The national insurers' financial performance in Q2 2025: A tale of two (types of) payers

Over the course of the past few weeks, all five of the large, publicly traded health plans have hosted their second set of earnings calls for the year, sharing their performance from Q2 and their outlook for the remainder of 2025. We make it a point to stay on top of the performance of these players not only to keep track of the financial prospects of the overall health insurance industry, but also because they offer a telling window into ongoing demographic shifts, the margin outlook for providers, the real-world/cost implications of innovations from the drug pipeline, and the state of the regulatory environment. You can find our analysis of the “Big Five” national insurers’ financial performance in Q1 in our recent blog post, linked below.

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Missed our post on the national insurers' financial performance in Q1? Catch up by clicking here or on the image below.

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In today's post, we’ll summarize the trends we’re seeing across Q1 and Q2 performance, dive into the details of the "Big Five" national insurers' financial performance in Q2 2025, and outline what we’re watching moving forward.

Read on to get our full commentary, or use the links below to jump to a specific area of interest:

• High-level trends

• Deep dives into specific players

  • Cigna

  • CVS Health (Aetna)

  • Elevance Health

  • Humana

  • UnitedHealth Group

• What we're watching moving

The national insurers’ financial performance in Q2 2025 was hurt by rising medical costs

Insurers faced mounting pressures across Q2, reversing the signs of stabilization we saw in Q1 of this year. While all “Big Five” insurers were profitable this quarter, most missed expectations and experienced higher-than-expected utilization and increased medical costs, resulting in rising year-over-year medical loss ratios (MLRs) across the board.

Rising MLRs attributed to elevated medical costs—especially for government payers

Insurers’ MLRs were higher than last quarter and, more importantly, were extremely high on an absolute basis, undoing the stabilization we saw in Q1 and eroding shareholder trust. (As a reminder, in the wake of the Affordable Care Act, insurers strive to keep MLRs between 80% and 85% depending on the line of business—exceeding this range signals that medical costs are cutting deeply into profits.) Across the board, insurers pointed to elevated utilization and higher-than-expected medical costs.

If you’re anything like us, you might be wondering why MLRs have been so high—after all, managing to the MLR is essentially what the insurance business is all about: accurately predicting utilization and setting pricing/managing costs accordingly. So it’s a bit surprising, and unsettling to shareholders, that all the major insurers have missed the mark so completely. And this trend isn’t isolated to Q2 of this year; the (slight) stabilization we saw in Q1 notwithstanding, MLRs have been rising—and insurers have repeatedly been caught flat-footed—for the past few years at this point. Our hypothesis: It’s not a matter of a single miscalculation or a single driving force—it’s the cumulative effect of many smaller, harder-to-predict factors pushing costs higher. In other words, we have a version of the three-body problem, where eventually forces will collide in unpredictable but inevitable ways.

Medicare Advantage

Medicare Advantage (MA) was clearly the main driver of underperformance in Q2. At this point, it seems clear that MA is no longer the cash cow it once was. Changes to the reimbursement methodology—particularly to the Hierarchical Condition Category (HCC) model and the star ratings system—combined with rising utilization, have made MA into a major source of tension for insurers. In this latest round of earnings calls, insurers’ financial performance was highly correlated with the size of their MA footprint.

As the insurer with the largest MA membership, UHC is feeling the pressure most acutely. MA makes up a full 15% of UHC's membership, and a far higher share of UHC's revenue base. And, as we noted in our last post, unlike other insurers, UHC appeared to have made a strategic decision NOT to pull back from MA markets in a big way for 2025—if anything, UHC leaned into its MA business, picking up enrollees from other insurers who were exiting markets.

As we touched on last quarter, UHC made a series of miscalculations regarding its MA business, including:

• Difficulty adapting to the new MA risk-adjustment model (commonly known as V28): Leaders acknowledge that United struggled with its transition to the new model.

• Higher-than-expected MA utilization: MA utilization was twice the amount United had predicted, concentrated in physician and outpatient spaces. (Utilization in the commercial and Medicaid businesses were as expected.)

• Lower-than-expected MA reimbursement: Optum Health, United's care delivery division that serves Medicare patients (mostly UHC MA enrollees), grew as patients moved from market-exiting plans to plans (such as UHC) that contracted with Optum provider services. UHG leaders purportedly underestimated how different the engagement behavior of these patients would be relative to Optum's typical MA patients, so reimbursement was "likely not reflective of their actual health status" and below United's expectations.

These miscalculations continued to impact UHCs’ performance in the second quarter.

While Humana, CVS Health (Aetna), and Elevance Health also have substantial MA enrollment and experienced elevated costs, all three reported that costs were more in line with expectations. That’s not to say they weren’t affected by MA costs—we see it in their MLRs—but MA costs weren’t the main “miss” for these three insurers (we’ll cover that in the next section).

Cigna was the only insurer to (mostly) avoid the MA-related pressure—a big reason why it was able to outperform its peers in Q2. Cigna has a very small MA membership. It began reducing its MA footprint last year and finalized the sale of its Medicare businesses, including MA, to Health Care Service Corporation in March 2025.

ACA marketplace/Medicaid

Insurers also pointed to higher-than-expected utilization and elevated costs in the ACA marketplaces and Medicaid in their earnings calls. (Note: This trend was largely absent from Q1 earnings calls but was back as a theme in Q2). As we saw with MA, the insurers with bigger Medicaid footprints—Elevance and UHC—felt the pressures most acutely.

• Elevance Health attributed elevated costs to membership shifts from Medicaid into ACA following the Medicaid unwinding process and “slower than expected Medicaid rate alignment.”

• UHC saw higher-than-expected utilization in Medicaid, specifically behavioral health, and in outpatient services in the ACA marketplaces.

The impact of ACA and Medicaid costs are most clear with Molina and Centene—two insurers that are almost exclusively focused on government programs, and who struggled the most in the second quarter.

• Centene: Centene is the largest marketplace insurer and the largest Medicaid managed care organization. As UHG did earlier this year, Centene withdrew its earnings guidance after data revealed lower-than-expected growth and higher-than-expected utilization among its ACA states.

• Molina Healthcare: Molina also lowered its 2025 guidance. Despite being a relatively small player, it has an outsized presence in both the Medicaid and ACA exchanges.

The trouble in the Medicaid and ACA markets is the deterioration of the risk pool, along with the pending expiration of the enhanced subsidies on the ACA marketplace. Insurers are also acutely aware of how the passage of the One Big Beautiful Bill Act (OBBBA) will continue to impact the risk pool. OBBBA introduced major Medicaid changes, including adding work requirements and restrictions on states’ ability to raise funds for Medicaid through provider taxes. These changes will almost certainly result in substantial enrollment declines, particularly among younger and healthier individuals, causing the Medicaid population to (once again) skew older and sicker, and likely worsening the utilization, acuity, and MLR challenges that health plans are already experiencing.

Commercial and specialty drug segments buoy performance for some insurers

We saw commercial segments act as more of a stabilizing mechanism—although not a definite win—for the big insurers in Q2. As noted earlier, Cigna’s large commercial portfolio was a big driver in its outperformance of its peers in Q2.

And, just like last quarter, insurers with a focus on pharmacy and specialty services, such as Cigna and CVS Health, continue to benefit from strong specialty pharmacy growth, which helped offset some of the pressures elsewhere.

Is AI the answer to insurers’ woes? Insurers appear to think so.

Last quarter, we made note that denials (and related AI solutions) weren’t heavily advertised in any of the earnings calls. Despite denials being a common tool for insurers to manage costs and control MLRs, insurers' reticence to highlight that particular profit lever wasn’t all that surprising given the public backlash leading up to, and following, the killing of UHC CEO, Brian Thompson, in December 2024.

That changed, to an extent, in the Q2 earnings calls. While insurers still refrained from highlighting denials specifically, there were plenty of mentions of AI’s ability to help streamline processes and increase revenue:

• Cigna: In June, it announced a series of new AI-powered tools that aim to improve customers’ experience during common interactions, such as checking benefits, estimated costs, and finding care.

• CVS Health: Leaders highlighted the use of technology to “automate and streamline processes that improve service and reduce friction for members and health care professionals.”

• Elevance Health: Leaders emphasized AI-enabled tools that help streamline clinical workflows and accelerate routine approvals.

• Humana: Leaders highlighted AI’s role in cost management, such as AI in contact center to surface complex information for representatives and ultimately reducing call times.

• UHC: Leaders previewed plans to invest in technology that offers a “better experience for consumers, customers, care providers, and employees.”

This isn’t a new approach: Coming out of the pandemic, payers’ financials were strong from a (rare) combination of incoming premiums and much lower-than-usual utilization, giving them plenty of cash to invest in AI. And AI investment is unlikely to stop in the near-term. In June, CMS announced that fifty of the largest health plans, including all the “Big Five”, signed a pledge to reform prior authorization across commercial, Medicare Advantage and managed Medicaid plans.

To be clear, the pledges are being positioned as voluntary changes. We, like many across the industry, are somewhat skeptical given we’ve seen these sorts of promises before. Statements from insurers in 2018 and 2023 were similarly worded and things arguably worsened following those announcements. The pledges do however, make it unlikely that payers will look to prior authorizations as a major source of cost containment, as it risks alienating the public.

Instead, we expect to see payers push harder on the clinical side of the revenue cycle in an effort to squeeze the profit balloon slightly differently—i.e., more pushback around clinical justifications, coding levels, etc. We heard hints of this in the earnings calls. Several insurers mentioned that providers' use of AI for "aggressive coding" was a main driving force behind poor MLR performance. We, for one, are skeptical that providers' investments in AI are truly prompting payers to expand their own AI strategy—providers have very clearly lagged payers when it comes to AI investment and revenue cycle sophistication. But we believe that this is as a clear a signal as any that payers intend to continue to focusing on AI-enabled, rev cycle-focused profit levers—albeit from a slightly different angle—and are laying the groundwork for justifying such moves. At our recent revenue cycle summit in Nashville, providers themselves reinforced this hypothesis, with many in the room noting that they anticipate more clinical scrutiny from payers moving forward

For more about insurers’ use of AI for denials and audits, read our recent blog post linked here.

Deep dives on the national insurers

While there are common themes across the national insurers, each highlighted unique challenges and areas of opportunity.

Cigna

Cigna had a relatively strong showing in Q2 2025. It reaffirmed guidance for full year 2025, with revenue of $67.1 billion and an earnings per share (EPS) of $7.20 (both surpassing expectations). Cigna’s MLR was lower than the other insurers, at 83%, but still higher than last quarter. Leaders attributed the high MLR to elevated utilization in the ACA marketplace but also stressed that Cigna’s relatively strong position was due to Cigna’s decision, starting in 2023, to exit certain ACA markets in an effort to prioritize “margin over growth.”

Like last quarter, Cigna’s performance was driven by strong specialty pharmacy growth in Cigna's Evernorth Health Services (i.e., non-insurance) division. Cigna continued to expand its specialty pharmacy efforts, with Evernorth launching a benefit option that limits a patient’s out-of-pocket cost of their GLP-1 prescriptions to no more than $200 per month and applies to their annual deductible. This announcement builds on Cigna’s previously announced products, EnReachRx and EnGuideRx (which we covered last quarter), and further cements Cigna’s focus on high-growth, high-margin pharmacy and specialty services.

CVS Health (Aetna)

CVS Health continued its strong start to 2025 in the second quarter, with $98.9 billion in revenue and, like Cigna, raising its full-year 2025 guidance. Its Aetna insurance arm saw an increased MLR relative to Q2, with MLR at 89.9% driven by CVS' Oak Street Health (value-based primary care chain focused on older adults). Oak Street has a patient mix with higher acuity patients. However, the pressures seen with Oak Street were partially offset by strong volumes in Signify Health (CVS’ healthcare platform focused on home care) and strong results across its pharmacy and retail segments.

Elevance Health

Elevance Health reported a disappointing Q2, revising its guidance for the second year in a row. The bright spot was that revenue of $49.5 billion surpassed expectations, largely driven by its CarelonRx platform (Elevance’s PBM). But elevated costs in its ACA and Medicaid businesses contributed to an MLR of 88.9%, a year-over-year increase. In June, Elevance Health was removed from several Russell indices (a small-cap U.S. stock market index that makes up the smallest 2,000 stocks), coinciding with its falling stock prices which fell 11% in the week following the news.

Humana

Humana had a relatively strong second quarter with revenue of $32.1 billion and reaffirming its full-year guidance, leading stock prices to surge. Like last quarter, the revenue performance was driven by CenterWell, Humana’s health services division which includes primary care, home health, and pharmacy businesses. Within CenterWell, there were higher-than-expected prescription volumes and and a more favorable drug mix in the pharmacy services division. But MLR was higher than last quarter, at 89.7% as (like the other insurers) Humana experienced elevated costs across Medicare, Medicaid, and ACA plans. However, Humana was able to avoid the worst of the effects because 1) it came into 2025 with more conversative assumptions (after a hard year in 2024) and 2) Humana overhauled its MA plans for 2025 after last year’s challenges.

There are still no updates in the ongoing legal battle with the federal government over the program’s MA star ratings. For context, Humana’s largest contracts saw a drop from 4.5 stars to 2.5 stars due to CMS's updated methodology—the largest rating drop of any of the major MA insurers.

UnitedHealth Group

UnitedHealth Care (UHG) had another tough quarter following a very tough Q1. Despite an increase in revenue—$112 billion in the second quarter—UHG continues to face unexpectedly high costs, with an MLR of 89.4%. Leaders shared that the current view for 2025 reflects $6.5 billion more in medical costs than originally anticipated in UHG’s initial outlook. These costs go across most lines of business: more than half from the Medicare portfolio (we covered the MA miscalculations earlier in the post), about one-third of the costs split between ACA plans and the employer business, and the remaining costs from elevated utilization in Medicaid, particularly in behavioral health.

UHG is preparing to change its strategy with a new CEO, Stephen Hemsley, at the helm committed to “a tone of change and reform.” On the recent earnings call, it announced that it was taking several steps to manage costs over the remainder of the year including raising premiums, cutting benefits, and exiting plans where it has less control over spending—all in an effort to “intensely focus” on recovering profits. For example, UHC announced it is exiting certain plans that currently serve over 600,000 members, primarily in less managed products such as PPO offerings—the first sign of UHC exiting the troublesome MA market. And just last week, UHG announced that CFO, Jon Rex is leaving the company—most likely in response to the underwhelming Q1 and Q2 performances.

In better news for UHG, its merger with home health provider, Amedisys, will move forward under a proposed settlement in which they’ll divest 164 home health and hospice agencies. Last year, the U.S. Justice Department sued to block the deal, arguing that it would reduce competition in the home health market.

What we're watching

Given the varied performance across the insurers, we’ll continue to watch how they adjust their playbooks, specifically in response to the elevated utilization and costs in the government space.

• How will government payers recover (especially in the aftermath of OBBBA)? There is a clear divide in insurers’ performance between those with large government books of business and those with commercial-heavy businesses. It’s unlikely that these pressures will ease, especially now that the Big Beautiful Bill Act (OBBBA) passed in July. We covered the details and the impacts of the bill in a recent blog post, which you can read here. As a result, we expect that insurers will increase premiums in for 2026 to keep pace with costs and risk composition.

• How will new PBM laws impact drug revenue? As insurers have struggled in their traditional lines of business, many have relied on drug and pharmacy sectors to buoy overall performance. But it’s an open question if that will continue to be a winning strategy. In last quarter’s blog, we covered the bipartisan skepticism of drug pricing. And in April, Arkansas passed a law that prohibits pharmacy benefit managers (PBMs) from owning or holding permits for retail or mail-order pharmacies in Arkansas starting January 1, 2026. This law could have nation-wide effects as it will change how prescription drug benefits are managed and means PBMs will need to divest pharmacy interests. Downstream, the law could reduce the economic benefit of PBMs, potentially leading to insurers restructuring their PBM services.

• Will the investment in AI be enough to offset rising MLRs? Insurers are putting a lot of stock in AI’s potential to help manage costs (as evident in their earnings calls). But it remains a question how effective these strategies will be given 1) they’ve invested heavily in AI already and MLRs remain high, and 2) providers are also investing in AI, potentially counteracting the insurers’ efforts. And as we’ve covered, the other macro pressures impacting MLRs don’t appear to be subsiding anytime soon.

Parting thoughts: The national insurers' financial performance in Q2 2025

The Q2 2025 results indicate that the improved performance seen in Q1 was more a temporary reprieve than true stabilization. In sum, rising medical and drug costs combined with regulatory and market pressures continue to challenge the financial health of national insurers despite their effort to manage costs.

Want more on this topic?

This is one of the topics we’ll discuss at our upcoming Board Briefing webinar in October and our in-person East Coast Insight Summit in November. Anyone can register for the Board Briefing here, and members can learn more about the summit and submit a registration request on the event's landing page.

Not a member? Schedule time with us to learn more about how to join, and what's included in membership: https://www.unionhealthcareinsight.com/overview.