California Enacts SB 1120 to Rein in AI-Powered Health Insurance Decisions
California has taken a groundbreaking step in regulating the role of artificial intelligence (AI) in health insurance decision-making. Senate Bill 1120 (SB 1120), also known as the “Physicians Make Decisions Act,” prohibits health insurers from denying, delaying, or altering claims solely based on AI algorithms. Signed into law by Governor Gavin Newsom, this legislation ensures human oversight in healthcare coverage decisions, addressing mounting public concerns about fairness and accuracy in the use of AI technologies.
Effective as of January 1, 2024, the law was designed to protect patients’ access to medically necessary treatments and prevent wrongful claim denials resulting from the misuse of AI in the insurance industry. With 26% of Californians’ insurance claims denied in 2024, many of these outcomes prompted widespread scrutiny of how insurers rely on data-driven tools to make critical choices.
Understanding SB 1120’s Key Provisions
Mandating Human Oversight in Health Decisions
SB 1120 establishes that coverage decisions based on “medical necessity” must be supervised and determined by a licensed physician or qualified healthcare professional. While AI algorithms can be used to assist in decision-making, they cannot be the sole authority on approving or denying claims. This provision ensures a clinical judgment rooted in individual patient needs remains central to the process.
“An algorithm cannot fully understand a patient’s unique medical history or needs, and its misuse can lead to devastating consequences,” Becker said. “This law ensures that human oversight remains at the heart of health care decisions, safeguarding Californians’ access to the quality care they deserve.”
Tightening Timelines for Insurance Decisions
The law imposes specific deadlines to ensure timely resolutions:
- Standard authorization requests must be processed within five business days.
- Urgent or critical cases require attention within 72 hours.
- Retrospective reviews, applicable to already-delivered medical services, must be completed within 30 days.
These timelines are designed to reduce delays that often create unnecessary distress for patients and their families.
Enhanced Enforcement Mechanisms
The California Department of Managed Health Care will monitor compliance, conduct audits, and hold health insurers accountable. Violations, including improper AI usage or missed deadlines, may result in fines. These measures aim to promote transparency and maintain public trust in health insurance systems.
The Role of AI in Health Insurance Decision-Making
AI technology, increasingly adopted across industries, offers significant potential to streamline administrative workflows, accelerate claims processing, and reduce costs in health insurance. However, it also carries risks of biased or erroneous decisions. Class-action lawsuits against major insurers like UnitedHealthcare and Cigna have brought to light cases where algorithms were used to deny claims improperly or unfairly prioritize cost savings over patient care.
Research has shown that AI-based decisions have the potential to disproportionately impact specific demographics or fail to account for unique patient conditions. For example, a lawsuit against UnitedHealthcare accused the company of leveraging flawed algorithms to systematically deny medically necessary treatments. Instances like these have spurred calls for stronger checks on AI’s application in sensitive settings like health care.
Nationwide Implications of SB 1120
California’s new law is already influencing policymaking across the United States. State Senator Josh Becker, the bill’s author, noted that over 19 states are considering similar legislation. The law has also drawn interest from congressional offices, signaling the potential for federal regulations that address challenges associated with AI in health insurance.
SB 1120 underscores an essential balance between leveraging technological innovation and upholding ethical standards. While AI can assist in reducing administrative burdens and improving efficiencies, its limitations—and the stakes involved in health coverage decisions—demand robust oversight frameworks.
Challenges Facing Implementation
While SB 1120 takes a bold stance, questions remain about its enforcement. Health insurers may face logistical hurdles in integrating AI oversight processes with mandated human decision-making. Additionally, ensuring that decision timelines are met without sacrificing accuracy may require new operational frameworks.
Critics caution that while the law addresses immediate concerns over the misuse of AI, it does not wholly eliminate the risk of bias or inconsistency within the healthcare system. Insurers may also contend with challenges related to interpreting the role of AI in gray areas and avoiding penalties.
Conclusion
The passage of SB 1120 marks a significant milestone in healthcare regulation, adding clarity to the role artificial intelligence can play in insurance coverage decisions. By requiring human oversight, regulating timelines, and holding insurers accountable, California aims to ensure that advances in technology do not come at the cost of quality patient care.