occur when an enrollee has reached their benefit limit, is not covered at the time of service, or when the procedure is deemed investigational, experimental, or cosmetic. In 2023, the most frequent denial reason for in-network claims was related to "other" reasons (34%), followed by administrative issues (18%) and exclusions (16%).

Common reasons for insurance claim denials, such as formulary exclusions, step therapy requirements, and medical necessity claims, often do not align with clinical best practices, Gold told AJMC. For example, formulary exclusions may involve the denial of well-established first-line medications that could be more effective or easier for patients to manage. Step therapy, or "fail first" policies, may require patients to try cheaper medications before moving on to the prescribed treatment, even when a more costly medication is clinically appropriate.

“There are side effects and interactions with foods and other medications, so there is a potential for changing doses more frequently as we’re trying to continue to stay in that therapeutic level,” said Gold. “This can be confusing for patients, especially older patients who have trouble [managing] the medications already.”

Claims based on medical necessity may rely on standardized criteria that overlook the complexity of a patient’s medical history or previous treatment outcomes, explained Gold. Preferred medications may be excluded in favor of older alternatives which may have higher risks of complications and require more frequent monitoring.

"There's a lot of research to suggest that not all of these switches are in the best interest of the patient," Nathoo explained. "They're in the best interest of the pocketbook, but definitely not necessary for the patient. And so, the question for us is always, 'When we see that happening at scale, can we actually trace the outcomes and see whether these patients are are having better morbidity or mortality effects, or are they having worse ones as a result of the switch?'"

Overall, insurance claim denials often create significant burdens for patients and physicians. It is crucial that policy makers and insurers not only understand the real-world consequences of these denials, but also encourage policy changes and advocacy efforts aimed at streamlining insurance claim processes for patients in need of treatment and care.

Reference

1. Lo J, Long M, Wallace R, et al. Claims denials and appeals in ACA Marketplace plans in 2023. KFF. January 27, 2025. Accessed February 24, 2025. https://www.kff.org/private-insurance/issue-brief/claims-denials-and-appeals-in-aca-marketplace-plans-in-2023/