Relating to health carriers and payment of claims, audits, and standards of conduct; prior authorizations and utilization review organizations; and providing civil penalties and including applicability provisions

Description

House File 2635 relates to health carriers standards of conduct; utilization review organizations (UROs), artificial intelligence (AI), audits, and prior authorizations; certificate of need processes; and includes applicability provisions. The Bill has four divisions, three of which have a fiscal impact and one of which does not.

The following divisions of the Bill have or may have a fiscal impact and are described in further detail below:

• Division I — Health Insurance Trade Practices
• Division II — Prior Authorizations
• Division III — Prior Authorizations — Medical Assistance Program

Division IV — Certificates of Need has no fiscal impact.

Division I — Health Insurance Trade Practices

Description

Division I of the Bill:

• Prohibits a URO from using an AI-based algorithm or system as the sole basis for the decision to deny, delay, or downgrade a prior authorization request based on medical necessity.
• Requires UROs that conduct audits of health care provider claims to meet notification and determination timeline requirements.
• Requires adverse audit determination appeals by health care providers and the final determination on appealed claims by UROs to meet timeline requirements.
• Requires UROs that violate new Iowa Code section 514F.8C(2) to approve and promptly pay the corresponding health care provider claim, with interest.
• Provides applicability requirements.
• Restricts health carriers from taking certain punitive actions against a provider based on the provider’s referral to, or affiliation with, an out-of-network provider.
• Authorizes the Commissioner of Insurance to adopt administrative rules to administer this Division.

Background

Prior authorization is defined in Iowa Code section 514F.8 as a determination by a URO that a specific health care service proposed by a health care provider for a covered person is medically necessary or medically appropriate. The determination must be made prior to the provision of the health care service to the covered person. If applicable, a covered person or a health care provider must notify the URO prior to receiving or providing a specific health care service.

Figure 1 shows insurance claim spend by plan. The State of Iowa costs (2025) were provided by Wellmark, and the Board of Regents (BOR) universities’ costs (2024) were provided by the BOR.

Figure 1 — Insurance Spend by Plan

Insurance Plan Annual Spend

State University of Iowa $ 360,800,000 Iowa State University 138,500,000 University of Northern Iowa 27,100,000 University Total $ 526,400,000 State of Iowa 395,700,000 Total $ 922,100,000 Division I is estimated to affect approximately 25.6% of the population (829,000 people). This includes individual coverage, fully insured small and large employer groups, self-insured public employees, and the State of Iowa plan.

Of the individuals not covered by the mandate, approximately 42.9% are covered by government-sponsored health insurance; 26.7% are covered by employer coverage, which is governed by the federal Employee Retirement Income Security Act of 1974 (ERISA); and the remaining 4.8% are uninsured. Additional details are presented in Figure 2. Figure 2 — Population Covered by Insurance Plans Regulated by Iowa Law

Type of Coverage Iowa Population

Percent of

Population

Total Population 2024 3,241,488 100.0%

Included in Mandate

Individual Coverage 143,597 4.4% Fully Insured Small Employer Group 129,342 4.0% Fully Insured Large Employer Group 286,029 8.8% Self-Insured Public Employees* 215,000 6.6% State of Iowa Plan 55,000 1.7% Total 828,968 25.6%

Not Included in Mandate

Employer (self-insured + other types not listed) 864,752 26.7% Uninsured 156,600 4.8% Other Public (Military, Tricare, Veterans Affairs) 24,100 0.7% Medicare 685,671 21.2% Medicaid + Children’s Health Insurance Plan 681,397 21.0% Total 2,412,520 74.4% *Represents total population 2020. Sources: Iowa Insurance Division and Wellmark

Assumptions

• It is unknown how administrative costs will be impacted, but the impact may be significant.
• According to Wellmark, restricting a health carrier’s ability to impose punitive financial incentives on health care providers may increase costs to the State of Iowa plan and the BOR universities’ plans. It is unknown how this may impact the University of Iowa Health Care (UIHC) as a provider.

Fiscal Impact

Division I of the Bill may increase costs to the State of Iowa and the BOR universities’ health plans incurred in responding to audits of clean claims; any potential fiscal impact is unknown but may be significant.

Division II — Prior Authorizations

Description

Division II of the Bill relates to prior authorization requirements and does the following:

• Requires health care providers, beginning July 1, 2027, to submit requests for prior authorization to a health carrier electronically and to comply with federal interoperability regulations.
• Provides the following requirements for a URO to deny or downgrade a request for prior authorization:
• The decision must be made by a qualified reviewer or a clinical peer, who must attest to the reviewer’s or peer’s qualifications, excluding any personal identifiable information.
• The health care provider must be given a statement signed by the qualified reviewer or clinical peer who made the decision, and the statement must include the specific reasons for the denial or downgrade.
• The URO’s appeal process must be disclosed to the health care provider and the covered person.
• Requires a URO to conduct a consultation with a qualified reviewer or clinical peer within seven business days, if requested by a health care provider.
• Restricts a qualified reviewer or clinical peer who was involved in an original denial or downgrade from conducting the pursuing appeal.
• Prohibits prior authorization and additional utilization review requirements by a health carrier for the following:
• Cancer-related screenings that are recommended by the covered person’s health care professional and meet other requirements of the Bill.
• Diagnosis and treatment of an emergency medical condition that develops or becomes evident while the covered person is receiving inpatient care and meets other requirements of the Bill, including that the condition is reasonably determined by a health care professional to be life-threatening without immediate treatment.
• Authorizes the Commissioner of Insurance to adopt administrative rules to administer this Division.
• Establishes applicability.
• Establishes enforcement mechanisms permitting the Commissioner of Insurance to suspend a URO’s authority to conduct utilization review upon finding a pattern or practice of noncompliance with the sections of Iowa Code specified in the Bill. Includes remedies authorized in Iowa Code chapters 505 and 507B.

Background

Civil penalties collected pursuant to Iowa Code chapters 505 and 507B are deposited into the General Fund (60.0%) and the Commerce Revolving Fund (CMRF) (40.0%).

Division II is estimated to affect approximately 25.6% of the population (829,000 people). Additional details are presented in Figure 2.

Assumptions

• Requiring a qualified reviewer or a clinical peer to make denial or downgrade determinations may increase administrative costs for health carriers.
• According to Wellmark, some of these specialized positions may not currently be on staff, and there may be significant costs to hire or contract this work to individuals with the same qualifications and experience as the health care professional or physician requesting prior authorization. Potential costs are unknown but may be significant.
• According to Wellmark, any reduction in prior authorization utilization is accompanied by a sentinel effect, which increases utilization and costs to a health insurance plan.
• Additional consultation pursuant to the Bill may increase administrative costs by an unknown amount, which may be significant.
• According to Wellmark, prohibiting prior authorization and additional utilization requirements for cancer-related screenings and for the diagnosis and treatment of emergency medical conditions, as restricted by the Bill, is not expected to have a significant impact on costs to the State of Iowa plan. It is unknown whether there will be any impact on costs to the other State-funded plans.
• According to the BOR, any increase in the utilization of services may increase revenues or decrease costs to the UIHC as a provider, but any such impact cannot be quantified at this time.

Fiscal Impact

Division II of the Bill may increase administrative costs to the State of Iowa and the BOR universities’ health plans by requiring denial and downgrade determinations for prior authorization requests to be performed by qualified reviewers and clinical peers. Administrative costs for each of the plans may also be increased in the appeal and consultation process outlined in Division II. Additionally, Division II may increase costs to the BOR universities’ health plans by prohibiting prior authorization and additional utilization requirements for specific screenings, diagnoses, and treatments that meet the requirements of the Bill. Finally, Division II may increase revenues to the UIHC as a provider if increased utilization of services occurs. Any potential fiscal impact is unknown but may be significant.

Division III — Prior Authorizations — Medical Assistance Program

Description

Division III of the Bill relates to prior authorization requirements and does the following:

• Prohibits the Department of Health and Human Services (HHS) and managed care organizations (MCOs) from requiring prior authorization or additional utilization review requirements for Medicaid and Healthy and Well Kids in Iowa (Hawki) recipients for the following:
• Cancer-related screenings that are recommended by the recipient’s health care provider and meet other requirements of the Bill.
• Diagnosis and treatment of an emergency medical condition that develops or becomes evident while the recipient is receiving inpatient care and meets other requirements of the Bill, including that the condition is reasonably determined by a provider to be life-threatening without immediate treatment.
• Requires health care providers, beginning July 1, 2027, to submit requests for prior authorization to an MCO electronically and to comply with federal interoperability regulations.
• Division III of the Bill is applicable to all contracts between the HHS and an MCO that are delivered, issued for delivery, continued, extended, or renewed beginning January 1, 2027, and to requests for prior authorization made beginning January 1, 2027.
• Authorizes the HHS to adopt administrative rules to administer this Division.

Background

Division III applies to Medicaid and Hawki and is estimated to affect approximately 21.0% of the population (681,000 people). Additional details are presented in Figure 2.

Assumptions and Fiscal Impact

Division III of the Bill may increase costs for Medicaid reimbursements by prohibiting prior authorization and additional utilization requirements for specific screenings, diagnoses, and treatments that meet the requirements of the Bill. Any potential fiscal impact is indeterminable.

Fiscal Impact Summary

Any potential fiscal impact of HF 2635 to the State is unknown, but may be significant. The Bill may increase revenues to the UIHC. Divisions I and II of House File 2635 may increase costs to the State of Iowa and the BOR universities’ plans. Division III may increase costs to the HHS. Division IV is estimated to have no fiscal impact.

Sources

• Board of Regents
• Department of Administrative Services
• Department of Health and Human Services
• Department of Insurance and Financial Services, Iowa Insurance Division
• Wellmark
• Legislative Services Agency analysis