Kathmandu. Credit rating agency AM Best said it is maintaining its negative outlook for the U.S. health insurance industry as 2026 approaches. AM Best points to persistent medical cost increases in Medicare Advantage and the wide gap between rates and member growth in managed Medicaid, among many other pressures.

According to AM Best’s Market Segment Report “Market Segment Outlook: U.S. Health Insurance,” U.S. health insurers are experiencing significant increases in medical costs. “This is driven by increased use of specialty drugs, doctor and outpatient visits, increased inpatient and emergency activity, an increase in behavioral health claims, and a sharp increase in coding frameworks that reflect patient member populations,” the report said.

Given these growing trends, systematic Medicaid may not be beneficial until the end of 2026, or possibly until 2027, according to AM Best. “Because most contracts are renewed in the middle or early of the year,” the report said, Medicare Advantage margins continue to shrink due to higher utilization, rising provider costs, and rising disease rates in some member groups. However, commercial market revenue is expected to decline sharply in 2024. ’

Jennifer Asamoa, senior financial analyst at AM Best, said, “Commercial or employer, group businesses are already a major source of revenue for health insurance companies. However, a rate increase in renewals is expected to be necessary given the evolving medical trends and could lead to hiring losses, higher staffing costs or many companies switching from fully insured businesses to self-financed. Small group businesses in particular are more price sensitive. ’