Why do health insurance companies deny claims – Compete Guide

This guide explains the most common reasons claims are denied, how denials affect providers and patients, concrete prevention tactics, and steps to take after a denial – all grounded in industry reporting and payer guidance.

Top Reasons Health Insurance Companies Deny Claims

Below are the most common denial drivers, with practical examples and why they matter.

Incomplete or Incorrect Patient Information

Many denials begin at intake. If names are misspelled, dates of birth are incorrect, or insurance ID numbers are wrong, the payer cannot match the claim to the member’s coverage and may deny payment. Correct demographic and insurance data is a basic but critical barrier to clean claims.

Coding and Billing Errors (ICD-10, CPT, HCPCS)

Billing depends on standardized code sets. Common coding errors include:

• Using outdated or incorrect ICD-10 diagnosis codes
• Submitting CPT/HCPCS procedure codes that don’t match the clinical documentation
• Missing or incorrect modifiers
• Unbundling (billing separate codes for services that payers consider part of one procedure)

These mistakes trigger automated denial logic or manual reviews. Accurate coding is essential not only to get paid but to avoid audits and recoupments later.

Lack of Prior Authorization or Referral

Many insurers require prior authorization for specific services – for example, advanced imaging, elective surgeries, or certain specialty medications. If the provider performs a service without obtaining required authorization, the payer may deny the claim even if the service was clinically appropriate.

Medical Necessity Determinations

Payers routinely assess whether a billed service meets their definition of medical necessity. If clinical evidence in the chart does not match payer criteria (e.g., frequency, severity, prior conservative care), the insurer can deny it as not medically necessary. This is a common reason for denials in imaging, therapy visits, and newer or experimental treatments.

Out-of-Network Provider Issues

If a patient receives care from an out-of-network provider, coverage levels may be reduced or denied entirely, depending on the plan type (HMO vs. PPO, etc.). Verifying network status before scheduling non-emergency care reduces this risk.

Timely Filing and Submission Windows

Payers set strict windows for submitting claims, commonly ranging from 90 days to 12 months after the date of service, depending on the insurer and contract. Claims submitted after the allowed window are commonly denied for late filing. (Read More about Timly Filing)

Duplicate or Conflicting Claims

Duplicate submissions – sometimes caused by multiple billers, resubmissions without proper identifiers, or denials not logged – are often flagged and denied by payers’ systems as potential double billing. Clear internal claim status tracking prevents inadvertent duplicates.

Coverage Exclusions and Benefit Limitations

Policies explicitly exclude certain services (e.g., cosmetic procedures, some elective treatments). Additionally, benefit caps (e.g., limited number of therapy sessions per year) can lead to denials when limits are exceeded. Knowing plan exclusions up front avoids surprises.

Common Denial Codes and What They Mean

Payers use denial reason codes (for example, CARC/RARC in the U.S.) to communicate why a claim was denied – whether for missing authorization, non-covered service, patient ineligibility, or coding mismatch. Learning the most frequent codes for your major payers speeds triage and remediation.

How Claim Denials Affect Medical Practices

Denials increase administrative workload, delay cash flow, and raise the cost of care delivery. Practices must spend time investigating denials, assembling documentation, and resubmitting or appealing claims – work that distracts from patient care and erodes margins. High denial rates can materially affect a practice’s financial health, making prevention and efficient appeals management a top priority.

How to Prevent Health Insurance Claim Denials

• Front-end verification: Check eligibility, policy details, and referrals at scheduling and again at check-in. Real-time eligibility tools reduce surprises.
• Use claim-scrubbing software: Automated pre-submission checks catch coding mismatches, missing modifiers, and format errors.
• Standardize prior authorization workflows: Treat authorizations as requisite steps with accountable staff and tracking.
• Strengthen documentation: Ensure clinical notes clearly justify services billed and include objective findings and prior treatments.
• Train billing staff continuously: Coding rules change frequently; periodic training limits human errors.
• Monitor payer-specific denial trends: Track denials by payer and CPT/ICD to find problem areas that require targeted fixes.

What to Do After a Claim Is Denied

• Read the denial carefully – identify the denial code and the reason.
• Classify the denial – administrative (fixable and resubmit), clinical (may need additional documentation), or contractual (not covered).
• Correct and resubmit if it’s an administrative error (demographic/coding/filing window).
• Assemble an appeal for clinical denials: include chart notes, prior-auth details, relevant guidelines or peer-reviewed evidence, and a clear cover letter explaining why the service meets medical necessity.
• Escalate when appropriate – many payers have multi-level appeals and external review processes.

Role of Medical Billing Companies and Technology

Outsourced billing firms and modern RCM platforms can reduce denials by providing expertise in coding, automated scrubbing, eligibility verification, and appeals management. For practices without the bandwidth to keep pace with payer rules, specialized billing partners can improve clean claim rates and accelerate reimbursement.

A2Z Billing is a leading firm specializing in preventing claim denials, ensuring your reimbursements are secure. They also offer complimentary audits to identify and resolve potential issues. Contact us today.

Conclusion

Claim denials are a pervasive and avoidable drain on healthcare finances and patient experience. The most frequent causes – incorrect patient data, coding/billing errors, missing authorizations, medical necessity questions, timely-filing misses, and network issues – are largely preventable with rigorous intake processes, accurate coding and documentation, payer-specific workflows, and persistent appeals where appropriate. For practices, investing in front-end verification, coder education, claim-scrubbing tools, and appeals expertise yields better cash flow, fewer patient disputes, and a healthier revenue cycle.