SB 3114
TRANSPARENCY IN DOWNCODING ACT
TL;DR
Illinois SB 3114, introduced by Sen. Dave Koehler with broad bipartisan support, would require health insurers to disclose when they use AI or algorithms to 'downcode' medical claims (paying providers less than what was billed by reassigning codes). Insurers would have to explain the downcoding decision, identify whether AI was involved, and give providers a way to appeal.
How This Might Impact Your Business
Health insurers operating in Illinois would need to disclose every time they downcode a claim, including whether an AI or algorithm made or assisted the decision.
Insurers using automated claim review tools (Optum, Cotiviti, EXL, internal ML models) would need to document the specific reasoning behind each downcoded claim, not just the outcome.
Healthcare providers (hospitals, physician groups, billing companies) gain a formal appeal pathway, which means insurers should expect higher appeal volumes and need staffing to handle them.
Revenue cycle management vendors and AI claims-adjudication startups selling into Illinois payers would need product changes to surface AI involvement and rationale in a provider-facing format.
Non-compliance would likely fall under Illinois Department of Insurance enforcement, exposing insurers to regulatory penalties and potential bad-faith claims from providers.
Bill is still in introduced status with no effective date set, but the large bipartisan co-sponsor list (60+ legislators) signals strong momentum toward passage.
Self-insured ERISA plans would likely remain exempt under federal preemption, narrowing direct impact to fully-insured commercial, Medicaid managed care, and state-regulated plans.
What Should You Do
Health insurance executives should inventory every automated or AI-assisted tool currently used in claims adjudication and coding review, and confirm each can generate a human-readable rationale.
Compliance and legal teams should draft template downcoding disclosure and appeal notices now so they can be deployed quickly if the bill passes.
Provider organizations and billing companies should prepare to capture and track downcoding notices to build appeal workflows and identify payer patterns.
Vendors selling AI claims tools to Illinois payers should add transparency and audit-log features to their roadmap and brief payer clients on readiness.
Monitor the bill through Illinois Senate Insurance Committee; given the 60+ co-sponsor list, assume passage is plausible and plan a 6 to 12 month implementation runway.
Who It Affects
Sponsors
Status Timeline
introduced
Added Alternate Co-Sponsor Rep. Lawrence "Larry" Walsh, Jr.
May 27, 2026