The health insurance industry in 2024 experienced its least profitable year since 2015. Just as care avoidance in early COVID brought insurers a record-high profitability in 2020, high utilization rates and medical costs were responsible for payers’ financial struggles in 2024. In fact, the industry was only profitable in aggregate due to investment income, as cash flow from operations was -$1.4B in aggregate. As profit margins have shrunk, payers’ use of utilization management tactics has increased. In 2024, almost 12 percent of hospital claims were initially denied or delayed by insurers, even though 97 percent of these claims were eventually paid following appeal. This represents a 2.4 percent increase in denials from 2023, even though (much-maligned) prior-authorization-related denials fell almost 8 percent. In their place, more claims were denied for lacking medical necessity or faced requests for more information, which even after successful appeal, can result in difficult payment delays for providers.

At the heart of this dynamic is the persistent tension for payers between utilization management and profit optimization. On the one hand, insurers use utilization management to control costs and ensure appropriate care through deploying tools like prior authorization, denials, step therapy, and case reviews to prevent unnecessary or duplicative services. On the other hand, these same tools can be leveraged to delay or deny care, raising concerns that profit motives are overriding clinical judgment. When financial incentives reward reduced utilization, payers risk prioritizing cost containment over patient outcomes, fueling distrust among providers and their patients, while inviting increased regulatory scrutiny. And as cost pressures mount and public funding recedes, premium increases are likely to follow, placing additional financial strain on employers and individuals alike. Providers, meanwhile, bear the brunt of delayed reimbursements and growing administrative burdens, further destabilizing their already thin margins and contributing to workforce burnout.