Why next year could be a mixed bag for health insurance finances

Modern Healthcare – Tuesday, December 23, 2025
By Nona Tepper

The health insurance sector is expected to see some financial improvement in 2026 — but analysts still predict a rocky year for some business lines.

High medical and pharmaceutical expenses have pressured insurers’ margins across the board. After raising premiums, cutting plan marketing and benefits and exiting unprofitable markets, companies are better prepared to take on elevated costs than they were in 2025, said Sally Rosen, senior director at AM Best.

Still, the credit ratings agency described the sector’s 2026 financial outlook as negative amid ongoing uncertainty over medical costs.

“2026 is kind of like a repositioning, where we will see some improvement, but we’re still being very cautious because the medical trend is the unknown variable,” Rosen said.
Medicare Advantage

Medicare Advantage insurers can generally expect improvement in the business line’s operating margins next year because of the big boost they received in federal reimbursement, said Brad Ellis, senior director at Fitch Ratings. The Centers for Medicare and Medicaid Services will increase Medicare Advantage pay by 5.06% next year.

However, margins aren’t likely to recover to the highs achieved under the risk-adjustment model from before 2024, he added.

CMS last year initiated a three-year phase-in of a coding update that has pressured the finances of insurers and risk-bearing providers.

Companies such as UnitedHealth Group subsidiary UnitedHealthcare have responded by discontinuing many PPOs, cutting agent and broker commissions and reducing the generosity of their supplemental benefits. The market leader is particularly well-positioned compared with other insurers to improve its operating performance after reevaluating its offerings, Ellis said.

Medicare Advantage “is where we see the most opportunity for improvement at United, and that’s what investors are expecting,” he said.
Commercial business

Health insurance companies will continue to generate the highest profit margins from commercial large group business next year, analysts say.

Insurers such as Cigna and Elevance Health that focus heavily on this market have remained relatively insulated from higher cost trends because they do not accept underwriting risk for their employer customers. Under their administrative service agreements, employer customers generally pay insurers a set fee to use their provider network and do the claims processing.

But Cigna and other companies’ stop-loss businesses have been pressured as employers exceed their cap on claims. Employers purchase stop-loss insurance to reduce their exposure to high costs such as gene therapy treatments.

Affordable Care Act exchanges and Medicaid

Companies that focus on Medicaid and the exchanges, such as Centene and Molina Healthcare, are most exposed to volatility as medical cost trends accelerate and regulatory tides shift out of favor, Ellis said.

Insurers have alleged that some states’ Medicaid reimbursement has lagged growing medical expenses since local officials restarted redeterminations in 2023. At the same time, behavioral health, home health and pharmacy costs for Medicaid members have grown beyond insurers’ projections.

UnitedHealthcare and Elevance Health anticipate Medicaid profit margins to decline in 2026, while companies such as Molina Healthcare and Centene forecast improvement.

Part of the latter companies’ optimism is driven by changes to their contracts with states. Centene, for instance, decided not to fight for Florida’s $5 billion annual managed care contract next year amid a dispute over low rates. Molina, meanwhile, secured new contracts in Georgia and Texas.

Broadly, state reimbursements are expected to catch up to managed care companies’ costs by late next year, Rosen said.

“As the year progresses and they get rate increases, it should begin to correct,” Rosen said.

Still, Fitch Ratings projects companies’ profits will deteriorate because of unfavorable federal changes to Medicaid and the exchanges.

The nonpartisan Congressional Budget Office predicts President Donald Trump’s tax law will reduce federal Medicaid spending by more than $960 billion over the next decade. States left with fewer resources will have less room to pay managed care companies, threatening the sector’s already weak margins, Ellis said.

In the exchanges, insurers have prepared for a smaller, sicker population enrollment by exiting markets and raising premiums an average of 15%, the highest rate since 2018. Consumers will pay more than twice as much after subsidies for coverage after Congress failed to extend the enhanced premium tax credits, according to an analysis by KFF, a health policy research group.

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