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Health insurers might still be responding to the recent surge in claim costs by increasing prices, cutting benefits and restructuring operations throughout the next year.
That's the view of analysts at AM Best, a company that grades insurance companies' own health for brokers, customers, lenders and others.
The firm changed its outlook for U.S. health insurers to neutral, from positive, in August, and it announced recently that its outlook for the industry is till negative.
Most U.S. health insurers have been doing well over the past five years, and they have strong capital levels and plenty of access to cash, the analysts wrote in a recent report.
But the analysts reported 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."
The increase in claim costs is affecting commercial group plans and stop-loss insurance issuers along with providers of Medicare plans, Medicaid plans and individual health insurance coverage, the analysts said.
Traditionally, insurers have used fat profit margins for employer plan business to offset narrow margins for other types of coverage, but, in 2024, "earnings in the commercial segment declined significantly," the analysts said. "The weakening of results for this segment has continued into 2025, with earnings being impacted by higher utilization and rising medical and pharmacy costs, mirroring most trends previously seen in Medicare and managed Medicaid."
The analysts see the increase in use of GLP-1 agonists as weight-loss drugs as another source of pressure on employer plans.
Insurers are trying to respond to the cost increases by raising prices, but, for insurers, one obstacle to using rate increases to improve results is that the rate increases could lead to enrollment losses, especially at fully insured small-group plans, the analysts said.
"Pressures may persist into 2027, as it may take several pricing cycles to fully address the issues facing the industry," the analysts concluded.
What it means: AM Best analysts are simply reporting what health insurers and benefits advisors have been saying for months, but the AM Best outlook could affect health insurers' ability to raise money from Wall Street for acquisitions and system updates, because it confirms that health insurers really are facing widespread challenges, not just experiencing occasionally, isolated performance problems.
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