Definition
Prior authorization (also called pre-authorization or pre-approval) is a requirement that the health plan approve coverage for certain services, procedures, or medications before they are provided. The health plan or pharmacy benefit manager reviews the clinical necessity of the service against established criteria before approving or denying coverage. Services commonly requiring prior authorization include specialty medications, elective surgeries, advanced imaging (MRI, CT), inpatient admissions, and certain medical devices.
What This Means for Employers
Prior authorization is one of the primary tools health plans use to control costs by ensuring that expensive or frequently overused services are clinically justified before coverage is approved. For self-funded employers, prior authorization programs managed by your TPA or health plan are a meaningful cost-management mechanism. However, poorly administered prior authorization processes create friction for employees and physicians — delayed care, administrative burden, and appeals processes that damage employee satisfaction with the plan. The best prior authorization programs balance clinical rigor with administrative efficiency and include a clear, timely appeals pathway. The Consolidated Appropriations Act of 2021 expanded prior authorization transparency and appeals rights, which affects how plans must administer these programs.
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