The health insurance industry’s credit outlook for the year remains negative as medical costs continue to rise, according to a new report from Moody’s Ratings.
The Moody’s analysts said that in the current environment, payers will have “limited prospects for profitable growth” this year. Given the margin pressures facing the industry, plan redesigns, benefit cuts and exits from low-performing markets remain likely, per the report.
Medical cost inflation has impacted every business line insurers have—Medicare Advantage (MA), Medicaid, the Affordable Care Act exchanges and commercial plans—and that trend is set to carry through the coming months. In addition, reimbursement rates have generally lagged these inflation rates, putting further pressure on plans, according to Moody’s.
Key cost drivers range from pricey pharmaceuticals, increased intensity alongside higher utilization and higher coding intensity from providers, according to the report.
Making improvements to earnings and margins has been a key focus for the major companies in this space, according to the report, making for a pivot from the growth mindset that was central for many of these firms.
For example, plans saw membership declines in the Medicaid segment specifically in 2023 and 2024 as the post-COVID redeterminations played out. However, in 2025, those membership declines were reflected across multiple lines of business as plans responded to the cost environment, the Moody’s analysts said.
“As insurers remain focused on shoring up earnings, we expect to see low appetite for growth among the health insurers we rate, as well as continued targeted membership reductions in 2026,” they wrote in the report.
The report also notes that as costs rise, the federal government is increasing its oversight of healthcare programs in a bid to address this challenge. Payers with large businesses in government programs are especially at risk as regulators look to reshape eligibility and reimbursement rates.
For example, the Trump administration has proposed flat MA rates for the 2027 plan year, which insurers have roundly criticized given rising costs. Providers have also expressed concern about the impact these rates could have on them moving forward.
The Moody’s analysts outlined several factors that could lead them to reassess the insurance industry’s outlook as stable. For one, a significant moderation of current cost trends would go a long way toward stabilizing the financial performance of these companies.
In addition, if insurers are successful in efforts to adjust underwriting for their portfolios to account for the current cost environment, and thus improve their profitability and margins, the overall outlook will improve in tandem, according to the report.
Another stabilizing factor could be seeing the fruits of value-based care and digital health in moderating some of the cost pressures, the analysts said.
“Health insurers have significantly stepped up efforts to better forecast and contain the continued rise in medical costs within their health plans, leading companies to undertake substantial re-underwriting and repricing actions in recent years,” the analysts said. “However, the sector is still grappling with the broad, multifaceted and difficult to tackle nature of many of the factors driving up loss costs.”