US health insurers have come under significant pressure due to increased utilisation and higher medical costs across the industry, prompting AM Best to revise its outlook on the segment to negative from stable.
In its recent report, AM Best highlighted that the US health insurance industry is facing broad-based increases in medical expenditures. These are driven by higher use of specialty drugs, physician visits, and medical services; more inpatient admissions and emergency room visits; rising behavioural health claims; and increased coding intensity of medical services, reflecting higher member acuity.
Jennifer Asamoah, senior financial analyst at AM Best, said, “The trends appear to have accelerated in late 2024, with underwriting earnings dropping materially in the fourth quarter. While the industry entered 2025 with higher-than-expected medical and pharmacy utilisation, the first quarter was also negatively impacted by elevated respiratory claims due to flu, COVID and pneumonia.”
Pressure on operating margins in government programs, coupled with significantly narrower margins in the commercial market, also contributed to the negative outlook.
Medicare Advantage plans have faced increased utilisation and provider costs, higher morbidity among certain members, changes to the risk-adjustment payment model by the Centers for Medicare & Medicaid Services (CMS), and lower Star Ratings across the industry.
Medicaid plans have seen sharp enrolment drops since the Public Health Emergency ended. Many disenrolled members were healthier or had alternative coverage, leaving a higher-morbidity population with increased medical utilisation and costs. Medicaid also faces upcoming regulatory challenges, as the recently passed One Big Beautiful Bill includes large funding cuts, new work requirements for certain eligible individuals, and an increased frequency of eligibility redeterminations.
In 2024, earnings in the commercial group segment declined significantly, with weakening results continuing into 2025. This segment historically has been a key earnings driver with more stable results.
The report also noted that, across all segments, many health insurers have seen significant growth in GLP-1 usage, although AM Best notes that in 2025 many insurers and employers are now covering GLP-1s for uses beyond weight loss.
Individual Affordable Care Act (ACA) marketplace plans are also experiencing sharp increases in utilisation and medical costs, negatively impacting earnings. Deterioration in risk pools—with a higher-morbidity membership—occurred during the 2025 open enrolment period, driven by members disenrolled from Medicaid.
Bridget Maehr, Director at AM Best, said, “AM Best expects that operating performance for the U.S. health insurance industry will continue to be pressured for the remainder of 2025.
“While operating performance may show improvement in 2026, pressures on the health segment are likely to persist into 2027 as it may take several pricing cycles to fully address the issues facing the industry.”
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