AM Best lowered its outlook on the U.S. health insurance sector to negative from stable, pointing to higher medical spending, weaker risk pools, and rising pharmacy costs that continue to grind down margins.
Jennifer Asamoah, senior financial analyst at AM Best, said medical and pharmacy claims climbed across the industry through late 2024, squeezing underwriting results as utilization picked up.
According to her, most business lines reported higher costs, driven largely by specialty drug use rather than one-off events.
She said specialty pharmaceuticals sit at the center of the pressure. GLP-1 prescriptions surged, physician visits rose, emergency room traffic increased, and inpatient admissions followed the same direction. Behavioral health claims moved higher as well, and Medicaid coding intensity added more weight to loss ratios. Early 2025 brought another bump as flu, COVID, and pneumonia cases pushed respiratory claims up again.
GLP-1 demand is already forcing changes in benefit design. Asamoah said insurers and employer groups tightened coverage for 2025, narrowing reimbursement for weight-loss use and steering coverage toward other clinical indications. The shift reflects cost control more than medical debate.
Bridget Maehr, an AM Best director, flagged Medicaid and Affordable Care Act exchanges as weak spots.
Medicaid enrollment expanded sharply during the COVID public health emergency, when states could not disenroll members. People who lost employer coverage or saw wages fall entered the program in large numbers.
Once eligibility checks restarted, millions left Medicaid. Many were healthier members with low claims activity. The exit reshaped the remaining pool. Smaller. Sicker. More expensive.
Maehr said a large share of those leaving Medicaid moved into subsidized ACA plans, pushing claims higher there as well. Pricing, she said, will trail reality for a while because rates take time to adjust to the new risk mix. Insurers feel the gap now.
AM Best expects pressure to extend through 2027. Maehr said carriers will rely on tighter pricing, narrower benefits, and stronger care-management programs to manage higher morbidity.
Value-based care models and selective provider arrangements will play a larger role. Some insurers may pull back from Medicare Advantage or ACA markets altogether.
Medicaid faces another layer of strain. New federal rules add work requirements and more frequent eligibility reviews, forcing insurers to expand administrative systems just to keep up. Costs rise even before claims hit.
According to our analysts, the sector enters a rougher phase where elevated medical use collides with structural changes in public programs. Earnings still exist. Predictability does not.
