Best’s Market Segment Report: AM Best Maintains Negative Outlook on US Health Insurance Segment

AM Best is maintaining a negative outlook on the U.S. health insurance industry for 2026, citing ongoing higher medical trends for Medicare Advantage and a rate and acuity mismatch for Managed Medicaid, among other factors.

The Best’s Market Segment Report, “Market Segment Outlook: US Health Insurance,” states that the US 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. With the higher medical cost trends and increased acuity, a return to profitability for the Managed Medicaid segment may take until later in 2026, or possibly into 2027, as most contracts renew in January or July. Operating margins remain under heavy pressure in Medicare Advantage from elevated utilization and provider costs and higher morbidity from certain members, as well as in the commercial market, which saw earnings decline significantly 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,” said Jennifer Asamoah, senior financial analyst, AM Best.

The individual Affordable Care Act (ACA) marketplace business has seen deterioration in the risk pools as exchanges have picked up many members disenrolled from Medicaid due to the end of the COVID-related public health emergency. Several insurers have noted an increase in the overall morbidity of the individual ACA enrollment, which is putting further pressure on earnings from this segment. In addition, the One Big Beautiful Bill nor the funding bill to end the government shutdown did not address continuing enhanced premium subsidies for individual ACA membership. Given the expectation that the enhanced subsidies will end this year, AM Best anticipates the experience in this segment will worsen in the fourth quarter of 2025, as individuals seek medical care before year-end.

“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,” said Bridget Maehr, director, AM Best.

According to the report, insurers are actively pursuing initiatives to restore their long-term operating performance. Furthermore, pricing actions and plan design changes are being implemented for 2026 to reflect the increased medical trends. Plans are also evaluating their participation in certain market segments and/or geographies. AM Best expects operating performance to improve in 2026, but pressures are likely to persist in 2027 as it may take several pricing cycles to fully address the issues facing the industry.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=360272.

Leading AM Best analysts will review 2026 market segment outlooks for the U.S. insurance industry’s major segments and the delegated underwriting authority enterprises (DUAE) segment in an online briefing scheduled for Tuesday, Dec. 9, 2025, at 2:00 p.m. EST. To register for the briefing, please visit “AM Best Briefing - 2026 Insurance Outlook: Risk Management Back in the Spotlight.”

To view all Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.

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.

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