How Private Insurance Claim Denials Erode Trust and Increase Patients’ Financial Burdens — and How Policymakers Can Help

Unexpected medical bills are almost an American rite of passage. Millions of Americans with private health insurance are denied coverage for medical services every year, often due to billing errors or technicalities. In 2023, 45 percent of insured adults received a bill for a service they thought should have been free.

Some denials are due to services an insurer won’t cover, while many result from billing or administrative errors. Patients who push back against these mistakes have a good chance of getting a denial reversed. But unfortunately, not everyone has the time, knowledge, or resources to challenge their insurer’s decision. New research shows that for privately insured patients, the burden of these denials falls heaviest on lower-income and racial minority patients, which exacerbates existing inequities in health care.

System Stacked Against Patients

Consider preventive care. If you go to your family physician for a wellness visit, you might expect it to be free thanks to the Affordable Care Act. But during your visit, maybe you mentioned trouble sleeping. A few weeks later, you receive a bill from your insurer or provider. Turns out, your physician billed for a preventive visit but listed “insomnia” as the primary diagnosis. Because your plan doesn’t cover insomnia treatment, you’ve been asked to cover the charges.

This kind of claims denial is all too common; roughly 40 percent of preventive care denials in the U.S. arise from incorrect physician billing or insurer processing errors. These denials should be easy to deal with over a phone call, but that’s often not the case.

Many factors must come together for a patient to be able to advocate successfully to reverse the denial. You need to see the error in your bill and then coordinate a three-way, muzak-filled game of phone tag with your physician’s office and your insurance provider to get the claim resubmitted and reprocessed in the right order. Currently, advocating for such a reversal is burdensome for patients, even though none of these errors are the fault of patients.

Using a national dataset of private insurance claims for common health services — including preventive care and elective surgeries — we analyzed who attempted this process and who succeeded. The findings show that people from historically disadvantaged racial and ethnic groups and those with lower incomes were the least likely to challenge denials, and when they did, they saved less money on average than their wealthier, white counterparts.

Why Is This Happening?

There are three main reasons for these disparities:

1. Underresourced health care providers. Billing and insurance-related activities take up considerable physician resources. Providers with fewer resources commit more billing errors. Vulnerable patients seeing underresourced providers may subsequently face more denials, while wealthier patients often see providers better equipped to navigate the complex claims process.
2. Limited administrative support provided by plans. Different types of private insurance may provide different levels of administrative support. Well-resourced plans often have clearer, better-documented, and more user-friendly processes to contest and reverse a denied claim, as well as offering increased availability of case managers, administrative support staff, and technological resources such as smartphone apps. This leaves people enrolled in plans with fewer resources more likely to bear the onus of claim errors.
3. Time and knowledge barriers. Contesting denials requires understanding insurers’ policies, gathering supporting documentation, and coordinating across multiple parties — usually during business hours. People working jobs without flexible schedules may simply not be able to take on this fight.

The Consequences: More Medical Debt, Less Trust

Our research shows unexpected medical bills lead households to reduce or skip future health care visits. Furthermore, vulnerable patient populations incur denials at a higher rate, leading to greater financial strain for low-income households. For privately insured patients, the stakes can be high: a successful claim reversal saves $136 on average. This may not seem like much, but nearly one in five adults wouldn’t be able to cover a $100 expense using only their savings. And medical debt remains a top reason Americans file for bankruptcy. Claim denials also erode an already fragile public trust in the health care system in a time when public anger toward health insurers is at an all-time high.

How Policymakers Can Help

Claim denials aren’t just an inconvenience — they’re a systemic problem that policymakers need to address. Here’s what should be done:

1. Standardize billing practices across insurers. Right now, different insurers have different rules for covering care. Standardizing what services are covered or free to patients would reduce billing errors in the first place.
2. Harmonize billing practices across physicians. Together with standardizing coverage across insurers, physicians can help reduce the chance of denials by including appropriate preventive service codes and modifiers for all relevant visits. Even a preventive visit with a discussed medical condition can include an appropriate modifier code (i.e., +25) to distinguish between the preventive care and any needed additional services.
3. Increase transparency. Insurers should be required to provide clear, easily accessible reasons for claim denials and instructions on how to appeal.
4. Make contesting denials easier. Patients should be able to challenge denials through online systems or 24/7 automated phone services rather than calling during limited hours. A standardized system for handling denials would reduce confusion and cut down on wrongful denials, potentially benefitting marginalized patients the most.
5. Expand patient assistance programs. Nonprofits and government agencies should offer more support to patients navigating the claims process, just as tax-assistance programs help low-income filers.
6. Hold insurers accountable. State regulators should monitor and penalize insurers with unusually high denial rates, especially if they disproportionately affect disadvantaged groups.

A Call to Action

Patients shouldn’t have to be experts in insurance law to avoid being overcharged. Policies can and should be implemented to jointly eliminate inappropriate denials while supporting patients in contesting and reversing their bills. Improving health care equity requires confronting the administrative barriers that keep millions of patients overpaying for their care.