Insurance Sector Faces Heightened Tensions and Challenges Ahead
Health systems are proactively working to reduce claim denials amidst growing financial strain on both payers and providers. This was highlighted by Fitch Ratings analysts during a recent discussion. As the operating landscape remains challenging, increased tension between insurers and healthcare providers is anticipated. Hospitals are bracing for a potential increase in uninsured patients while adapting to federal policy changes. Meanwhile, commercial insurers face heightened service demand due to an aging population and increasing behavioral health needs. These insights were shared during a Fitch Ratings webinar focused on the 2026 healthcare outlook.
Strained Relationships Between Insurers and Providers
Kevin Holloran, Senior Director at Fitch Ratings, describes the interaction between health systems and insurers as consistently challenging. Despite inquiries into relationship quality, there is a persistent lack of improvement between insurers and healthcare providers, extending beyond financial agreements.
Brad Ellis, head of Fitch’s North American health insurance sector, notes rising tension between hospitals and Medicare Advantage (MA) plans. These plans now insure over half of Medicare beneficiaries. Rising costs and healthcare service utilization concern MA plans, while hospitals report increased service delays and denials. Ellis anticipates continued friction and foresees intensified negotiations as providers seek higher rates and insurers aim to maintain affordability amidst regulatory compliance requirements.
Industry and Market Challenges
The insurance industry is facing substantial challenges, prompting Fitch to adjust its outlook to “deteriorating.” According to Ellis, there is upward pressure in commercial insurance, Medicare Advantage, Medicaid, and ACA markets. Increased patient visits and rising costs are partly due to healthcare systems enhancing coding and revenue capture.
Despite these challenges, insurers reported revenue growth, with U.S. insurers projected to generate $1.5 trillion in 2025. The discontinuation of ACA tax credits has created coverage uncertainties, destabilizing the market and causing enrollment shifts.
On the hospital front, challenges include elevated supply and labor costs and potential Medicaid funding cuts starting in 2027. Some hospitals have improved performance, but most are yet to reach pre-pandemic levels. Consequently, Fitch’s updated outlook for the nonprofit hospital sector is “neutral” for 2026, up from “deteriorating.”
Outlook and Future Improvements
Holloran suggests a slight improvement in payer-provider relations, emphasizing contract structure over monetary value. Efforts to streamline claims processes and reduce payment delays are leading to a marginal enhancement in these interactions. While significant breakthroughs remain elusive, the industry may see gradual improvements in cooperation between providers and insurers.
For continued insights and updates on industry developments, readers can follow Fitch Ratings and participate in sector-specific webinars.