The health insurance industry is undergoing significant changes due to advances in technology. Wearable devices have become ubiquitous and are capable of sending vital health information directly to providers and insurers. Large life insurance providers are mandating the use of wearable devices as a contract term for receiving certain insurance plans. Insurance claims, traditionally filed by paper at the office of the health provider, are now processed automatically over the internet in a fraction of the original time. Understanding the influence of technology on this industry is vital in preparing for future advancements.

History of Health Insurance

The American health insurance industry rose to prominence during World War II, when wage caps forced employers to offer benefits in order to attract employees. From humble beginnings, the industry has grown into a monolithic, multi-billion dollar industry. Growth in the past decades has been explosive, but little pressure has existed pushing insurance companies to modernize their operations.

Recent announcements, however, have put pressure on existing industry giants to integrate advanced technologies with their operations. Large technology companies like Amazon have announced plans to enter the insurance industry, and artificial intelligence promises to drastically reduce insurance costs.

Transforming Insurance: Wearable Technology

Wearable devices and the Internet of Things have created a vast pool of data about people’s health. Some devices, like the Apple Watch, provide data from sensors precise enough to accurately detect abnormal heart rhythms 97% of the time. Insurance giants like John Hancock have begun leveraging this data pool, mandating or offering discounts to users who provide data to the insurer from their wearable devices. This data could eventually be used to detect health trends amongst entire populations.

While this data could be used for good, it is important to consider the potential dangers of this change. The American Medical Association warns that wearables may worsen existing health care disparities by restricting discounted insurance to individuals with the means of purchasing a wearable device. The privacy protections of wearable data are also uncertain, as HIPAA does not explicitly cover data from smart technologies. Technology companies are pushing to make their devices HIPAA compliant regardless, expecting future expansions of regulation as data sharing becomes more common.

Improvements in Claims Processing

Health insurance claims processing represents a significant portion of spending in the health care system. Inefficiencies and errors in this process can result in significant cost accrual; these costs are, more often than not, passed down to the consumer. A significant amount of software has been written in the past decade that has allowed insurance providers to automatically adjudicate more than 85% of incoming insurance claims. This has resulted in massive savings; a claim can be adjudicated automatically for less than a quarter, while a manually reviewed claim can cost the insurance company more than $20.

Future cost improvements in claim processing will likely come from artificial intelligence. This technology could further reduce the need for human intervention in the adjudication process, bringing the automatic processing rate up to 95% or higher. This improved rate could result in further billions being saved in administrative costs each year. There are risks involved in introducing AI to the insurance market, however. It is very difficult to prove causality in any machine learning algorithm, which may inhibit an artificial intelligence’s ability to confidently and accurately approve or deny an insurance claim. Bias is a major concern, as any algorithm could pick up biases against any group of people, medical condition, geographic location, etc. Furthermore, claims denied by an artificial intelligence without human review raise questions about the rights and agency of the patient whose medical claim was denied.