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Illinois bars automated downcoding outright and puts a person on every adjustment

Public Act 104-0568, the Transparency in Downcoding Act, prohibits health insurers from using an automated process to downcode a claim at all, requires a natural person to make or review every downcoding determination under current AMA CPT guidance, and gives health care professionals a 90-day dispute path. Approved July 10, 2026, effective January 1, 2028.

By Anthony Guerriero  ·  Published July 31, 2026  ·  Last updated July 31, 2026

Several 2026 state enactments on artificial intelligence in insurance and health coverage have required a licensed human to make or review an adverse call from an automated system. Illinois has taken a different route on one specific practice. The Transparency in Downcoding Act does not ask for human review of an automated downcode. It prohibits the automated downcode.

Downcoding is the practice of an insurer replacing a submitted billing code with one that reflects a less intensive, lower-paying service. It differs from a denial, which is why it has largely escaped the prior authorization statutes moving through other states. The claim is paid. It is paid at a lower level, and often without a clear explanation to the physician who submitted it.

How it moved

SB3114 was filed on February 2, 2026 and given its first reading in the Senate the same day. It was assigned to the Insurance Committee on February 10, passed committee 10-0 on March 11, and cleared the Senate on third reading 59-0 on May 14. The House Insurance Committee passed it 15-0 on May 26, and the House passed it 111-0 on May 27. It was sent to the governor on June 25 and approved on July 10, 2026, becoming Public Act 104-0568.

Chief sponsors were Senator David Koehler and Representative Sharon Chung, with chief co-sponsors including Senators Julie Morrison, Cristina Castro, and Robert Peters, and Representatives William Hauter, Jeff Keicher, and Katie Stuart. The bill did not attract a single recorded no vote in either chamber.

The prohibition is on the automation, not the oversight gap

The act's central provision prohibits a health insurance issuer from using an automated process, system, or tool to downcode a claim. That phrasing is broader than an AI-specific rule. It reaches rules engines and deterministic claim-edit software as readily as it reaches a machine learning model, because the trigger is automation rather than the technique.

Two further prohibitions accompany it. An issuer may not downcode a claim based solely on the reported diagnosis codes, and may not use downcoding practices in a targeted or discriminatory manner against physicians. Contemporaneous reporting on the bill's passage tied that second prohibition to physicians who routinely treat patients with complex health conditions, whose coding patterns will legitimately skew toward higher intensity.

Compliance teams should note what this does to a common remediation strategy under other state "human review" models, where an organisation can keep its automated pipeline and add a licensed reviewer at the adverse determination. Under the Illinois act, adding a reviewer does not cure the use of an automated tool to perform the downcode itself. The pipeline has to change, not just the sign-off.

Who decides, and against what standard

All downcoding determinations must be made or reviewed by a natural person, and that person must follow the American Medical Association Current Procedural Terminology coding guidelines in effect at the time.

Tying the standard to the CPT guidelines "in effect at the time" is a meaningful drafting choice. It prevents an issuer from adjudicating against a frozen internal ruleset that has drifted from current coding practice, and it gives a disputing physician an external, dated reference to argue from.

Notice and the dispute window

The act requires issuers to notify physicians when a service is downcoded, and to provide health care professionals a clear process to dispute downcoded claims within 90 days.

Notification is the provision with the largest practical effect on revenue cycle work. Historically, downcoding has often surfaced to practices as payment variances rather than through direct notice; the act requires issuers to notify physicians when a service is downcoded. An affirmative notification duty converts that into a reviewable event with a clock attached.

Preemption and the effective date

The act prohibits home rule units from regulating downcoding of medical claims in policies issued, amended, delivered, or renewed on or after January 1, 2028. Illinois has therefore set a single statewide standard rather than allowing a municipal patchwork.

The January 1, 2028 effective date gives issuers a relatively long runway, and the renewal-based trigger means the obligations phase in across policy years rather than switching on for the whole book at once. Issuers with staggered renewal dates will operate under two regimes during 2028.

Illinois has also enacted HB3773 addressing AI in employment and SB315, the Artificial Intelligence Safety Measures Act, signed in July 2026. The downcoding act extends the state's activity into claims adjudication and takes a comparatively restrictive posture toward automation in that context.

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Drafted with AI assistance and verified against the primary source by a human editor. Informational only, not legal advice.