Insurer Group Says AI-Assisted Coding Added Nearly $1 Billion in Healthcare Costs

The Blue Cross Blue Shield Association estimated the additional costs at $942 million. It said much of the increase came from secondary diagnoses that moved patients into higher-paying reimbursement categories. Those diagnoses 'may be derived from single laboratory values, making it particularly well suited for detection by AI tools,' BCBSA said.

The finding comes as hospitals, insurers and other parts of the healthcare system increasingly use AI in billing, coding and claims review. The question is whether reducing administrative burden can also intensify financial incentives already built into the system.

Christopher Whaley, a health economist at Brown University who studies hospital coding, said AI appears to be 'accelerating, and in some sense making it easier to capture, the existing and underlying billing incentives that are in the system.' He said additional diagnoses identified through AI are not necessarily inappropriate. 'In many cases, the diagnoses are legitimate and weren't captured,' he said. But some conditions 'clinically just don't really matter and don't influence the patient's care,' while still allowing another billing code to be applied and increasing payment.

BCBSA wrote in its analysis that the growth in what it calls 'complex coding' came during a period when 60% of hospital systems began using AI coding tools. 'There is a clear disconnect between coding and treatment,' its report stated.

Luke Chalker, BCBSA's senior vice president of product and data science, told CNBC that roughly 70%, or $653 million, of the billing identified by the insurer was tied to additional diagnoses that were not accompanied by a change in care. Chalker stopped short of attributing the entire increase to AI. 'While multiple factors contribute to coding intensity, the findings suggest AI-enabled coding and documentation tools are playing a role,' he said. He added that consumers have reason to be concerned. More complex coding can lead to higher reimbursement without more care, and 'those costs can eventually show up in the form of higher premiums and out-of-pocket costs,' he said.

According to the latest forecast from benefits consulting firm Marsh, the cost per employee for health coverage is expected to rise 8.2% on average in 2027, which would mark the highest increase since 2003.

The American Hospital Association pushed back on BCBSA's analysis. 'Patients today are older and more clinically complex,' and AI tools are helping providers 'appropriately capture their patients' conditions to aid in care planning,' an AHA spokesperson said in a statement to CNBC. The AHA said the BCBSA analysis lacks the context needed to meaningfully assess how these tools impact healthcare quality, patient access or spending. 'It is particularly troubling to see insurers raising concerns about provider coding while continuing to rely on automated downcoding and denial practices that can impede coverage of medically necessary care, add burden on the workforce, and increase costs through administrative waste,' the AHA spokesperson added.

Chalker said Blue Cross Blue Shield companies also use AI in claims review, but that 'any clinical denial is always reviewed by a qualified human clinician.'

As increasingly sophisticated AI tools are used on all sides of the healthcare system, Whaley said it could create an 'administrative arms race.' 'Whether it's on the hospital side or the insurer side, these tools and technologies are both very expensive,' he said, 'and also have nothing to do with providing appropriate care to patients.' Whaley said those costs ultimately flow through the healthcare system to consumers, including through higher premiums and taxes.

Marisa Greenwald, a partner at Oliver Wyman's Health and Life Sciences practice, which advises hospitals and insurers on strategy, operations and AI adoption in areas including revenue-cycle management, said AI is already producing benefits for health systems and doctors. By reducing administrative work, physicians can spend more time seeing patients and less time finishing documentation after hours. Greenwald said health systems are using AI not only to improve efficiency but also to give doctors some semblance of work-life balance.

Editor's Summary

Blue Cross Blue Shield Association estimates AI-assisted medical coding may have added $942 million in costs for health plans from 2023 to 2025. Hospitals and insurers disagree over whether AI is improving documentation or amplifying billing incentives, while patients may face higher premiums and out-of-pocket costs. The debate highlights an administrative arms race in U.S. healthcare as AI expands across billing and claims review.