AN ACT to amend Tennessee Code Annotated, Title 8, Chapter 27; Title 56 and Title 71, relative to health insurance.
SB1261 would regulate the use of artificial intelligence, algorithms, and other software tools by health insurance issuers when they perform utilization review or utilization management for covered health care services. The bill defines covered issuers broadly to include insurers, HMOs, nonprofit hospital and medical service corporations, pharmacy benefits managers, third-party administrators, and several public coverage programs such as TennCare, CoverKids, Access Tennessee, and state employee group insurance plans.
The bill requires that any AI or algorithm used in these functions rely on an enrollee’s medical and clinical history, the provider’s clinical presentation, and other relevant medical record information, rather than solely on group datasets. It also requires compliance with state and federal law, prohibits the tool from supplanting provider decision-making, and bars discriminatory or harmful use. The issuer must maintain written disclosures and procedures, periodically review the tool’s performance, and ensure patient data is not used beyond its intended purpose under HIPAA. Most notably, the bill states that AI or software tools may not deny, delay, or modify care based in whole or in part on medical necessity; that determination must be made only by a licensed physician or qualified licensed health professional reviewing the specific clinical circumstances.
The bill applies to prospective, retrospective, and concurrent utilization review of covered services, and it authorizes the Department of Commerce and Insurance to adopt rules. A violation is treated as an unfair claims practice, subject to existing penalties, and the bill also creates a private right of action allowing an aggrieved individual to recover actual damages, punitive damages, and attorney’s fees. The act would take effect July 1, 2025, with immediate effect only for rulemaking.
Its impact on Tennessee law would be significant for health insurance regulation, especially by limiting automated prior authorization and utilization management practices. It would add new statutory duties for insurers and related entities, expand oversight by the Department of Commerce and Insurance, and create new enforcement exposure through both administrative penalties and civil litigation. The bill also includes a safeguard that it will not apply to the extent compliance would cause a loss of federal funding.
Because there are no committee transcripts or recorded votes provided, the overall sentiment cannot be measured from debate or roll call history. Based on the bill text alone, the measure appears consumer-protective and provider-supportive, aiming to ensure medical necessity decisions remain human-led and clinically grounded. Likely points of contention would include the scope of the AI restrictions, the private cause of action, potential compliance costs for insurers and public programs, and whether the bill could conflict with federal requirements or existing utilization management practices.
SB1261 would amend Tennessee insurance law to impose detailed requirements on health insurance issuers that use artificial intelligence or other software in utilization review and utilization management. It would create new statutory standards for decision-making, disclosure, periodic review, data use, and medical-necessity determinations, while making violations an unfair claims practice and authorizing private lawsuits. The bill would affect private insurers, managed care entities, pharmacy benefits managers, third-party administrators, and public coverage programs including TennCare and state employee health plans.
No committee discussion or vote history was provided, so there is no recorded legislative sentiment to summarize from debate or roll calls. On its face, the bill reflects a protective approach toward patients and providers by limiting automated coverage decisions and requiring human clinical judgment. The measure appears aligned with concerns about prior authorization, algorithmic bias, and insurer use of AI in claims and utilization management.
The main likely points of contention are the bill’s broad restrictions on AI-driven utilization management, the requirement that medical necessity determinations be made only by licensed clinicians, and the creation of a private cause of action with actual, punitive, and attorney-fee remedies. Insurers and managed care entities may object to increased administrative burden, litigation risk, and limits on automation, while supporters are likely to emphasize patient protections, transparency, and preventing discriminatory or non-clinical denials of care. The federal-funding carveout also suggests possible concern about conflicts with federal Medicaid or HHS requirements.