Medical costs are hitting payers hard in Q2

It’s been a bleak Q2 for the insurance industry.

Payers like Elevance, Centene, and UnitedHealth have fallen short of expectations or lowered their 2025 predictions, blaming rocketing medical costs amid a sicker-than-expected pool of members across their health plans over the last few quarters. They’ve pointed to the Affordable Care Act (ACA) marketplace and Medicaid in particular.

The issues have largely been attributed to increased utilization, providers coding for more conditions, and a continued mismatch between state Medicaid reimbursement rates and member acuity.

Plus, next year, policy changes could make it more expensive and difficult to enroll in government plans, driving away healthy people and creating an even sicker Medicaid and ACA pool, execs said in Q2 earnings calls.

Insurers are reassuring investors that they will raise rates or exit unprofitable markets to make up for this. But Hal Andrews, president and CEO of data science, analytics, and market research firm Trilliant Health, told Healthcare Brew it isn’t that simple.

Hidden cost crisis. Andrews feels perhaps the biggest issue contributing to earnings misses isn’t being emphasized enough in payers’ calls.

“They’re not talking about the fundamental larger issue, which is specialty pharmacy,” he said.

A July 16 report by professional services network PwC shares that insurers’ medical costs rose 8.5% for the group market and 7.5% for the individual market in 2025—a trend that’s expected to stay the same in 2026. UnitedHealth, for instance, expects medical costs for the year to be $6.5 billion more than predicted. It has recorded $152 billion in medical costs from Jan. 1 to June 30.

Yet drug spending seems to be increasing even more than that. The PwC report found that industrywide it increased by 11.4% ($50 billion) to reach $487 billion in 2024 at net manufacturer prices, according to the report.

GLP-1s are the usual suspects when it comes to high drug spend in recent years, but there are also quite a few pricey specialty drugs to treat chronic illness and genetic disorders.

Coding concerns. There are other issues insurers emphasized that Andrews agrees are big factors. For instance, upcoding.

An analysis by independent actuarial firm Wakely said an initial review found there was an increase in the number of members coding with more than two conditions.

Payers like Elevance, Centene, and UnitedHealth called out “aggressive” coding in their calls. 

Andrews pointed out that national hospital chains like Nashville, Tennessee-headquartered HCA Healthcare and Dallas, Texas-headquartered Tenet Healthcare have not reported substantially increased admissions (in fact, Tenet’s decreased) in their recent earnings calls, suggesting it’s not that patients have used much more care but that providers are charging for more things.

It’s possible this could be because artificial intelligence (AI) is now sometimes used for coding, Andrews added. In recent years, AI programs have been trained to identify applicable codes from patient medical records and even to automate claim submissions.

“It doesn’t have to mean that coding intensity is a bad thing. It could just be that the machines are more consistent at coding than the humans are,” Andrews said.

The exceptions. Meanwhile, some payers like Humana and CVS’s Aetna beat the slump that seemed to plague everyone else, topping Wall Street predictions and even raising their full-year earnings guidance for their companies by $2 billion and $9 billion, respectively. Both have struggled financially over the past year, and execs attributed this “transformation” to concerted turnaround efforts.

Cigna, too, beat Wall Street estimates. Reuters reported this success could be because it’s gotten out of the government insurance game, selling off its Medicare business in March. Plus, though it still faced high medical costs, Cigna’s Evernorth healthcare services unit, which includes its pharmacy benefit management business, rose 17% to $57.83 billion.