AM Best has downgraded its outlook for the health insurance sector from stable to negative, citing escalating medical costs and increased utilization across government, commercial and ACA plans.
The credit rating agency noted higher utilization of specialty drugs, increased physician visits, more inpatient admissions and a surge in behavioral health claims. The coding intensity of medical services has also increased, according to an Aug. 25 news release.
Medicare Advantage plans are facing increased utilization trends, higher provider costs, lower star ratings and changes to the risk-adjustment payment model from CMS.
Medicaid plans have seen sharp enrollment drops since the pandemic, resulting in a higher proportion of current enrollees with increased utilization and costs. Funding cuts and new work requirements are expected to further strain state programs.
The commercial group segment has also seen higher utilization and medical costs across all segments, along with increased usage of GLP-1s
The ACA marketplace is seeing the same rise in utilization and costs, along with deterioration in risk pools and higher morbidity members.
AM Best predicts that improvements may be seen in 2026 but the industrywide challenges are likely to persist into 2027.
