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Editorial Advisory Board

  • Professor Andrea M. Armani, University of Southern California
  • Ruti Ben-Shlomi, Ph.D., LightSolver
  • James Butler, Ph.D., Hamamatsu
  • Natalie Fardian-Melamed, Ph.D., Columbia University
  • Justin Sigley, Ph.D., AmeriCOM
  • Professor Birgit Stiller, Max Planck Institute for the Science of Light, and Leibniz University of Hannover
  • Professor Stephen Sweeney, University of Glasgow
  • Mohan Wang, Ph.D., University of Oxford
  • Professor Xuchen Wang, Harbin Engineering University
  • Professor Stefan Witte, Delft University of Technology

Best’s Market Segment Report: With US Health Insurers Under Heavy Pressure, AM Best Revises Outlook on Segment to Negative

AM Best has revised its outlook on the U.S. health insurance segment to negative from stable due to increased utilization and higher medical costs across the industry and other significant segment challenges.

The Best’s Market Segment Report, “Market Segment Outlook: US Health Insurance,” states that the U.S. health insurance industry is experiencing a broad-based increase in medical expenditures driven by higher utilization of specialty drugs, physician visits and medical services; a greater number of inpatient admissions and emergency room visits; a rising number of behavioral health claims; and an increase in the coding intensity of medical services, reflecting higher member acuity. While there are some slight differences by line of business, most segments are experiencing an elevation of medical trends.

“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 utilization, the first quarter was also negatively impacted by elevated respiratory claims due to flu, COVID and pneumonia,” said Jennifer Asamoah, senior financial analyst, AM Best.

Also factoring into the outlook revision to negative is heavily pressured operating margins in government programs along with significantly narrowed margins in the commercial market. Medicare Advantage plans have experienced an increase in utilization trends and provider costs; higher morbidity from 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 enrollment drops since the Public Health Emergency expired, and many who were disenrolled tended to be healthier members or ones that did not use Medicaid benefits as they had coverage elsewhere. As a result, a greater portion of current enrollees have higher morbidity correlating to higher medical utilization and costs. Medicaid also faces regulatory challenges in upcoming years, 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.

Earnings in the commercial group segment declined significantly in 2024, and a weakening of results for this segment has continued into 2025. This segment historically has been a dominant driver of earnings with more consistent results. According to the report, in addition to the higher utilization and medical cost seen across all segments, many health insurers have seen a significant increase in the usage of GLP-1s, although AM Best notes that many insurers and employers have changed the coverage for GLP-1s in 2025 and are just providing coverage for uses other than only for weight loss. Individual Affordable Care Act (ACA) marketplace plans also are experiencing sharp increases in utilization and medical costs that are negatively impacting earnings. A deterioration in risk pools—with higher morbidity members—occurred during the 2025 open enrollment period, driven by a pickup of members disenrolled from Medicaid.

“AM Best expects that operating performance for the U.S. health insurance industry will continue to be pressured for the remainder of 2025,” said Bridget Maehr, director, AM Best. “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.”

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=357072.

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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