Most US managed care insurers projected to see medical losses rise in Q1

Most publicly traded US health insurers are expected to report a year-over-year deterioration in medical loss ratio during the first quarter of 2025.

Of the eight largest publicly traded US managed care insurers, all but two — Alignment Healthcare Inc. and Humana Inc. — are expected to see their medical loss ratios rise from the first quarter of 2024, according to an S&P Global Market Intelligence analysis of sell-side analyst forecasts. However, all but Alignment are expected to see a sequential improvement in their medical loss ratios from the fourth quarter of 2024.

The managed care sector is coming out of a difficult 2024 in which it faced high medical losses both from federally subsidized plans like Medicare and Medicaid and commercial lines, according to James Sung, director of insurance ratings for S&P Global Ratings.

"Most of the companies are guiding to a higher medical loss ratio for 2025 as well, and while they would like to see some relief, the first quarter may be a little bit early," Sung said. "We wouldn't be surprised if they were to talk about continued pressure, just to stay conservative in a full-year view."

While the recent federal approval of a 5.1% rate increase for the senior-aimed Medicare Advantage plans in 2026 provides a path toward improved medical loss ratios for managed care insurers, the impacts will not be felt in 2025, Sung said.

Medicaid, which is aimed at low-income families and those with certain disabilities, is stabilizing some after nearly two years of post-COVID-19 state-led redeterminations, according to Francesca Mannarino, associate director for S&P Global Ratings covering insurance.

Redeterminations, which procedurally disenrolled thousands from Medicaid plans, had a cost impact on insurers due to heightened acuity levels, according to Mannarino. Acuity is a metric used to determine the severity of a person's illnesses or conditions and can also be a metric used to determine the level of care and resources required.

"Because of the redetermination impact, the healthier members have come off of Medicaid but many of the more sick members remained, hence the higher acuity of the business segment," Mannarino said. "That's what is driving the need for higher rates to reflect that higher acuity that's being seen."

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Despite difficulties in the last two years surrounding the high costs associated with government-subsidized health plans, J.P. Morgan analyst Lisa Gill and her colleagues wrote in a research note that they are "cautiously optimistic" about first-quarter earnings.

Sentiment surrounding managed care insurers has improved in recent weeks, Gill and her colleagues wrote, even though pharmaceutical tariffs appear likely.

"Changes here will seemingly come down to whether the more hawkish or dovish arguments toward tariffs win out, as experts described a limited appetite from Congress to curb presidential authority," Gill and her colleagues wrote.

Revenues and profits on the up

A majority of publicly traded US health insurers are expected to post sequential and year-over-year rises in revenue.

The nine largest publicly traded US managed care insurers are all expected to log revenue increases from the first quarter of 2024, and The Cigna Group is the only insurer expected to see revenue decline from the fourth quarter of 2024.

Operating income is similarly expected to rise for the majority of the nine major publicly traded managed care insurers, with Cigna again expected to be the only insurer to see a drop from the fourth quarter. Cigna is additionally expected to see a decline in operating income year over year along with Clover Health Investments Corp. and Molina Healthcare Inc.

Like most managed care insurers, Cigna has been struck by high medical costs and reported fourth-quarter results that "were below expectations due to higher-than-expected medical costs in our stop loss product within Cigna Healthcare," according to CEO David Cordani's comments during an earnings call.

Last year, the company sold its Medicare businesses to Health Care Service Corp. a Mutual Legal Reserve Co. for approximately $3.7 billion in a move that analysts said primed the managed care insurer for deals down the road.

UnitedHealth Group Inc. will kick off earnings season on Thursday with its first-quarter earnings call at 8:45 a.m. ET.