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Best’s Market Segment Report: US Health Insurers Met Challenges in 2024 but Pressures Expected to Persist in 2025

By: via Business Wire

Operating performance for the U.S. health insurance industry remained favorable through third-quarter 2024 with net income of $31 billion, although underwriting results have been pressured by Medicare Advantage (MA) and Medicaid managed care earnings declines, amid increased cost of care including pharmaceutical cost spend.

The annual Review & Preview Best's Market Segment Report, “US Health Insurers Met Challenges in 2024, but Pressures Expected to Persist in 2025,” notes that the commercial segment reported a year-over-year underwriting gain of 75% in 2023, driven by premium revenue growth from the individual segment. Cost trends in the commercial segment have been above historical levels, but the industry priced for this leading into 2025. Therefore, AM Best expects operating trends for the commercial segment to remain profitable through year-end 2024 and again in 2025.

“For the past several years, the industry balanced lower earnings in the commercial segment with steady and increasing profitability in the government program segments, but this trend has reversed as earnings in MA and Medicaid managed care have been challenged while the commercial segment’s premium trend continues to offset the narrowing margins of the several years prior,” said Joseph Zazzera, director, AM Best.

Through third-quarter 2024, the health segment’s overall underwriting gain of $17.5 billion represented a 65% decrease from the same prior-year period. According to the report, several headwinds have led to a drop in underwriting gains in the MA segment, including 2024 pricing that did not appropriately factor in an uptick in medical costs in 2023 and high levels of utilization, along with regulatory factors (e.g., Star ratings, risk adjustment payments and overall reimbursement rates) that likely will negatively affect MA margins into 2025.

In the Medicaid segment, although companies were prepared for an enrollment decline once redeterminations resumed in 2023, the majority of disenrolled members tended to be healthier members, resulting in higher acuity of the remaining member population in the segment. Necessary rate increases also have also lagged the acuity levels, which has led to margin compression pressures in the segment.

“Medicaid is a more capital-intensive product, which has higher charges when calculating risk-adjusted capital. However, this has been somewhat offset by continued growth in individual Affordable Care Act products and MA,” said Sally Rosen, senior director, AM Best.

Pharmacy costs continue to rise, driven by higher-cost pharmaceuticals, including biosimilars and gene therapies. The rapid increase in the number of individuals taking glucagon-like peptide-1 (GLP-1) drugs has also contributed to escalating costs. In 2024, the rate of increase in pharmacy claims was in the double digits and accounted for over 13% of total medical claims. In addition to GLP-1 drugs, gene and cell therapies, as well as high-cost injectable drugs, have contributed to the rising overall cost trend. Insurers have tried to manage these costs by directing patients’ sites of care to lower cost options, such as at-home administration, but the growing pipeline of drugs for 2025 will likely make pharmaceuticals an ongoing concern.

AM Best expects the U.S. health industry to remain profitable for year-end 2024 and should see similar earnings trends in 2025, with a decline in overall underwriting income due to lower results for MA and Medicaid managed care. However, the commercial segment’s earnings should remain favorable. Premium generation will still be supported by business expansion, the ongoing aging-in of seniors into MA and rate increase actions across the various product lines.

To access the full copy of this Review & Preview report, which includes sections on publicly traded health insurers, Blue Cross and Blue Shield plans and other segments such as dental and disability, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=351661.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2025 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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