Overview
Fitch Ratings assigns a deteriorating outlook to the U.S. health insurance sector for 2026, citing sustained pressure from high medical costs, disruption tied to the year-end 2025 expiration of enhanced Affordable Care Act marketplace tax credits, and unresolved regulatory and policy risk.
Key highlights
- Fitch Ratings says elevated utilization, higher unit costs, specialty pharmacy growth, and sustained behavioral health demand will continue across ACA, commercial, Medicare Advantage, and Medicaid in 2026. The setup isn’t temporary.
- The year-end 2025 sunset of enhanced Affordable Care Act marketplace tax credits is expected to trigger adverse selection. Healthier, price-sensitive enrollees may exit, leaving insurers with higher-acuity members and accelerating cost pressure.
- Fitch expects commercial group medical cost growth to near 9% in 2026, the highest level in more than 10 years. Hospital pricing power, provider consolidation, and deferred-care complexity continue to drive claims severity.
- Despite a 5.1% rate increase from Centers for Medicare & Medicaid Services, higher utilization, rising unit costs, and regulatory changes are expected to outpace revenue growth. Plan exits, benefit redesigns, and network tightening are already underway.
- Lower enrollment tied to new eligibility and work requirements, rising acuity among remaining members, and declining provider tax support are set to pressure margins. Fitch warns that state reimbursement rates may lag actual cost growth.
The Affordable Care Act (ACA) is a comprehensive reform law, enacted in 2010, that increases health insurance coverage for the uninsured and implements reforms to the health insurance market.
This includes many provisions that are consistent with AMA policy and holds the potential for a better health care system.
Medical cost trends in the U.S. sit at the center
Persistent, elevated medical cost trends and regulatory uncertainty will continue to challenge U.S. health insurers across nearly all major lines of business in 2026. Fitch currently maintains a ‘deteriorating’ sector outlook.
Beinsure expects weaker operating performance as utilization continues to climb, driven by more frequent and more expensive provider visits.
The employer-sponsored medical plan costs worldwide to climb 9.8% in 2026, according to Aon’s Global Medical Trend Rates Report. That projection marks a shift back to single-digit growth for the first time since 2023.
The “medical trend rate” tracks the yearly increase in unit costs for employer health plans, factoring in price inflation, new technologies, greater usage, and higher prescription drug expenses.
For global employers, this metric sets the baseline for how much more expensive health benefits will be to deliver.
Medical trend refers to the predicted annualpercentage increase in the cost of treating patients and providing healthcare services, serving as a tool to forecast rising healthcare expenses by considering factors like inflation, service utilization, prescription drug costs, and advancements in medical technology, according to Global Benefits Standards.
Behavioral health usage remains elevated
Specialty pharmacy spending keeps accelerating. None of that shows signs of cooling, Beinsure noted.
The end of enhanced ACA premium tax credits could reshape the individual market quickly. Fitch expects adverse selection in the Marketplace as enrollment drops sharply, leaving behind a sicker risk pool.
Higher morbidity among remaining members would push utilization higher across hospital and physician services, even if insurers reprice aggressively.
Forecasted Medical Trend Rate
| Region | 2025 | 2026 |
| Global | 10.0% | 9.8% |
| North America | 8.8% | 9.3% |
| Asia-Pacific | 11.1% | 11.3% |
| Europe | 8.9% | 8.2% |
| Latin America and Caribbean | 10.7% | 10.3% |
| Middle East and Africa | 15.5% | 15.3% |
Insurers may get stuck with a higher concentration of expensive enrollees
Insurers may get stuck with a higher concentration of expensive enrollees if healthier, cost wary people exit the market.
According to Beinmsure analysts, that’s how risk pools wobble: the healthy leave, the sick stay, prices climb, and the cycle repeats until regulators panic.
For now, ACA consumers stare at rising costs with no clear fix. The bipartisan deal that ended the recent shutdown didn’t solve affordability; it just delayed the decision to December.
Congress will decide then whether to extend the COVID era credits or let them die at the end of 2025.
Analysts warned the uncertainty already pushes younger, healthier people to consider bailing. She said the deal practically guarantees marketplaces lose exactly the kind of enrollees they need to stay stable. And she’s not exaggerating.
KFF estimates that 22 mn Americans who receive ACA tax credits will see their monthly premiums more than double on average.
That doesn’t mean the plans themselves doubled in price; it means consumers will pay an extra $1,016 on average in 2026 without the subsidies. Actual numbers vary by age, income, location, and coverage level, but the jump is brutal either way.
Senior Director Brad Ellis highlights ongoing sector headwinds: “Despite the potential for operating performance improvement among some participants in the health insurance sector in 2026, continued high utilization trends, disruption in the ACA Marketplace, and ongoing legislative and regulatory developments suggest a very challenging environment over the coming 12 months.”
Elevated utilization trends are expected to remain a defining industry headwind, driven by rising provider visits, higher unit costs, and increased demand for specialty pharmacy and behavioral health services.
The likely expiration of the enhanced premium tax credits at the close of 2025 is set to drive considerable disruption in the ACA exchange marketplace, with risk pool deterioration and adverse selection pressuring profitability, Beinsure noted.
Insurers are actively reevaluating their future participation in some markets as they prepare for these shifts.
Insurers are already reassessing their exposure
Despite anticipated premium increases to reflect worsening risk mix, some carriers are reconsidering participation in certain states or the ACA business altogether.
Congress, Fitch notes, has made little headway on extending the expiring subsidies or offering workable alternatives. Uncertainty lingers.
Pressure isn’t limited to the individual market. Fitch expects commercial group medical cost growth to approach 9% in 2026, the highest level in more than a decade. Inpatient hospital inflation, provider consolidation, and negotiated rate hikes all contribute.
Utilization patterns still reflect deferred care from the pandemic and a rising share of complex, high-cost claims tied to chronic conditions.
Pharmacy costs add another layer for insurers
For commercial group insurers, pharmacy spending is set to outpace overall medical trends, with specialty drugs and GLP-1 therapies absorbing a disproportionate share of cost growth.
Pharmacy spend, particularly for specialty drugs and GLP-1 therapies, is accelerating across both Medicare Advantage and employer-sponsored commercial group plans.
According to Beinsure, pricing alone won’t fully absorb the impact.
Medicare Advantage insurers have already reacted
Medicare Advantage faces similar strain. Many have reshaped benefit designs, narrowed provider networks, cut agent commissions on select products, and exited underperforming plans or geographies.
Fitch flags another variable: increased plan switching among seniors during enrollment periods, which adds volatility around benefit utilization and pricing assumptions.
The 5.1% rate increase announced by the Centers for Medicare & Medicaid Services is unlikely to cover higher claims costs or regulatory changes, including pressure to scale back prior authorization practices.
Fitch expects high utilization and rising unit costs across inpatient care, skilled nursing, and home health services in 2026, compressing margins further.
Medicare beneficiaries face higher costs in 2026 as Part B premiums rise to $202.90 a month, nearly 10% more than this year. The increase will absorb close to one third of the average $56 monthly Social Security cost of living adjustment.
The Part B deductible will climb from $257 to $283. The Part A hospital deductible will rise to $1,736. Coinsurance for extended hospital stays and skilled nursing will also increase.
Healthcare inflation continues to run ahead of fixed incomes, creating broader pressure on retiree budgets.
These developments have pushed more seniors to evaluate the cost of Medicare supplemental insurance. Medigap plans offer stronger protection from large out of pocket expenses, including caps on exposure under Plans K and L and fuller cost sharing coverage under Plans G and N.
Medicare Advantage continues to experience substantial disruption
Medicare Advantage continues to experience substantial disruption as recent regulatory changes, benefit structure adjustments, and the phase-in of the CMS risk adjustment model contribute to margin pressures.
Medicaid faces additional challenges: the U.S. Tax and Spending Bill will result in stricter eligibility requirements, potentially before year-end 2026 in some states, lower enrollment and reduced premium revenue, while inadequate state reimbursement rates and rising acuity among remaining enrollees further strain margins.
Medicare’s projected 2026 increases now drive a renewed emphasis on coverage decisions, with seniors weighing stronger financial protection against growing premium burdens.
U.S. health insurers administering state Medicaid coverage will encounter revenue pressure from OBBBA, which Beinsure expects to weigh on earnings.
New work requirements could increase acuity in the Medicaid pool, requiring states to raise capitation rates to maintain already thin profit margins in this segment.
Over time, heightened market uncertainty and insufficient returns may lead to industry consolidation and exits from unprofitable markets.
Medicaid presents a different challenge
Enrollment and premium revenue are expected to fall sharply beginning in 2027 under the U.S. Tax and Spending Bill, H.R.1, due to stricter eligibility checks and work requirements.
The Congressional Budget Office estimates nearly 10mn fewer people will have Medicaid coverage over the next decade.
Those leaving Medicaid due to work requirements are likely healthier than average, leaving a higher-acuity population behind.
Fitch expects Medicaid medical costs to keep rising in 2026 as utilization remains high. At the same time, premium rates set by many states may not keep pace with cost growth.
Margins look thin already
Fitch warns they could narrow further as states scale back provider taxes that trigger federal matching funds.
In Medicaid expansion states, the cap on those taxes will drop gradually from 6% of providers’ net patient revenue to 3.5% starting in 2028.
That shift pushes more funding responsibility onto states, with knock-on effects for insurers.
According to Beinsure, Fitch’s message is blunt. Cost pressure is broad, policy relief is uncertain, and every major line – ACA, commercial, Medicare Advantage, Medicaid – carries its own version of downside risk heading into 2026.
FAQ
Because cost pressure spans every major line of business at once. Medical inflation, higher utilization, policy disruption, and regulatory uncertainty converge, limiting insurers’ ability to offset losses through pricing alone.
They are central. Fitch expects more frequent provider visits, higher inpatient costs, strong behavioral health demand, and accelerating specialty pharmacy spend, including GLP-1 therapies, to persist into 2026.
Without enhanced tax credits, Marketplace enrollment is expected to fall sharply. According to Beinsure analysts, this drives classic adverse selection: healthier members leave, higher-cost members stay, utilization rises, and profitability weakens.
Estimates from KFF suggest about 22mn ACA enrollees could see premiums more than double on average, translating into roughly $1,016 in additional annual out-of-pocket costs in 2026 if subsidies expire.
Yes. Fitch notes insurers are reassessing participation in certain ACA states, exiting underperforming Medicare Advantage markets, redesigning benefits, narrowing networks, and cutting agent commissions to protect margins.
High utilization, rising inpatient and post-acute costs, and regulatory pressure on prior authorization collide with only modest rate relief. Increased plan switching among seniors adds further unpredictability to claims patterns.
Beginning in 2027, stricter eligibility checks and work requirements are expected to reduce enrollment by nearly 10mn people over 10 years, per the Congressional Budget Office. Those exiting are likely healthier, leaving a sicker pool behind and pushing costs higher while funding support weakens.
