A combination of higher-than-expected utilization, claims costs, acuity and cost of care across all lines led to the U.S. health insurance segment’s net income dropping by nearly 20% through three quarters of 2025, as compared with the same prior-year period, according to a new AM Best report.
The annual Review & Preview Best’s Market Segment Report, “US Health Insurers Seek to Improve Underwriting Performance in 2026,” states that over the past two years, plans in the health segment have seen underwriting profitability impacted by escalating medical cost inflation, continued heightened utilization and rising drug costs, especially GLP-1s and high-cost cancer, autoimmune and gene therapy treatments. Behavioral health utilization also has remained high post-COVID and has been an escalating contributor to unfavorable claims experience. Provider price inflation and other economic factors have further compounded unit costs, resulting in medical loss ratios above target ranges, which have negatively impacted underwriting results. These issues have factored into AM Best’s continued negative outlook on the U.S. health insurance segment.
“Underwriting results in 2026 are likely to be pressured, with trends remaining above historical levels. The expectation is that plans will have a more-disciplined growth strategy and pursue further premium adjustments, as well as focus on value-based care arrangements to improve cost predictability. While overall profitability in 2026 is expected to improve, it will take more than one rating cycle for insurers to return to target margins,” said Sally Rosen, senior director, AM Best.
According to the report, U.S. health insurers have taken corrective pricing actions and implemented strategic positioning across commercial, Medicare Advantage and Medicaid managed care to combat worsening results. More-conservative underwriting/pricing models, market exits, greater use of value-based models and substantive rate adjustments to increase premiums to align with elevated medical and claims costs were prevalent in 2025, and AM Best expects that these corrective measures will continue in 2026.
“Many of the largest carriers are supported by solid capital bases and the financial flexibility to address current challenges,” said Joseph Zazzera, director, AM Best. “However, there are outliers that have reported operating losses that have led to challenges to risk-adjusted capitalization, most of which have typically been smaller, less diversified regional insurers with a heavy focus on single segments. Some larger companies have also reported that fourth-quarter 2025 was more challenging than expected, and that those trends could persist.”
Other highlights from this report include:
- In addition to the drop in net income, the health insurance segment’s underwriting result through third-quarter 202 was 19% lower than the same prior-year period; however, net investment income improved by more than 7% and significantly contributed to industry overall earnings in 2025.
- Medicare Advantage plans have experienced a steady decline in Star Ratings since 2023. Roughly 40% of MA plans were rated 4-Stars or higher for 2026, compared with more than half in 2024. Bonus payments for plans with 4-Star ratings or higher can help provide carriers with a significant competitive advantage.
- Managed Medicaid rates have taken longer than expected to realign with the deteriorating risk profile of the member population. Additionally, utilization in 2026 may elevate as members seek to maximize benefits ahead of potential coverage loss as provisions of The One Big Beautiful Bill Act start to come into effect.
- Health insurers in the commercial segment (group and individual) have assumed in their pricing and benefit offerings that they will continue to see higher medical costs and utilization trends, as well as the end of the enhanced subsidies for individual coverage. The expiration of the enhanced subsidies is expected to shrink the commercial/individual marketplace enrollment considerably for 2026, further skewing this risk pool more toward individuals with higher morbidity.
