AM Best Lowers U.S. Health Insurance Outlook to Negative Amid Rising Costs

AM Best has revised the outlook for the U.S. health insurance sector from stable to negative due to escalating medical costs and increased utilization across the industry. Key drivers include higher use of specialty drugs, physicians' services, inpatient admissions, behavioral health claims, and heightened coding intensity indicating more complex member health needs.

These trends have notably intensified in late 2024 and continued into early 2025, exacerbated by a surge in respiratory illnesses such as flu, COVID, and pneumonia. Operating margins in government-based programs like Medicare Advantage and Medicaid have come under significant pressure due to rising provider costs, increased morbidity risks, and regulatory changes, including funding cuts and new work requirements.

Medicaid enrollment has also declined post-Public Health Emergency, disproportionately retaining higher-risk members which further strains costs. The commercial group market, traditionally a stable earnings source, saw marked profit reductions in 2024 and ongoing weakness in 2025, partly influenced by increased utilization of GLP-1 drugs with insurers adjusting coverage parameters. The ACA marketplace faces a deteriorated risk pool following a shift of members from Medicaid, increasing utilization and medical claims.

AM Best anticipates that the health insurance segment will face continued operational challenges throughout 2025, with potential improvement emerging by 2026 but persistent pressures likely extending into 2027 due to the need for multiple pricing cycles to stabilize industry dynamics.