What is Claims Adjudication?

Daphne Mallory

Claims adjudication is a term used in the insurance industry to refer to the process of paying claims submitted or denying them after comparing claims to the benefit or coverage requirements. The adjudication process consists of receiving a claim from an insured person and then using software to process the claims and make a decision or doing so manually. If it’s done automatically using software or a web-based subscription, the claim process is called auto-adjudication. Automating claims often improves efficiency and reduces expenses required for manual adjudication. Many claims are submitted on paper and are processed manually by insurance workers.

An insurance claim must meet all eligibility requirements before it can be paid.
An insurance claim must meet all eligibility requirements before it can be paid.

Many insurance companies take advantage of auto-adjudication as a method of managing the large number of claims that has to be processed on a regular basis. Claims are submitted electronically in most cases, although paper filing is still an option, and the information is entered into software that reviews the claims. The software checks for errors, eligibility requirements, and deductible payments, and some software programs will even check for fraud. If the claim meets the insurance requirements, then it will be paid. When the claim fails the auto-adjudication process, then it can be denied or sent to an insurance examiner to review the claim manually.

Insurance companies use claims adjudication to determine whether they will cover a procedure or if the policyholder must pay out of pocket.
Insurance companies use claims adjudication to determine whether they will cover a procedure or if the policyholder must pay out of pocket.

After the claims adjudication process is complete, the insurance company often sends a letter to the filer describing the outcome. The letter, which is sometimes referred to as remittance advice, includes a statement as to whether the claim was denied or approved. If the company denied the claim, it typically has to provide an explanation for the reason why under regional laws. The company also often sends an explanation of benefits that includes detailed information about how each service included in the claim was settled. Insurance companies will then send out payments to the providers if the claims are approved or to the provider’s billing service.

The insurance company might only make a partial payment to the provider as a result of claims adjudication. Insurance companies are often required by law to provide an explanation as to the reason why only partial payment was made. Another possible outcome is a request made by the insurance company for the person to resubmit the claim. The reason is often to obtain additional information or to provide information that was missing in the original claim. If the claim is denied, then the entity or person filing the claim can usually file an appeal.

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Discussion Comments


@sunnySkys- Even though computers don't have "compassion" on a whole they are much more accurate than people. I've been working in medical billing for quite awhile and I've seen this first hand.

I work in a small office so we were fairly slow to adopt computerized medical billing. Now that we have it I don't know how we ever lived without it. Our billing system is so much more accurate now it's unbelievable!

I would definitely rather have my own insurance claims processed by a computer rather than a human. I hope my insurance company uses computerized claims adjudication!


@sunnySkys- I can understand why you feel that way. Unfortunately insurance claims are decided the same way whether a person or a computer does it. Insurance claims aren't decided based on compassion but on the insurance policy.

Simply stated an insurance policy will usually list either what is covered or what is excluded. If the claim doesn't fall into the criteria listed the insurance company isn't going to pay it.

The only difference between having a computer and a human process the claim is that the human probably will feel bad about having to deny a claim. However, the claim will still be denied if it isn't covered either way.


The idea of insurance claims, especially medical claims, being processed automatically by software makes me nervous. I think an actual person should carefully review insurance claims and use compassion in making the decision. I definitely don't want a computer to decide whether my doctors visit is covered or not!

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