Health plans have plotted a comeback and so far it is working
Q1 offered a cautiously encouraging picture for the U.S. health insurance sector. After a bruising couple of years marked by elevated utilization, Medicare Advantage (MA) margin compression, and policy disruption, most large plans are reporting improved financial performance. Stocks soared as a result. So, is plan financial health back? Well, not so fast. The positive financial performance is more a result of low expectations and plans are still, like Sisyphus, pushing a huge boulder up a hill. And given trends, it could very well come rolling back down.
There was a literal financial meltdown at some plans beginning as early as 2024. Some of this was caused by external factors. But a great deal of it, too, was due to a lack of discipline by plans in multiple areas – finance, quality, and operations. It was an embarrassment for plans as well as investors, who also seemed to look away in a time of frenzied expansion. Consequently, the leaders of key healthcare conglomerates have changed.
What external forces caused the meltdown?
In addition, health plans were battered externally by the following:
- Major utilization and cost trends occurred coming out of the COVID pandemic in all lines of business. Because of technology, drug introductions, and aging, this shows no sign of abating.
- A phase-in of the MA v28 risk model. From 2024 to 2026, this took over 7.5% out of rates.
- In part due to plans’ lack of focus, Star ratings dropped dramatically from 2023 to 2025 and were flat in 2026. This impacted revenue dramatically.
- Medicaid redeterminations came back after the pandemic waned, this removed millions from the rolls and increased risk. State rate hikes have lagged the increase in risk.
- Similarly, Exchange rolls dropped with the expiration of the enhanced premium subsidies. This also caused an increase in risk as well as rising premiums. More and more will drop coverage or seek out skimpier benefits with lower premiums.
Retrenchment
To their credit, plans seem to have learned their lesson. They have set very low financial guidance, preferring to under-promise and over-deliver as they plot a comeback. At the same time, plans seem to be back to financial discipline, executing on a retrenchment in multiple lines of business. Across the industry, especially among vertically integrated organizations, executives have pivoted from growth-at-all-costs toward margin recovery, recalibrating expectations and resetting operations to stabilize earnings.
The retrenchment meant reducing footprints in various government programs, trimming down benefits, and increasing premiums, deductibles, and cost-sharing. This came with great pain for consumers, especially in the commercial and MA worlds.
Financial performance snapshot
Let’s take a look at full-year 2025 performance relative to 2024 and early signals from Q1 2026 versus Q1 2025 for the largest national plans: UnitedHealth Group, Elevance Health, CVS Health, Humana, Centene, Molina Healthcare and Cigna.
Almost without exception, revenue rose from 2024 to 2025, but margins or profit went down, with at least one having losses. From Q1 2025 to Q1 2026, both revenue and margin were up across the board.
Again, stocks generally rose on such news because (1) performance exceeded guidance despite 2025 profit contraction and (2) the positive margin numbers from Q1 2025 to Q1 2026.
Interestingly, some plans reported postive news on medical loss ratios (MLRs) — they went down — while others saw them trend up. It shows that the industry is still grappling with high cost trends and the ability to control them is mixed.
Line-of-business trends
Medicare Advantage — Medicare Advantage remains the most scrutinized line of business. Across earnings calls, several consistent themes have emerged:
- Utilization remains elevated, though stabilizing compared to 2024 peaks.
- Rate updates from CMS have been modest, with limited relief relative to trend.
- Risk adjustment changes are compressing margins, particularly for plans that previously relied heavily on coding intensity.
- Benefit reductions and geographic exits are ongoing.
Medicaid —Medicaid continues to face enrollment contraction following the unwinding of pandemic-era continuous coverage provisions. Plans report:
- Membership declines across most states, with acuity of remaining members increasing.
- Rate adequacy remains inconsistent, with some states lagging medical cost trends.
- Margin pressure persists despite some recent rate adjustments.
Companies with concentrated Medicaid exposure — particularly Centene and Molina Healthcare — are inherently more vulnerable to these dynamics. While both have demonstrated strong revenue growth, their earnings remain sensitive to state rate-setting and population risk shifts.
Exchanges — The Exchange market has shown better stability than expected, but risk profiles are evolving. Plans report:
- Morbidity appears elevated in some markets.
- Pricing discipline has improved after prior underestimation of risk, leading to surges in premiums.
Again, Centene and Molina Healthcare have significant exposure here, amplifying both opportunity and risk.
Commercial — The commercial line of business is comparatively stable, though not without pressure:
- Employer-sponsored coverage remains resilient, but utilization trends are causing huge battles for employers.
- More costs are being transferred to employees and benefits and products are becoming leaner.
Is it real and will it continue?
The improving financial picture seems real and certainly is not accidental. Plans have aggressively repriced products, exited underperforming geographies, reduced benefits, and reset medical cost assumptions. This, with the publicly traded companies lowering forward guidance to levels that were achievable, means insurers’ financial health should continue.
In this sense, despite member impacts, this is good news as disciplined expectation management and tight fiscal and operational controls are key for overall success of the insurance sector and healthcare.
But here are some storm clouds on the horizon:
As I note, utilization and costs will remain high each year.
Prior authorization, the main way plans control costs right now due to inadequate investment in care management and coordination, is under attack at the state and federal levels.
In MA, poor annual rate hikes will likely continue, and risk adjustment recoupment will become real moving forward. The Star program is getting tougher. All this puts pressure on revenue compared with costs and will mean additional benefit and coverage erosion.
In Medicaid, deep cuts will come out of the One Big Beautiful Bill Act (OBBBA). States will struggle to raise revenue for state match, leading to erosion of coverage and greater risk for plans. Rates will be modest.
In the Exchanges, more erosion of coverage is expected as people drop coverage due to inability to pay premiums. This undermines financial assumptions and increases risk for plans.
Prospects for plans may differ moving forward, even as all seem to be realigning to investor demands. Vertically integrated and plans with enrollment across lines of business may have an advantage. UnitedHealth Group, Elevance Health, CVS Health, and Cigna likely are best positioned to manage cost trends and margin volatility – as long as they stay the financial course they have set. Medicaid- and Exchange-dominant plans like Centene and Molina may face higher exposure.
Conclusion
The health insurance industry has regained a measure of control after a period of significant disruption. However, the recovery is best understood as the product of deliberate retrenchment after years of poor financial discipline. Plans have reset expectations, repriced risk, and refocused on profitability. As a result, they are now outperforming conservative guidance and restoring investor confidence. Yet the underlying challenges—policy uncertainty, cost inflation, and evolving risk dynamics—remain unresolved.
It is likely to take several years for most organizations to return to the margin levels historically demanded by investors and there are some storm clouds potentially ahead. Until then, the industry’s trajectory will continue to be defined by cautious financial progress rather than aggressive growth.
Even as broader insurer financial performance begins to stabilize, the outlook for member benefits across lines of business is likely to remain constrained. Taken together, forces suggest that even in a period of financial recovery for insurers, benefit richness is more likely to erode than expand, reflecting a system still adjusting to structurally higher costs and evolving risk dynamics. This will mean more financial exposure for Americans.
#healthplans #margins
— Marc S. Ryan
