Major health insurers saw positive signs in the second quarter, but the pressures they've faced over the past year haven't evaporated, according to a new report from analysts at Moody's.
Broadly speaking, large managed care organizations surpassed investors' expectations and went on to boost their outlook for the back half of 2026. However, high medical costs are still a key factor, with payers naming specialty pharmacy, behavioral health and provider coding intensity as drivers.
And, despite the positive momentum, margin recovery remains a challenge, the analysts wrote.
"Notably, a significant portion of the quarter's margin improvement reflected favorable prior-year reserve development and non-recurring items rather than solely underlying trend," they said. "Margin recovery, while accelerating, remains uneven across products and issuers."
Medicare Advantage and the Affordable Care Act's exchanges are the predominant markets behind elevated utilization, though the trend is being felt elsewhere, too. The Moody's analysts note that while the pressure in these two markets is the same, they "are diverging in trajectory" in terms of the response.
In Medicare Advantage, plans have exited certain underperforming markets and focused on higher margin populations. Insurers have also put a focus on repricing plans and redesigning offerings to support recovery, which led to improvements in medical loss ratios in the quarter.
That said, finalized MA rates — which fall short of overall cost trend — can constrain those improvements, the analysts said.
By comparison, insurers took more drastic measures to respond to the cost pressures in the ACA exchange segment, per the report.
Following the expiry of the post-COVID enhanced premium tax credits, many payers significantly scaled back their footprints or planned to exit the market entirely, which drove down enrollment and led to a reshaped, more uneven risk pool.
Medicaid, meanwhile, showed positive, early signs pointing toward greater stability. The analysts said that several payers categorized 2026 as the "trough year" for margins in this market as rates increase. Higher rates are helping to close the gap between rates and the broader cost trend, per the report.
Conversely, though, membership in this market is on the decline, and only set to decrease further as the One Big Beautiful Bill Act is fully implemented and states roll out work requirements nationally. Medicaid enrollment was down by about 6% year-over-year across the board.