Understanding Health Insurance Preauthorization: What Employers
Need to Know

Preauthorization — also known as prior authorization, prior approval, or precertification — has been part of the health insurance ecosystem since the 1960s. Certain fully insured and self-insured plans require that a health insurer approve specific medical services, treatments, or medications before they are provided. It determines whether the service is medically necessary and covered under a member’s plan. Recent headlines and proposed legislative activity regarding preauthorization, however, make it a topic that employers must continually monitor. There is a fine balance between the potential impact of preauthorization activities on overall costs, member experience and fiduciary risk.

Some Context for Employers

Preauthorization acts as a checkpoint for medical necessity and cost management. Insurers use it to ensure  proposed care meets clinical standards, is safe, and cost‑effective. In practice, it applies to a minority of services, mostly those that are considered higher-cost or higher-risk. According to a recent study, 9% of claims were subject to prior authorization; however, those claims impacted 23% of medical spend. Common services requiring preauthorization include, but not limited to, hospital admissions, planned surgeries, advanced imaging (MRI/CT), certain specialty medications, and high-cost durable medical equipment.

From an employer perspective, preauthorization helps control unnecessary medical spending and promote high quality care by ensuring treatments and tests are evidence‑based and medically necessary. It also protects employees by preventing unexpected out‑of‑pocket costs and verifying coverage before treatment.

Recent Call to Action and Response

Recently, the practice of preauthorization has been called into question as many feel it has moved away from a well-intended utilization tool and instead became burdensome for patients, providers, and employers. Surveys indicate that about one‑third (32%) of US insured adults cite the prior authorization process as a “major burden”, and over one‑third (37%) cite that it presents a “minor burden” in getting care. Research has also tied escalating use—particularly in Medicare Advantage and commercial plans—to care delays, treatment abandonment, and measurable patient harm, particularly in behavioral health, oncology, and chronic disease management. At the same time, the adoption of AI driven preauthorization tools has triggered lawsuits, regulatory scrutiny, and bipartisan political backlash over opaque decision making and lack of clinical oversight.

Amidst government pressure, health plans covering over 275 million American have voluntarily agreed to reduce the requirements for preauthorization and streamline the approval process. Early progress reports indicate that leading health plans have removed approximately 11% of the required medical approvals and are honoring existing authorizations up to 90 days for benefit‑equivalent in‑network services when patients switch health plans to ensure continuity of care. These actions are viewed by many as good first steps as a part of the broader initiative.

Further reforms are expected, with the federal Center for Medicare and Medicaid Services (CMS) proposing to extend preauthorization simplification to prescription drugs.

Implications for Employers

For employers, the concerns related to preauthorization have become fiduciary and reputational. Class action lawsuits allege plan sponsors have failed to prudently oversee utilization management practices, including preauthorization policies that restrict access to medically necessary care.

While eliminating or restricting the preauthorization scope can improve provider and patient satisfaction and expedite access to care, employers and members should be aware of potential impacts on costs. Based on a Milliman actuarial study:

• The overall increase to plan costs of removing preauthorizations can be approximately 3‑5% in claims
• Removing preauthorizations can increase overall utilization (as they act to decrease inappropriate utilization)
• Insurers’ administrative expenses may decrease with the removal of preauthorizations

Employer’s Role in the Preauthorization Process

In today’s environment, employers must shift from passive acceptance of preauthorization practices to active governance. This includes:

• Ask carriers and Third‑Party Administrators (TPAs) for clear lists of services requiring preauthorization, evidence‑based decision processes, timely reviews, transparent communication of denials and alternatives, and support for continuity of care
• Seek data on authorization volumes, approval rates and timing, denial rates, appeals and overturn rate
• Ensure the TPA/carrier is reviewing their preauthorization lists and medical policies at least annually for new medical evidence and updating their practices and documents as appropriate, as well as training staff
• Ascertain that the TPA/carrier has active URAC certification (accrediting body for utilization management activities)
• Evaluate how utilization management is being performed for medical, behavioral health, and pharmacy, and if it is being performed by a different entity than the TPA or carrier (e.g., a delegate or a sub-contractor)
• Assure that any subcontracting for preauthorization has the appropriate delegation agreements and quality oversight
• Evaluate appeals processes for denials, and streamline so it is understandable and easy to access for providers and members

Preauthorization is one of several tools used to support care quality and cost management. Employers, along with other stakeholders, can and should play an active role in working with their insurance carriers and TPAs to ensure their preauthorization processes are evidence‑based, streamlined and understandable to providers and members.

Sources

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Harvard Health: Prior authorization overview, https://www.health.harvard.edu/healthy‑aging-and‑longevity/prior‑authorization‑what‑is‑it‑when‑might‑you‑need‑it‑and‑how‑do‑you‑get‑it

HealthCare.gov Glossary: Preauthorization definition, https://www.healthcare.gov/glossary/ preauthorization/

InsuranceInformant.com: Preauthorization in health care insurance, https://insuranceinformant.com/what‑is‑preauthorization‑in‑health‑care‑insurance.html

BeneSmart Services: Prior authorization perspectives, https://benesmartservices.com/blog/what‑exactly‑is‑prior‑authorization‑in‑health‑insurance‑perspectives‑from‑employers-employees‑and‑insurers/

NAIC Consumer Insight: Prior authorization process, https://content.naic.org/article/ consumer‑insight‑understanding‑health‑insurance‑referrals‑and‑prior‑authorizations

Cohere Health, Key 2023 prior authorization benchmarks: How does your plan stack up? https://www.coherehealth.com/thought‑leadership/key‑prior‑authorization‑benchmarks-report

Johns Hopkins Medicine: Researchers Find Measurable Patient Harm Linked to Prior Authorization, published in America Journal of Medicine, Sept 3, 2025 https://www.amjmed.com/article/S0002‑9343%2825%2900553‑4/fulltext

Bloomberg: Health Insurers Pare Back Some Prior‑Approval Requirements, April 7, 2026

Milliman Report, Potential Impacts on Commercial Costs and Premiums Related to the Elimination of Prior Authorization Requirements, March 2023

KFF Health Tracking Poll: Prior Authorizations Rank as Public’s Biggest Burden When Getting Health Care

2024 CMS Interoperability and Prior Authorization Final Rule (CMS‑0057‑F), https://www.cms.gov/priorities/burden‑reduction/overview/interoperability/policies‑regulations/cms-interoperability‑prior‑authorization‑final‑rule‑cms‑0057‑f

Health Plans Take Action to Simplify Prior Authorization, Jun 23, 2025, AHIP, https://www.ahip.org/news/press‑releases/health‑plans‑take‑action‑to‑simplify‑prior‑authorization (including a list of health plans making the commitment)

Health Plans Reduce Prior Authorization, Support Continuity of Care and Enhanced Consumer Communications, PR Newswire, April 7, 2026, https://www.prnewswire.com/news-releases/health‑plans‑reduce‑prior‑authorization‑support‑continuity‑of‑care‑and‑enhanced-consumer‑communications‑302735123.html

CMS Proposes Major Reforms to Speed Up Patient Access to Drugs, Increase Transparency, and Reduce Administrative Burden, https://www.cms.gov/newsroom/press‑releases/cms-proposes‑major‑reforms‑speed‑up‑patient‑access‑drugs‑increase‑transparency‑reduce-administrative