Health plans are in store for a few more rough years
On June 12, I blogged about how mighty Big Healthcare has fallen ( https://www.healthcarelabyrinth.com/how-the-mighty-have-fallen/ ). I weighed in on the current pain many large health plans feel and the fact that their vertical integration has not really saved some of them during a downturn. On April 24, I discussed how Compound Annual Growth Rate EBITDA (CAGR EBITDA) dropped by 1.2% from 2019 to 2024 ( https://www.healthcarelabyrinth.com/big-healthcare-struggling/ ).
So, will all these struggles continue for the foreseeable future, despite most big health insurers seemingly beginning to dig themselves out of their financial mess? My view – healthcare trends as well as government actions will most assuredly mean continuing bumpy times in all lines of business.
Trends
Let’s look at trends that we will see globally and by line of business.
- Overall: A return to pre-pandemic utilization demand and cost growth of weight-loss, specialty, and medical drugs are creating major medical expense challenges for plans, and this will not go away in the near term. All lines of business likely will see fairly robust utilization and cost growth. We have seen annual spending growth trends of 6% to 9% in the past few years. For 2026 and some years beyond, annual trends likely hit at least the lower end with some lines of business (e.g., employer coverage) seeing costs trends at the high end of the range. Plans efforts to reduce the trends are more limited given restrictions of prior authorization and traditional utilization management.
- Commercial/Employer: On the employer front, businesses will continue to demand greater accountability from their healthcare entities. More will seek to carve up how care is delivered. Employers, too, will scrutinize health plan and pharmacy benefits manager agreements (with employers and with other entities) to ensure maximal efficiency and value. This will mean increasing pressure on health plan returns from the sector. Benefit offerings will likely erode as well, with consumers continuing to pick up a greater share of costs.
- Exchange: As enrollment rose in the Exchange, finances in this line of business stabilized. Premiums dropped or grew at relatively low levels. Insurers saw risk reduced and returned to or grew in the market. All this could change given regulatory measures of the Trump administration, the budget reconciliation bill reductions, and the expiration of enhanced premium subsidies. Millions (over 8 million) could leave the Exchanges, which brings back the prospect of fewer plans, skyrocketing premiums, and higher risk. Preliminary data from state insurance regulators point to major double-digit premium hikes.
- Medicaid: As well, Trump administration regulatory changes and the budget reconciliation bill could mean almost 8 million lose Medicaid coverage. Medicaid managed care has already been financially challenged due to lower enrollment and rising risk with the return of Medicaid redeterminations. Plans have complained that rate hikes are not keeping up with the costs from rising risk. We could see the same phenomenon as more leave the Medicaid rolls.
- Medicare Advantage (MA): A combination of lower Star scores and revenue, low rate hikes, risk adjustment model changes, and strict limits on prior authorization turned normally reliable margins on their head. This led to massive retrenchment in the market in 2024 and to a greater degree in 2025. Plans scaled back where they offered plans and certain benefits or shuttered their products. Benefit designs became leaner, thereby increasing consumer costs. While the Centers for Medicare and Medicaid Services (CMS) has a slated 5% plus rate hike for 2026, plans likely would have had to continue to pull back a bit. But utilization trends and the threat of major risk adjustment revenue recoupment could lead to greater retrenchment than expected. As I noted, big MA plans were making progress getting back to investor-demanded margin levels. But the road to such profitability could be longer now.
What will plans need to do?
Thus, across the board, plans will need to further adjust their recovery assumptions as they seek to turn around margins. They need to revisit revenue, cost, and margin assumptions. This inevitably will lead to continuing flux at health plans and for the general public as a whole:
- Plans will likely need to further downsize operations and staff to reduce administrative costs and rein in benefit offerings and where they offer healthcare.
- Plans need to set the stage to pivot from upfront gate-keeping and suspect revenue maximization to technology-based analysis and intervention with providers and members — in essence moving from utilization management to care management.
- Consumers will see more of fewer benefits and choice as well as increased costs.
#healthplans #coverage
— Marc S. Ryan
