Fitch Ratings has issued a “deteriorating” outlook for the U.S. health insurance industry in 2026, citing persistent medical cost pressures, regulatory uncertainty, and fallout from expiring ACA enhanced subsidies.
The Dec. 30 report shared with Becker’s projects medical loss ratios for the seven largest publicly traded insurers will reach an average of 87.9% by the end of 2025, with continued increases expected next year.
Five notes:
- Commercial group medical costs are expected to climb nearly 9% in 2026, the highest rate in over a decade, driven by inpatient cost inflation, provider consolidation, and specialty drug spending, particularly GLP-1s.
- The expiration of enhanced ACA premium tax credits on Jan. 1 could trigger adverse member selection, with healthier enrollees dropping coverage and leaving insurers with a sicker, more expensive risk pool.
- Medicare Advantage margins will remain under pressure despite CMS’s 5.1% rate increase for 2026, which Fitch says won’t fully offset rising utilization trends and regulatory changes, including prior authorization restrictions.
- Medicaid faces enrollment losses of nearly 10 million people over the next decade amid impending stricter eligibility requirements and work requirements. Those losing coverage are expected to be healthier than average, leaving higher-acuity members in the risk pool.
- Medicaid margins will take another hit as states reduce provider taxes that unlock federal matching funds, with the cap dropping from 6% of net patient revenue to 3.5%, beginning in 2028.
