Challenges in U.S. Health Insurance Sector: Insights from AM Best Report
A recent report from AM Best indicates that the U.S. health insurance sector has faced significant challenges, with net income declining nearly 20% over the first three quarters of 2025 compared to the same period in the previous year. This decrease is attributed to higher-than-anticipated utilization rates, increased claims costs, and elevated acuity and cost of care across all insurance lines.
The report, titled "US Health Insurers Seek to Improve Underwriting Performance in 2026," highlights how underwriting profitability has been negatively affected over the past two years due to medical cost inflation, intensified utilization, and increasing drug expenses. These include treatments such as GLP-1s, cancer therapies, autoimmune diseases, and gene therapy. Behavioral health treatment utilization has also remained high, contributing to unfavorable claims experience.
Additional factors like provider price inflation and other economic influences have raised unit costs, pushing medical loss ratios above target levels, further impacting underwriting outcomes. These challenges contribute to AM Best's sustained negative outlook for the U.S. health insurance segment.
Sally Rosen, senior director at AM Best, noted that underwriting results in 2026 are likely to remain under pressure, with trends exceeding historical norms. Insurers are expected to adopt more disciplined growth strategies, adjust premiums, and emphasize value-based care to enhance cost predictability. Although overall profitability is anticipated to improve in 2026, Rosen suggests it will take more than one rating cycle for insurers to restore target margins.
Throughout 2025, health insurers in the U.S. have employed corrective pricing measures and strategic approaches across commercial, Medicare Advantage, and Medicaid managed care programs. The adoption of more conservative underwriting practices, market exits, increased value-based models, and significant rate adjustments to align with medical and claims costs are expected to persist into 2026.
Joseph Zazzera, director at AM Best, observed that many of the largest carriers are supported by strong capital bases and possess the financial flexibility to manage current obstacles. However, he acknowledged that some insurers, particularly smaller, less diversified regional companies focusing on a single segment, have reported operating losses that challenge their risk-adjusted capitalization. Additionally, larger companies have experienced more difficult conditions in the fourth quarter of 2025 than initially expected, with potential continuation of these trends.
For further details, the full Review & Preview report, which also discusses supplementary segments like dental and disability insurance, is available at the AM Best website.