107 Iowa L. Rev. 423 (2022)

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Abstract

Health insurance contracts have long excluded coverage for care that is “experimental” or not “medically necessary.” Historically, insurance policies defined these key terms of coverage using broad standards. For example, “medically necessary” care might be defined as care that is “generally accepted in the medical community.” This contractual structure provided insurers with significant flexibility when making coverage determinations, even though denying coverage could pad their bottom line. For this reason, lawmakers developed various tools to prevent insurers from exploiting their discretion to determine when care was “medically necessary” or “experimental.” These safeguards allowed insureds to challenge coverage denials internally within the insurance company, externally to an independent medical expert, and before courts via a contract law or ERISA cause of action. Additionally, state and federal mandates required insurers to cover specific medically necessary treatments and services. This Article documents a dramatic shift in health insurers’ contracts and practices from a standard-based approach to determining the medical and scientific appropriateness of health care towards a rule-based approach for making these determinations. It shows how health insurers have increasingly made incredibly detailed and specific rules of medical necessity part of their formal contractual obligations to policyholders. The Article then argues that health insurers’ shift from standards to rules for defining medically and scientifically appropriate health care undermines the effectiveness of traditional legal tools designed to constrain the risk of health insurer over-reaching. The Article concludes by exploring reforms that might effectively address the increasing rulification of medical necessity.