Medicare Faces AI-Driven Prior Authorization Pilot Amid Budget Cuts
Recent budget negotiations reveal escalating tensions over healthcare funding, with Congressional Democrats opposing President Trump's proposals that include significant cuts to Medicaid and the Affordable Care Act (ACA). Democrats demand restoration of these cuts and assurances against the withholding of congressionally appropriated funds, including those for the National Institutes of Health. These proposed reductions to Medicaid and ACA could indirectly elevate premiums across the broader health insurance market, affecting consumers beyond the programs themselves.
Contrary to initial reports suggesting Medicare remains largely unaffected, the program is facing substantial financial impacts. Mandatory spending cuts triggered by recent legislation are projected to reduce Medicare funding by approximately $500 billion over the next decade. Additionally, the Department of Health and Human Services (HHS) plans to introduce a new pilot program in six states that will deploy private vendors using artificial intelligence (AI) to require preapproval for many Medicare-covered procedures before reimbursement.
This initiative represents a shift away from traditional Medicare’s longstanding model, which allows beneficiaries unrestricted choice of providers and covers all medically necessary procedures without preapproval requirements, except in limited cases. While commercial health insurance relies heavily on managed care and prior authorization processes, traditional Medicare has historically been more cost-effective despite its fewer restrictions. The new program aims to integrate AI-driven prior authorization into Medicare, potentially introducing new administrative burdens for providers and patients.
The pilot, launching in New Jersey, Ohio, Oklahoma, Texas, Arizona, and Washington, has raised concerns among health policy experts and lawmakers. Seventeen senators, led by Senator Ron Wyden, have formally requested that the Centers for Medicare & Medicaid Services (CMS) halt the pilot until a thorough impact analysis, including stakeholder consultation, is conducted. Criticism centers on the program’s classification as "voluntary," when participation for providers in these states is effectively mandatory to receive payment.
This AI-powered preauthorization pilot is viewed as a precursor to broader efforts to privatize Medicare further. Medicare Advantage, a privately managed alternative to traditional Medicare, already covers over half of Medicare beneficiaries and is less efficient by about 20 percent compared to traditional Medicare. Proposals under Project 2025 aim to make Medicare Advantage the default enrollment option for new beneficiaries, a move supported by CMS leadership.
Overall, these developments signal significant shifts in Medicare administration, with the potential to increase healthcare costs and limit provider and beneficiary choice. The complexity and opacity of these changes challenge transparency and risk impacting patient access and the cost structure of Medicare and associated health plans.