The industry, which was a financial basket case a short time ago, is cautiously recovering.
The second quarter earnings season has ended and it largely confirms what many investors had been hoping for: health insurers seem to be turning the financial corner. As I point out in my recent The Healthcare Labyrinth Healthcare Reform Series (blogs and podcasts), macro trends are terrible, but at least the short-term signals show recovery and stability. Yet, reaction in the markets and even from battered health plan executives (who mostly and terribly missed the mark for several years) seems to be continued caution and for good reason.
It is hard to put the whole industry in one box. Each is unique, driven by any number of factors: (1) the health plan lines of business they are concentrated in and (2) how big their so-called healthcare operations services entities are. But generally, most of the major publicly traded insurers either met or exceeded Wall Street expectations, several raised 2026 guidance, and management teams struck a much more confident tone than they did six months ago (even with a bit of caution).
But this is not a return to the industry’s golden age by any means. There appears to be a fundamental resetting of the table. Insurers appear to be signaling financial discipline over growth as well as contemplating versus ignoring the coming policy changes and trends that will continue to put pressure on financial performance. These include continued cost trends, pressures on Medicare Advantage (MA), Medicaid and Exchange cutbacks that will roll out over the next decade, a realignment in the pharmacy benefits manager industry, and huge drug trends.
All this is leading to what I will call “precision assessment strategies,” where insurers seem to be digging deep into the revenue and cost side of each business line and service to craft a sustainable long-term financial road map. This is driven by the huge financial misses most in the industry suffered and demands by investors and analysts – who badly missed the mark as well – to prove that investments and margin recovery are real.
The pivot was badly needed. The industry was a basket case not too long ago.
With that, below are my key takeaways from the quarter.
Financial trends
As I note, not all is well everywhere in the big plan industry – UnitedHealth Group, Cigna, Elevance Health, Humana, CVS Health, Centene, and Molina. But here are the general takeaways.
Looking globally, operating income and revenue grew for the industry as a whole, with United and CVS highly performing in Q2. Operating income grew year over year at a majority of the integrated health plans. Membership is usually a key metric, but companies are strategically shedding lives in certain areas to get back to profitability. With some exceptions, medical loss ratios (MLRs) stabilized or fell. Most view MLRs as stable, but I think long-term costs trends will continue to be the biggest red flag. Healthcare cost trends remain elevated relative to historical norms, particularly for outpatient surgery, behavioral health, specialty drugs, and GLP-1 therapies. Nevertheless, executives consistently indicated these trends are now incorporated into pricing assumptions rather than representing unexpected shocks.
The services side, strongest at United (Optum), Elevance (Carelon), Cigna (Evernorth) and CVS has recovered as well. While UnitedHealthcare’s insurance operations continue recovering, Optum’s pharmacy, care delivery, and technology businesses generate consistent earnings and cash flow. Elevance’s Carelon again posted impressive growth. Revenue increased about 6%, driven by specialty pharmacy, CarelonRx, and expansion of value-based care services. Carelon is becoming a larger contributor to enterprise earnings each quarter. Cigna’s Evernorth continues demonstrating why investors value the company differently than traditional insurers. Pharmacy services and specialty management remain major profit engines despite ongoing scrutiny of PBMs. CVS Health also benefited from strong health services performance, particularly Caremark, although investors increasingly worry about evolving PBM economics beginning in 2027.
The more diversified companies — UnitedHealth Group, Elevance Health, CVS Health, and Cigna — all reported positive recovery news. UnitedHealth had about $112 billion in quarterly revenue while maintaining about a $5.5 billion profit. Elevance generated about $50 billion in quarterly revenue, with growth driven by stronger premium yields and Carelon expansion offset by declining membership in Medicare Advantage, Medicaid, and commercial risk businesses. Profit was about $1.5 billion. CVS exceeded analyst expectations with about $106 billion in revenue and substantially improved profitability at Aetna. Total profit was almost $3 billion. Cigna reported total revenue of almost $72 billion, a 7% increase year-over-year. Profit was about $1.7 billion, up about 6% from last year.
The business lines
Medicare Advantage remains the industry’s biggest challenge. The good news is that nearly every insurer reported improving trends. Pricing for 2026 has largely caught up with the unusually high utilization experienced over the past two years. Inpatient admissions appear more predictable, outpatient costs are moderating, and supplemental benefit redesigns are helping.
However, no executive suggested Medicare Advantage has returned to historic profitability. Utilization remains above pre-2024 levels. CMS payment updates remain tight. Risk adjustment changes continue working through the system. Star Ratings pressure remains significant. In short, Medicare Advantage appears to be recovering — but it has not fully recovered. That explains why companies remain cautious about 2027 despite improved 2026 performance.
Perhaps the biggest surprise has been Medicaid. Following the massive eligibility redeterminations after the public health emergency, enrollment disruption appears largely complete. States have increasingly recognized higher medical costs through rate adjustments, giving managed Medicaid organizations improved pricing. Companies such as Molina and Centene indicated that Medicaid trends are becoming much more predictable than they were a year ago. Molina specifically highlighted stable Medicaid medical cost trends and favorable rate actions. But there are storm clouds out there due to Medicaid reductions of almost $1 trillion from the baseline over a decade. This could bring back fiscal pressures on states and plans in the next several years. Enrollment reductions will result and that again could increase risk selection.
The Exchanges are increasingly becoming a business that only disciplined operators wish to pursue. Medical costs remain elevated. Risk adjustment continues creating uncertainty. Several companies have reduced geographic footprints or exited markets entirely. Molina and others announced additional Exchange reductions for 2027 despite stronger-than-expected quarterly performance, illustrating that profitability—not membership—is now the priority. Exchange premium unaffordability and dropping rolls could complicate the picture here throughout 2026 and into 2027.
Employer-sponsored insurance was perhaps the most stable business across the industry. Commercial membership generally declined modestly because of employer demographics and competitive dynamics, but profitability remained solid. Large employers continue providing relatively predictable utilization patterns, allowing insurers to price more effectively than government programs. Commercial business is unlikely to become a major growth engine, but it continues serving as an important source of stable earnings. But again, the storm clouds of continued high trend and increasing unaffordability exist here, where about half of Americans get their coverage.
#healthplans #margins
— Marc S. Ryan
