Payer Consolidation, AI Arms Races, and the Future of Prior Authorization with Jakob Emerson

Summary

Podcast Summary: Becker’s Healthcare Podcast

Episode Title: Payer Consolidation, AI Arms Races, and the Future of Prior Authorization with Jakob Emerson
Air Date: December 19, 2025
Host: Scott Becker
Guest: Jakob Emerson, Payer Reporter

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Episode Overview

In this insightful episode, Jakob Emerson, a leading reporter on the payer space, joins host Scott Becker to discuss major trends shaping U.S. healthcare in late 2025. The main focus is on two transformative forces: rapid payer consolidation—especially among Blue Cross Blue Shield (BCBS) plans—and the intensifying “AI arms race” between health systems and insurers over coding, revenue, and prior authorization. The episode sheds light on how these changes are driving industry friction, reshaping provider-payer relationships, and impacting all healthcare stakeholders, including patients and employers.

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Key Discussion Points & Insights

1. Blue Cross Blue Shield: The New Era of Payer Consolidation

[01:27-05:52]

• Consolidation Trend:
  Smaller BCBS plans are struggling to compete with large national payers due to technological demands and scale.
• Affiliation vs. Merger:
  • Highmark (Pittsburgh) is affiliating with Blue Cross of Kansas City, sharing tech and claims processing while maintaining independence.
  • Cambia Health is acquiring Arkansas and North Dakota Blue Cross plans; Vermont BCBS merged with Michigan’s plan previously.
  • Hawaii’s largest insurer is exploring a merger with the state’s largest health system.
• Not-for-Profit vs. For-Profit Dichotomy:
  • Many regional Blues plans remain not-for-profit, unlike Elevance Health (former Anthem Blue Cross), which is now publicly traded and for-profit.
  • "It's totally different all over the country. Some of them are nonprofits... but then... a lot of them are part of larger holding companies that are publicly traded. So it's kind of yes, they are, but no they aren't." — Jakob Emerson [04:19]
• Survivor Health Systems:
  • UPMC, Kaiser Permanente & Intermountain (Select Health) cited as rare success stories of vertically integrated health system-owned plans; most others struggle.
  • “It’s turned out to be a pretty difficult business model to stay turning a profit.” — Jakob Emerson [05:04]
• Broader Implications:
  • Payer and health system plans need significant scale and technological sophistication to survive.

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2. The AI Arms Race: Payer vs. Provider

[00:22, 05:52–11:43]

• The Situation:
  • Both insurers and health systems are heavily investing in AI to optimize coding, claims, and revenue.
  • This has sharpened the adversarial dynamic, raising friction over prior authorizations, denials, and revenue cycle management.
• Insurer Perspective:
  • CEOs like Elevance Health’s flag "aggressive provider coding" as a key driver of rising costs.
• Provider Pushback:
  • Hospital execs argue that blaming AI-driven provider coding is scapegoating; they see payer-driven administrative friction and denials as the bigger issue.
  • "BOTS battling the bots is a very real thing," as summarized from Dr. Sachin Jain’s recent quote:
    • “This should be a wake up call for all of us to think about designing a different healthcare system. Because this is so much wasted effort... huge administrative infrastructures, huge middleman economy... trying to figure out how to get paid and how to deny payment instead of... streamline[ing] the actual experience of healthcare... Can we end all of this madness? It is absolute madness.” — Dr. Sachin Jain, retold by Jakob Emerson [08:52]
• Mutual Margin Pressure:
  • Both insurers and health systems are experiencing financial strain; everyone’s margins are down, except for CVS/Aetna.
  • Costs are rising for consumers and employers: “What a mess overall.” — Scott Becker [08:12]
• Examples of AI Use:
  • UnitedHealth leveraging “a thousand AI use cases” including coding/claims.
  • Hospitals deploying “ambient listening” and other AI tools to more accurately capture services delivered (and bill accordingly).

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3. Regulatory and Policy Developments

[10:18–11:43]

• Medicare Adopts AI for Prior Authorization:
  • As of January 1st, 2026, CMS will implement prior authorization requirements for traditional Medicare, using AI vendors—some affiliated with major insurers.
• State Responses:
  • Proposed NH legislation would ban insurers’ use of AI for provider audits.
• Host Perspective:
  • “There’s really no way around using some of these technologies to try and police... health care. So there’s no way around this... Trying to stop technology entirely from being involved seems insane.” — Scott Becker [11:09]
• Looking Ahead:
  • AI is moving from pilot phase to full deployment. Next year (2026) is expected to be the year health systems see the true financial and clinical impact of AI adoption.
  • “If you considered this year the era of the pilot of AI within your health system, then next year's the full... It's here, it's implemented, the data is coming back.” — Jakob Emerson [11:43]

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Notable Quotes & Memorable Moments

• On the Madness of Administrative Overhead:
  • "Can we end all of this madness? Because it is absolute madness." — Dr. Sachin Jain via Jakob Emerson [09:30]
• Complexity of the Blues’ For/Nonprofit Status:
  • "It's kind of yes, they are, but no they aren't. If that makes sense." — Jakob Emerson [04:19]
• On Consolidation:
  • "Long story short, the Blues plans are consolidating because we are no longer in an era where they can go it alone." — Jakob Emerson [03:22]
• Provider vs. Insurer AI Use:
  • "The providers are now having to play catch up and... employ tools like ambient listening... to make sure... they're coding all the services that are actually being provided." — Jakob Emerson [07:15]
• Host's Summation of the Tension:
  • "What a mess overall." — Scott Becker [08:12]

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Key Timestamps

• 00:22 — Introduction to the “AI arms race” and BCBS consolidation
• 01:52 — How “affiliations” work among regional BCBS plans; illustrative examples
• 03:56 — Nonprofit vs. for-profit Blues; survivability and the need for scale
• 05:04 — Vertically integrated models: who’s succeeding (UPMC, Kaiser, Intermountain)
• 05:52 — The reality and impact of the AI arms race in payer/provider relationships
• 08:52 — Dr. Sachin Jain’s quote on the “madness” of admin-focused AI
• 10:18 — Regulatory landscape: Medicare using AI in prior auth, states responding
• 11:43 — 2026 will be the “full implementation year” for AI in healthcare

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Tone and Takeaways

• Tone:
  Candid, informed, and pragmatic with a touch of exasperation at the complexity and inefficiency of current U.S. healthcare administration.
• Main Takeaway:
  Payer consolidation is accelerating, driven by the overwhelming need for scale and sophisticated technology. Meanwhile, the AI arms race between payers and providers is making administrative burdens and friction worse, often at the expense of both margins and the patient experience. Regulatory frameworks are playing catch-up, and 2026 is shaping up to be a pivotal year for real-world AI impacts in healthcare.

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Transcript

[A]

This is Scott Becker with the Becker Healthcare Podcast. We're thrilled today to be joined by Jacob Emerson. Jacob covers the payer space better than anybody else that we know. I always get a chance to learn something when I visit with Jacob. Jacob, let me ask you to take a moment and share with us a couple of the stories that you're watching currently in the payer space.

[B]

Sure. Good to talk with you, Scott. I thought two broad stories we could talk about today. The first one being something that our finance team has really been clued in on over these last few months. And it's this emerging AI arms race that we're seeing really pick up between insurers and health systems, probably providers more broadly across the country. But for our purposes, we're hearing from Health Systems about just all the new AI tools that both sides are using to basically maximize the coding revenues that they can get in terms of services that are delivered or code better, depending on who you're talking to. And that's causing a lot of more friction than normal in that type of relationship. And then I also thought we could touch briefly on some of the latest updates that's happening across the Blue Cross Blue Shield system in terms of, you know, these are, these are smaller insurers relatively compared to some of the big national players. And so talking a little bit about what they're doing to counter the fact that they are having a harder time keeping up with some of these larger players.

[A]

Thank you. Take a moment on what you're seeing there with the Blues. I'd love to hear about that. And then the arms race between payers health systems and the fighting over pre authorizations denials and just, oh my goodness, the challenges health systems have getting paid in this world of, of highly intelligent systems fighting with each other. Yeah. Talk to us about the Blues compared to the big, big payers and what that's looking like.

[B]

Well, we just talked with the entire C suite team at Highmark, which is based over in Pittsburgh. It's a big integrated company with its own health system, its own insurance arm. It operates multiple Blue Cross affiliates on the east coast. And Highmark is now going to be affiliating with the Blue Cross plan in Kansas City. It's the only city specific Blues plan there is. And, and I say affiliation because for all intents and purposes, Scott, for for most people it's a merger. But they're the blues. Plans are calling these deals affiliations largely because the, the actual companies pretty much stay the same in terms of their C suites, their boards, their, their headquarters where they operate from, but they can share things like technology, claims abilities, stuff like that. So basically pooling resources versus doing it on their own and like I said, doing it all so they can stay competitive with the national pairs who of course do have those capabilities, especially when it comes to technology. And so Highmark and Blue Cross of Kansas City is just the most recent that we heard this year. But we hear heard that Cambia Health Solutions, which is, it's a parent company of Regents which owns the Blue Cross plans. On a lot of Blue Cross plans on the west coast they're going to be picking up the Arkansas Blue Cross plan and then also the North Dakota Blue Cross plan. And we saw a similar deal a few years ago with the Vermont plan becoming a subsidiary of the Michigan plan. So basically, long story short, the Blues plans are consolidating because we are no longer in an era where they can go it alone. And so I think it's probably fair to say that we will see other types of these deals in the year to come. And then we also saw the Hawaii plan is going to be looking at a merger with a health, the largest health system in Hawaii. So basically the largest insurer. Largest insurer and the largest health system would become one large vertically integrated company. So different strategies playing out but, but all a consolidation trend.

[A]

But really remarkable in these like Highmark in Kansas City are still not for profits.

[B]

Yeah.

[A]

Compared to Elevance Health, which was the old Anthem Blue Cross, which is a consolidation of several plants which is now fairly in the squarely in the for profit range and publicly traded. These other plans remain not for profit. Correct. Exempt not for profit. Right.

[B]

It's, it's totally different all over the country. Some of them are, are nonprofits, especially if they're still independent. But then to your point, a lot of them are part of larger holding companies that are publicly traded. So it's kind of yes, they are, but no they aren't. If that makes sense.

[A]

Yeah, no, no. It just depends on the plan and depends on the situation. The elevators and the Blue Cross and a variety of others. Got it. It's publicly traded, but you're got it. But some of these other plans, many are for profit, many are not for profit. Fascinating. But I think the take home point is harder and harder for smaller independent plans as well as harder and harder for health system plans to really compete in a very sophisticated technology technology world that also requires a lot of scale to operate.

[B]

Definitely. And I would say in terms of where we're seeing some of the health System operated plans be successful. It's few and far between if I'm being honest with you, Scott. And I would say at this point, I think upmc, Kaiser Permanente and then Intermountain through their Select Health arm are probably, probably to be the most successful right now in terms of operating those vertically integrated models. But you know, the rest. I don't want to say all, but they're struggling for sure. It's turned out to be a pretty difficult business model to stay turning a profit.

[A]

Thank you. And very, very challenging for smaller systems. The three that you mentioned are very broad systems with lots of market strength and lots of economies of scale.

[B]

Yes, definitely. And then the other story I thought we could touch on today is this AI arms race that to be frank, is if we any hospital CFO about this at this point, they do have an opinion about it because they're seeing it on the ground. And then the insurers are being, or at least some of them are being pretty candid about that. This is a notable impact on their financials during their earnings calls with investors. And so this past year as we're digging through those earnings calls, the just for example, elevance the CEO, they're flagging elevated utilization rates in terms of care that's being utilized. And that's nothing new this year. But, and then cost pressures that they're blaming on aggressive provider coding and that's a direct quote for driving up costs. But then when we talk to hospital executives about this, you know, they, they push back on that saying that it's a, almost a scapegoat about, about a very real problem, which is that continued adversarial payer provider dynamic that's now being further fueled by automatic denials administrative friction that is seems to be getting worse with, with the advent of all the new AI so hardware and tools that both sides are employing to basically get as much money as they can from the other. And so that's basically what we're seeing. And to be fair, insurers are facing very real cost pressures. We know care utilization is definitely up. The GLP1 factor is massive behavioral care, ER visits. It's all up. So these are very real things. But then on the flip side, we also know that for example, like UnitedHealth, they have a thousand AI use cases across the company right now and that includes, you know, using AI for, for coding and things like that. And so basically the providers are now having to play catch up and they're having to employ tools like ambient listening, for example, to make sure that they're capturing all or that they're coding all the services that are actually being provided. And then now and then insurers come back on those earnings calls, like I mentioned, and saying that aggressive provider coding is driving up costs. So it's a very real friction that's like it's always existed, but it's been, it's getting worse because of AI and.

[A]

Both of them are having margin challenges. The large insurance companies, other than cvs, which is cvs, Aetna and pbms, all the big payers are down this year. The big health systems are barely making margins. And everybody's concerned about the change of subsidies, which seems to benefit both the health systems and the insurers, but probably causes healthcare inflation too. So what you've got is this ongoing arms race between the two and at the same time cost pressures on the average consumer, the average employer, all of us going up significantly too for health insurance and our healthcare cost. So what a mess overall.

[B]

Yeah. And I think, you know, a really poignant quote that I heard yesterday during an interview with Dr. Sachin Jain, who's the president and CEO of Scan Group Group, the Medicare Advantage company over on the West Coast. He used to be at a subsidiary of Elevance. He used to be in the federal government working on health care policy. So he's an expert on this kind of thing. And he said that right now they're seeing this themselves, that it's the bots. Battling the bots is a very real thing. And to quote him, he said this should be a wake up call for all of us to think about designing a different healthcare system. Because this is so much wasted effort that there's now these huge administrative infrastructures, huge middleman economy in healthcare that is basically armed to do nothing that's related to actual patient care, that everybody's spending all this effort trying to figure out how to get paid and how to deny payment instead of figuring out how to streamline the actual experience of healthcare. And then he ended his quote by basically saying, I think we should all take a pause and say, can we end all of this madness? Because it is absolute madness. So that's him directly responding to me asking about this AI arms race trend that we're hearing about from both sides right now.

[A]

Well, his thoughts seem to many of us to be right on. There's so much cost spent in the administration of health care versus providing health care and it seems to just be another piece of what's blowing up. All of the cost in healthcare.

[B]

Yeah, absolutely. And you know, this all comes amid the context of the fact that come January 1st, CMS is going to be implementing prior authorization requirements for some services under Medicare, traditional Medicare, for the first time. And they're going to be using AI vendors that they've already selected, many of which are backed by or used by these large insurers to, to do this. And then we're also seeing some states, New Hampshire lawmakers introduced a bill in the last few weeks that would prohibit insurers from using AI to conduct audits of provider codes. So there is, you know, there's a, there's a policy context here, too. Some of the states seem to be getting involved or at least have their eye on this. And then at the federal level, Medicare is, is going to be jumping into this very issue. So we'll see how that goes. You know, there's nothing that's happened yet, so we can't judge what's being done. But. But that's also a big piece of this conversation too, I think.

[A]

And I mean, the reality is there's really no way around using some of these technologies to try and police what are the cost of health care. So there's no way around this. And it's a matter of how it's used and in actual how that authority is exercised and so forth. And I mean, you could try and guard against the abuses, but trying to stop technology entirely from being involved in these processes seems insane. It hits a populist tone. We're not going to use AI to deny your claims, but the reality is, whether that's good policy or not, it's a totally different thing. Yeah.

[B]

Well, I think one thing is for sure that next year we're going to hear about this more and more. I was reading a piece by Molly Gamble here on our team about just AI in healthcare overall and some of the predictions going into next year based off of what leaders are telling us. And if you considered this year the era of the pilot of AI within your health system, then next year's the full. It's here, it's implemented, the data is coming back. We're now going to fully see what this is doing on, on health outcomes and then ultimately of course, on revenues as well.

[A]

Fantastic. I want to. Jacob, always learning something when I talk with you. I want to thank you for joining us today on the Beckers Healthcare podcast. You do an incredible job. Thank you very much for joining us.

[B]

Thank you, Scott.