Why Your Health Insurance Won't Pay for Your Health Care

Understanding the Reasons Behind Health Insurance Claim Denials

Fact checked by Sheeren Jegtvig

When your healthcare provider recommends a test, medication, or procedure and your health insurance won’t cover the care you need, it can be frightening. This article will explain why your health plan might deny coverage, and what options you have if that happens.

If there’s an alternate test, medication, or procedure that will work and that your health plan will cover, then this situation is just an irritating nuisance. But, if the test, medication, or procedure is the only thing that will work, the situation can be a much more significant problem.

When a claim or pre-authorization denial happens to you, it’s common to be angry and want to fight the denial. However, before you spend your energy on this battle, first make sure you know exactly what happened and why your health plan has said it won't pay.

While investigating the cause for the claim denial or refusal of your pre-authorization request, you’ll gain valuable insight into the standards of treatment for your particular medical problem, as well as how your health insurance company “thinks.” You’ll be a more competent warrior if a fight with your health insurance company becomes necessary.

Before we start, it's important to understand that "cover" doesn't necessarily mean "pay for." Depending on the specifics of your plan and the care you've needed thus far in the year, you might find that you have to pay out-of-pocket for a service even though it's covered by your health plan. This would be the case, for example, if the service is subject to a deductible that you haven't yet met.

In that case, you would still get your insurer's in-network negotiated rate (as opposed to paying the provider's full bill), but you'd have to pay the bill yourself until your deductible is met. And remember that if your health plan covers out-of-network care and you've chosen to use an out-of-network provider, the deductible and other out-of-pocket costs are probably significantly higher than they would be for in-network care.

Reasons Your Health Insurance Won’t Pay for the Care Your Healthcare Provider Says You Need

1. What you need isn’t a covered benefit of your health plan.

When your health plan denies your claim or refuses your pre-authorization request for this reason, it’s basically saying that your policy doesn’t cover that test, treatment, or drug no matter what the circumstances are.

Your insurer should know exactly what benefits your policy provides and what isn’t covered, but sometimes your insurer is wrong. Check your policy carefully. If your health insurance is through your job, check with your employee benefits office to see if you actually do have coverage for the service your health insurance says isn’t covered.

In the United States, small group and individual/family health plans with effective dates of January 2014 or later have to cover the Affordable Care Act's essential health benefits. But self-insured and large group employer-based plans, and grandfathered/grandmothered (pre-ACA) plans don’t have to provide this same coverage.

(In most states, "small group" means an employer with up to 50 employees. But in California, Colorado, New York, and Vermont, groups with up to 100 employees are considered small groups, which means their health plans cover the essential health benefits unless they're grandfathered or self-insured.)

If you feel you’re being denied the benefits of coverage your policy says you actually have, follow the appeals procedure your health plan booklet outlines. Also, enlist the help of your employee benefits office if your coverage is job-based, or your state’s insurance commissioner (be aware that if your plan is a self-insured employer-sponsored plan, the insurance commissioner won't be able to help you, as self-insured plans are not regulated at the state level).

2. You got the care from an out-of-network provider when your health plan coverage is limited to in-network providers. 

If you have an HMO or EPO, with very few exceptions, your coverage is limited to in-network providers that your health plan has a contract with. Your health insurance won’t pay if you use an out-of-network provider.

If you’re asking for pre-authorization and your pre-authorization request was denied due to your chosen provider, you can simply re-submit the request using an in-network provider rather than an out-of-network provider. Or if there are no in-network providers who can provide the treatment you need, you can ask your health plan for a network gap exception (which may or may not be granted).

However, if you’ve already gotten the care and your health plan won't pay your claim because you went out-of-network, you’re going to have a more difficult fight on your hands.

You may be successful if you can show that no in-network providers were capable of providing that particular service so you had to go out-of-network.

You might also be successful if you can show that it was an emergency and you went to the closest provider capable of rendering the care you needed, or that the treatment was provided at an in-network hospital.

This is due to the No Surprises Act, which ensures that emergency care is covered as in-network care regardless of whether the emergency room is in the health plan's network. The No Surprises Act also ensure that patients only pay in-network cost-sharing for care received from an out-of-network provider at an in-network medical facility.

3. Your health plan doesn’t think the test, treatment, or drug is medically necessary.

If your claim or pre-authorization request has received a medical necessity denial, it sounds as though your health insurance won’t pay because it thinks you don’t really need the care your healthcare provider has recommended. This might be what your health plan is actually saying, but it might not be.

There are some reasons for a medical necessity denial that don’t really mean your health plan thinks the care is unnecessary. In order to figure out just what, exactly, your medical necessity denial means, you’ll have to do some digging. The good news is this digging may well show you the path to getting your pre-authorization request approved, or your claim paid, if you just tweak your approach a bit.

It's also important to understand that insurance plans are increasingly using artificial intelligence (AI) algorithms to reject claims without an actual person examining the claim and reviewing the patient's medical records. So your claim may have been denied without a thorough review, and it's in your best interest to challenge adverse decisions that your health plan makes.

If you've received a claim or pre-authorization based on medical necessity, this is a scenario in which you can and should enlist the help of your practitioner. Your healthcare provider has recommended the service for a reason, and they'll be able to communicate that reason to your insurer.

In some cases, the insurer might then approve the procedure, or they might work with your practitioner to approve another approach that both the insurer and the healthcare provider consider medically necessary.

Be aware that if the treatment is an expensive prescription drug, the health plan might require step therapy before agreeing to cover the drug in question. This would mean that they want you to try a less expensive drug first, and would only cover the more expensive option if the first one fails to treat the condition you have.

For non-grandfathered health plans, the Affordable Care Act guarantees consumers the right to an internal and external appeals process.

So if your claim or pre-authorization is denied, don't give up! You and your healthcare provider can work together to navigate the appeal process. And you may find that your procedure is approved or an alternate arrangement is reached that allows you to still have coverage for care that will be appropriate for your situation.

4. Your health plan doesn’t recognize you as a covered member, and other mix-ups.

This type of scenario is more common than most people would imagine. In today’s complex healthcare system, information about your coverage must flow correctly from your employer, insurance broker, health insurance exchange, or the government (e.g. Medicare or Medicaid programs) to your health plan. If there’s a glitch or delay anywhere along the way, it can appear as though you don’t have health insurance even though you actually do.

Along these same lines, it’s common for health insurers to outsource to a medical management company the decision-making about whether or not your test, treatment, or drug will be covered. In this case, information about your coverage must flow correctly from your health plan to the medical management contractor.

Likewise, information about your medical situation must flow correctly from your healthcare provider’s office to the health plan or its medical management contractor. Any glitch in the flow of this information can result in a claim denial or a refusal of your request for pre-authorization.

The good news is that these claim denials or pre-authorization refusals can be relatively easy to overturn once you understand exactly what the problem is. For more information, see “How Silly Mix-Ups Cause a Health Insurance Claim Denial.”

5. You didn't get the correct referral or prior authorization

Depending on your health plan's rules, you may be required to have a referral from your primary care provider and/or an approved prior authorization before receiving various types of medical care. If you didn't do that, you may be facing a claim denial.

For example, maybe you're used to having a PPO that allowed you to self-refer to a specialist, and you forgot that your new HMO requires a referral from your primary care doctor.

Depending on the circumstances, you might be out of luck. But you might be able to get your insurer to work with you on this if your primary care doctor can provide a statement to your insurer about the necessity of the services you received.

6. Your hospital stay was incorrectly classified as inpatient vs. observation.

If Medicare or your health plan is refusing to pay for a hospital stay, the reason may have to do with a disagreement about the correct status of your hospitalization rather than a disagreement about whether or not you actually needed the care.

When patients are placed in the hospital, they’re assigned either observation status or inpatient status according to a complex set of rules and guidelines.

Sometimes, the hospital and your admitting healthcare provider may believe you should be admitted to inpatient status, while Medicare or your health plan thinks you should have been hospitalized in observation status.

Here’s the catch: if your hospital stay is categorized incorrectly, your health plan or Medicare might refuse to pay for the entire admission even though your insurer agrees that you needed the care the hospital provided. It’s kind of like a technical foul.

It's also important to understand that if you have Medicare and you need to transfer to a skilled nursing facility after leaving the hospital, Medicare will only pay for the skilled nursing facility stay if you had at least a three-night inpatient stay in the hospital. Here's more about how this works.

Summary

There are a variety of reasons a health plan might deny a prior authorization request or a medical claim. The service might not be covered by the health plan, or the health plan might require specific procedures to be followed in order to have coverage (a referral from a primary care physician, for example). Depending on the health plan, care might only be covered if the medical providers are in-network. And sometimes, denials are simply mistakes, due to clerical errors on the part of medical office staff or the health plan. But there is an appeals process that's available if you're facing a prior authorization or claim denial.

A Word From Verywell

Don't give up right away if your health plan says a certain service isn't covered. It's possible that the plan might actually cover your care if you and your doctor provide additional information. And there are appeals processes that are available to you in this situation. The more you understand about your health plan and the reason it's denying coverage, the better equipped you'll be to advocate for the coverage and care you need.