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SB 1261

Insurance Companies, Agents, Brokers, Policies - As introduced, imposes requirements for health insurance issuers using artificial intelligence, algorithms, or other software for utilization review or utilization management functions. - Amends TCA Title 8, Chapter 27; Title 56 and Title 71.

114th Regular Session (2025-2026) Introduced by Jeff Yarbro

Tennessee requires AI in utilization review to base decisions on individual clinical data, be non-discriminatory, transparent, overseen, and never override licensed clinician medic

Passed on Second Consideration, refer to Senate Commerce and Labor Committee
#agents #brokers #insurancecompanies #policies
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Bill Summary · SB 1261

Summary of Bill: SB 1261 / HB 1382 (Tennessee, 114th General Assembly)

Core purpose

This bill adds new requirements for health insurance issuers in Tennessee regarding the use of artificial intelligence (AI), algorithms, or other software tools in utilization review or utilization management that determine medical necessity. The intent is to ensure AI-assisted determinations are clinically based, non-discriminatory, transparent, and accountable, with protections for enrollees and alignment with federal guidance.

Key provisions and changes

  • Definitions (Section 56-6-7, new section):

    • Defines “Artificial intelligence” broadly as machine-based systems capable of predictions, recommendations, or decisions with varying degrees of autonomy; includes software and hardware context.
    • Clarifies “Department” as the Department of Commerce and Insurance.
    • Expands the definition of “Health insurance issuer” to include a wide range of entities offering health coverage (e.g., insurers, HMOs, nonprofit hospital/medical service corporations, PBMs, TPAs) and public programs like TennCare and related state health plans.

  • Requirements for AI in utilization review/management (Section 56-6-7):

    • AI tools must base determinations on:
    • Enrollee’s medical/clinical history
    • Individual clinical circumstances presented by the requesting provider
    • Other relevant clinical information in the enrollee’s record
    • Must not base determinations solely on a group dataset.
    • Must use criteria/guidelines compliant with applicable laws.
    • Must not supplant healthcare provider decision-making.
    • Must be non-discriminatory and not cause harm; applied fairly and in accordance with federal guidance.
    • Must not directly or indirectly discriminate against enrollees.

  • ** disclosures and oversight (Section 56-6-7):**

    • Issuers must include disclosures about AI use and oversight in written policies/procedures.

  • Ongoing monitoring and adjustments (Section 56-6-7):

    • Issuers must periodically review AI use, performance, and outcomes; make adjustments to improve accuracy and reliability.

  • Data use protections (Section 56-6-7):

    • Data used by the AI tool must be limited to its stated purpose and compliant with HIPAA.

  • Medical necessity determinations (Section 56-6-7):

    • The AI tool cannot deny, delay, or modify services based on medical necessity. Final determinations of medical necessity must be made by a licensed physician or competent healthcare professional, considering provider recommendations and patient history.

  • Scope (Section 56-6-7(h)-(g)):

    • Applies to prospective, retrospective, or concurrent reviews of service requests.
    • Requires compliance with applicable federal rules and guidance from the U.S. Department of Health and Human Services.

  • Federal funding caveat (Section 56-6-7(i)):

    • If compliance would result in loss of federal funding, the section does not apply to the extent of that loss.

  • Enforcement and remedies (Section 56-6-7(j)-(k)):

    • Violations constitute an unfair claims practice under state law.
    • Individuals may sue in court for actual damages, punitive damages, and reasonable court costs/attorneys’ fees.
    • The Department may promulgate rules to implement the section under the Uniform Administrative Procedures Act.

  • Effective date (Section 2):

    • Takes effect July 1, 2025 for most provisions; the act itself takes effect when lawfully enacted.
    • The act’s rulemaking authority is immediate upon becoming law.

Who is affected

  • Health insurance issuers in Tennessee (including private insurers, HMOs, PBMs, TPAs, and state programs like TennCare and CoverKids through the state plans).
  • Providers and enrollees who interact with AI-driven utilization review processes.
  • The Tennessee Department of Commerce and Insurance and, to a degree, federal health policy compliance teams.

Procedural and timeline notes

  • Schedule: Provisions generally effective July 1, 2025, with rulemaking authority to be exercised under the Uniform Administrative Procedures Act.
  • Enforcement: Violations are treated as unfair claims practices; private civil actions are available.
  • The bill has passed initial committee considerations and advanced stages in the 2025 session.

Fiscal and broader impact (summary)

  • Potential increases in administrative and contractor costs for compliance and monitoring, especially for TennCare and public plan administration, due to added oversight, documentation, and potential shifts away from purely automated decisions.
  • Possible effects on premiums, provider workflows, and utilization-management timelines, depending on how insurers interpret and implement the requirements.
  • Overall aim to strengthen consumer protections around AI-used utilization decisions while preserving clinical judgment and federal compliance.

Compiled from official sources — confirm details with the bill’s official record.

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