AM Best Maintains Negative Outlook for US Health Insurers in 2026

AM Best is maintaining its negative outlook on the US health insurance industry for 2026, citing persistent pressures across Medicare Advantage, Managed Medicaid, and commercial and individual Affordable Care Act (ACA) markets, according to its latest Market Segment Outlook: US Health Insurance report.

The industry is contending with a broad increase in medical costs, driven by heightened use of specialty drugs, more physician and emergency room visits, rising behavioral health claims, and increased inpatient admissions. The report attributes a significant portion of this cost escalation to higher acuity levels, reflected in more intense medical coding.

AM Best said a return to profitability for Managed Medicaid may not occur until late 2026 or 2027, as most contracts renew in January or July. Medicare Advantage margins remain compressed due to high utilization, increased provider costs, and elevated morbidity among certain member groups. The commercial group segment, historically a major profit center for health insurers, also saw earnings drop sharply in 2024.

"The commercial, or employer, group business has historically been a dominant driver of earnings for health insurers, but given the higher medical trends, rate increases at renewal are expected to be material and could drive enrollment losses, shift more costs to the employee or lead to more companies converting from fully insured to self-funded, especially in small group business, which is more price sensitive,” Jennifer Asamoah, senior financial analyst at AM Best, said.

The individual ACA market is facing pressure due to an influx of higher-risk members who lost Medicaid eligibility following the end of the COVID-related public health emergency. Several insurers have reported higher morbidity in this population, further straining earnings. Compounding the issue, neither the recent government funding bill nor the "One Big Beautiful Bill" included provisions to continue enhanced premium subsidies for individual ACA enrollees. As a result, AM Best expects a spike in care-seeking before year-end and further financial strain in the fourth quarter of 2025.

"The challenges in this market have already resulted in some plans exiting the ACA marketplace in 2026, either entirely or in select states. Furthermore, there could be additional exits in 2027 and beyond if insurers are not able to adequately price for the risk,” Bridget Maehr, director at AM Best, said.

To counter these challenges, insurers are pursuing a mix of pricing actions, benefit design changes, and strategic reviews of their participation in certain markets or geographies. While operating performance may begin to recover in 2026, AM Best warned that structural pressures are likely to continue into 2027, requiring multiple pricing cycles to correct.

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