Health insurers are performing well, but challenges loom

Health insurers largely beat expectations and upped their full-year profit guidance in their Q2 2026 earnings calls.

It’s an improvement from last year, which saw several payers like Centene, Elevance Health, and UnitedHealthcare fall below expectations or lower their financial outlook after medical costs were higher than expected.

Insurers attribute their improved performance to strategies like market exits, benefit reductions, and premium increases. Still, uncertainty looms large due to persistently high medical costs, enrollment drops, a sicker risk pool, and policy changes. Payers said they expect more premium increases and market exits for 2027.

“The No. 1 influence on increasing premiums is the increase in the underlying cost of healthcare,” Matthew McGough, a policy analyst at research nonprofit KFF’s Program on the ACA, told Healthcare Brew.

Performance improves. UnitedHealthcare was hit hard by unexpectedly high medical costs from its Medicare Advantage (MA) business in 2025. To counter this stressor, the company reduced MA plan benefits and exited 109 US counties in 2026, resulting in a projected 1.1 million drop in MA membership by the end of the year.

CEO Tim Noel said during a July 16 earnings call that this and other market actions resulted in the company’s better-than-expected Q1 and Q2 2026 performance.

High costs persist. But payers’ improved performance doesn’t mean medical costs necessarily went down; it means they were better able to predict high costs and prepare accordingly.

Inflation, provider shortages, and increased costs fueled by the use of pricey specialty drugs like GLP-1s are still “driving up health spending everywhere, and certainly are putting upward pressure on premiums,” McGough said.

Elevance Health EVP and CFO Mark Kaye said that within the commercial health insurance market, costs remain high but are “consistent” with the payer’s pricing approach.

“We have applied the same discipline to the 2027 selling season,” he said on July 15 during the company’s earnings call. In other words, don’t expect premiums to fall in 2027.

ACA enrollment drops. Similarly, the Affordable Care Act (ACA) marketplace faced financial challenges in 2026 after the expiration of enhanced premium tax credits. ACA insurers increased premiums an average of 21.7% for “benchmark” second-lowest-cost silver plans, according to an analysis by the Urban Institute, a nonprofit research organization. These changes resulted in a drop of about 3 million enrollees, from 22.1 million in February 2025 down to 19.2 million as of February 2026, according to the Office of the Assistant Secretary for Planning and Evaluation.

Insurers plan to raise ACA plan premiums again by a median of 14% in 2027, another double-digit increase, according to a KFF analysis of preliminary rate filings in 16 states and DC. That’s likely an attempt to make up for healthier members who left the ACA marketplace, McGough said.

An April analysis by actuarial firm Wakely found healthier people were more likely to exit the marketplace, creating a risk pool with a higher proportion of sicker, and therefore costlier, members.

Policy changes. Medicaid is facing challenges, too.

Starting in 2027, the One Big Beautiful Bill Act will cut state Medicaid budgets and require most states to roll out work requirements for Medicaid recipients.

Felicia Norwood, EVP and chief health benefits officer at Elevance, said the work requirements will be “very manageable.” But at the same time, the payer is preparing for a significant Medicaid pullback amid a projected -1.75% operating margin in 2026, Kaye said.

Elevance exited the DC Medicaid market on Aug. 1. During the company’s earnings call, President and CEO Gail Boudreaux also announced plans to exit more Medicaid markets in the next 12 to 18 months “where we do not see a path to sustainable performance.” The payer had nearly 8.4 million Medicaid members nationwide as of June 30.

The work requirements come at a time when the Medicaid market is already under pressure.

Centene—the largest Medicaid managed care organization (MCO) with 12.1 million members as of June 30—has seen a drop in “low utilizers,” or members who were using low levels of medical care, since the resumption of Medicaid eligibility determinations in April 2023, CFO Drew Asher said during the payer’s July 28 earnings call. This has led to a “slight” increase in the proportion of higher-acuity members, Asher said.

Hal Andrews, president and CEO of healthcare data analytics firm Trilliant Health, told Healthcare Brew this means insurers have to make up those costs somewhere else.

Medicaid MCOs will likely ask states for further rate increases, and if states don’t agree, the MCOs may leave that state like Elevance did in DC, Andrews said.

“As publicly traded corporations with fiduciary duties, they can’t just hang around and take the loss,” he added. “If the state’s not going to meet them where they need to be or they want to be, well, sometimes they’re going to walk away.”