UnitedHealthcare Must Face State Law Claims in Class Action Suit for AI Driven Coverage Denials of Medicare Advantage Claims

Daytime television inundates American seniors with advertisements for UnitedHealthcare’s (“UHC”) Medicare Advantage Plans. On its website, UHC claims its Medicare Advantage Plans “stand out from the rest,” providing “unmatched benefits, exceptional care and coverage.”^[1] The plaintiffs allege otherwise in a putative class action against UHC and its affiliates that takes them to task for their “illegal deployment of artificial intelligence (AI) in place of real medical professionals to wrongfully deny elderly patients care owed to them under Medicare Advantage Plans.”^[2] In the case, Estate of Gene B. Lokken et al. v. UnitedHealth Group Inc. et al., filed in UHC’s backyard, the U.S. District Court for the District of Minnesota, the plaintiffs allege that UHC is “overriding their treating physicians’ determinations as to medically necessary care based on an AI model that Defendants know has a 90% error rate,” and because “they know that only a tiny minority of policyholders (roughly 0.2%) will appeal denied claims.”^[3]

The plaintiffs, who are UHC Medicare Advantage Plan customers and the estates of deceased customers, filed a class action complaint against UHC in November 2023, which was amended in April 2024, and asserts state law claims, including breach of contract and breach of the implied covenant of good faith and fair dealing, unjust enrichment, insurance bad faith, negligence per se, unfair and deceptive insurance practices, and unfair competition.^[4] UHC moved to dismiss the plaintiffs’ complaint on the grounds that the Medicare Act preempted the state law claims. On February 13, 2025, U.S. District Court Judge John Tunheim denied UHC’s motion in part, ruling that the Medicare Act did not preempt plaintiffs’ claims for breach of contract and breach of the implied covenant of good faith and fair dealing, but dismissed the balance of state law claims.^[5]

Federal preemption of state law claims is rooted in the Supremacy Clause of the U.S. Constitution, which states that federal law “shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”^[6] “In other words, ‘state laws that conflict with federal law are without effect.’”^[7] Health insurance companies like UHC routinely argue the Medicare Act shields them from liability for conduct while administering plans governed by the Medicare Advantage (“MA”) Program, also known as Part C. The MA Program was first authorized in 1982 and grew out of the push to privatize Medicare. MA beneficiaries receive their Medicare benefits through a private health insurance company instead of traditional Medicare. The Medicare Act states, “‘[t]he standards established under [Part C] shall supersede any State law or regulation.”^[8] However, the district court acknowledged the circuits are split with respect to the scope of the Medicare Act’s preemption clause (with other circuits adopting a broader interpretation),^[9] and referenced the United States Court of Appeals for the Eighth Circuit’s decision in Pharmaceutical Care Management Association v. Wehbi^[10] for the proposition that state common law claims are not preempted if they do not apply to the same subject matter as or frustrate standards of the Medicare Act.^[11]

The Estate of Gene B. Lokken plaintiffs allege that UHC employed an AI tool to determine coverage criteria and make decisions for post-acute care related to its MA enrollees. They further allege that the AI tool used “rigid and unrealistic predictions for recovery” and that UHC systematically denied necessary medical coverage based on such predictions — which overrode the treatment recommendations made by the elderly patients’ physicians. As a result, the plaintiffs claimed that UHC breached its express promises in the Medicare Advantage Plan contracts and acted in bad faith by wrongfully refusing to fulfill its obligations to elderly customers with serious medical conditions. In its ruling on UHC’s motion to dismiss, the court first distinguished the Supreme Court’s decision in Sprietsma v. Mercury Marine,^[12] which arose under the Federal Boat Safety Act (“FBSA”), to find the Medicare Act’s preemption clause applies more broadly, and (unlike the FBSA) does not contain a safe harbor for common law claims generally, before ruling that the plaintiffs’ claims for breach of contract and bad faith could proceed.

The court reasoned that its analysis under those claims would only require interpretation of contractual terms and UHC’s adherence those terms,^[13] which the Medicare Act does not regulate. The court cited to contractual terms made by UHC that promised claim decisions would be made by physicians and pointed to the fact that UHC never disclosed its use of AI. The court, however, rejected the plaintiffs’ arguments that the other state common law claims (unjust enrichment and insurance bad faith) would only require evaluation of the insurance agreement and did not require the court to opine in areas specifically regulated by the Medicare Act, and the court declined to extend the Medicare Act’s supplemental claims doctrine from Wehbi to the plaintiffs’ statutory claims (unfair and deceptive insurance practices and unfair competition), noting that the standards under the Act are not general enough and do not leave aspects of coverage decisions to the states — unlike the pharmacy benefits at issue in Wehbi.

The decision in Estate of Gene B. Lokken et al. v. UnitedHealth Group Inc. et al. suggests that certain state law claims may be viable despite the Medicare Act’s preemption clause, so long as the claims do not address the same subject matter or interfere with its standards. The case also raises questions about whether other claims based on state law theories could be actionable despite the Medicare Act’s preemption clause, whether other U.S. Circuit Courts will follow Eighth Circuit precedent in their own interpretations of the clause, and whether the Supreme Court will need to weigh in to resolve conflicts between circuits.

As commercial health insurance companies increasingly rely upon AI, algorithms, and other emerging technologies, AGG’s Healthcare Litigation and Emerging Technologies teams are coordinating efforts for clients in federal court litigation, including the case of Ryan S. v. UnitedHealth Group, Inc. et al., where last year the U.S. Ninth Circuit Court of Appeals ruled that AGG’s class action lawsuit against UHC for the wrongful and systematic denial of mental health and substance use disorder treatment claims should be decided on the merits. In an 18-page published opinion, the Ninth Circuit reversed in part the district court’s order dismissing AGG’s class action on behalf of client Ryan S. and remanded the case to the district court for further proceedings to determine if UHC violated the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (“Parity Act”), and breached the terms of Ryan’s health plan by, among other things, subjecting mental health and substance use disorder claims to an algorithmic process — the Algorithms for Effective Reporting and Treatment (“ALERT”) — that would trigger additional levels of review and increase the likelihood of coverage denials.

For more information about this article; Medicare Advantage Plans and the Medicare Act; and the use of artificial intelligence and algorithms in healthcare, healthcare litigation, healthcare provider disputes, and reimbursement litigation in general, please contact AGG Healthcare Litigation attorneys Rich Collins or Damon Eisenbrey or AGG Emerging Technologies attorneys Jackie Cooney or Kelley Chandler.

[1] https://www.uhc.com/findmedicare?redirected=true&referrer=https://www.uhc.com/medicare/, last visited Feb. 28, 2025.

[2] Plaintiffs’ First Amended Class Action Complaint, Estate of Gene B. Lokken et al. v. UnitedHealth Group Inc. et al., No. 0:23-cv-03514 (Dist. Minn 2025), available here.

[3] See fn. 2.

[4] See fn. 2.

[5] Memorandum Opinion and Order Granting in Part and Denying in Part Defendants’ Motion to Dismiss, Estate of Gene B. Lokken et al. v. UnitedHealth Group Inc. et al., No. 0:23-cv-03514 (Dist. Minn 2025), available here.

[6] U.S. Const. art. VI, cl. 2.

[7] See fn. 5 at 13, quoting Altria Grp., Inc. v. Good, 555 U.S. 70, 76 (2008) (citation and quotation omitted). 

[8] See fn. 5 at 14, quoting 42 U.S.C. § 1395w-26(b)(3) (effective Dec. 8, 2003); 42 C.F.R. § 422.402.

[9] The court referenced standards and cases from the First, Ninth, and Tenth Circuit Courts of Appeals. Specifically, the court noted that the Ninth Circuit’s view that “the preemption clause [applies] to anything that is ‘directly governed by federal standards,’ [Do Sung Uhm v. Humana, Inc., 620 F.3d 1134, 1158 (9th Cir. 2010), would] cover any state law or regulation if a federal standard exists. Morrison v. Health Plan of Nev., 328 P.3d 1165, 1168–70 (Nev. 2014). And the Tenth Circuit has found that the Medicare Act’s expanded preemption clause is similar to field preemption. Pharm. Care Mgmt. Ass’n v. Mulready. 78 F.4th 1183, 1207–08 (10th Cir. 2023); see also Medicaid and Medicare Advantage Prods. Ass’n of P.R., Inc. v Emanuelli Hernandez, 58 F.4th 5, 12–13 (1st Cir. 2023).” See fn. 5 at 17.

[10] 18 F.4th 956, 971 (8th Cir. 2021).

[11] See fn. 5 at 16-18.

[12] 537 U.S. 51 (2002).

[13] Among other things, the contracts covering the insurance that UHC provided stated that it would “provide benefits for covered health services and . . . pay all reasonable and medically necessary expenses,” and that “UnitedHealthcare’s Clinical Services Staff and Physicians make decisions on the health care services you receive based on the appropriateness of care and service and existence of coverage.” Memorandum Opinion and Order, Estate of Gene B. Lokken, No. 0:23-cv-03514, at 3 (Dist. Minn 2025).