The national insurers' financial performance in Q3 2025: MLRs continue to worsen even as overall performance is relatively strong

Over the past few weeks, all five national, publicly traded health plans have hosted their third set of earnings calls for the year, sharing their performance from Q3 and their outlook for the remainder of 2025. We make it a point to stay on top of these players’ performance to monitor the health insurance industry’s overall financial position and to see what the data tell us about 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. Investor calls tend to tell the real story about an organization’s intentions—which often diverges from media interviews or carefully crafted press releases. You can find our analysis of the “Big Five” national insurers’ financial performance in Q1 linked here and Q2 linked here.

In today's post, we’ll summarize the trends we’re seeing across Q3 performance, dive into the details of the "Big Five" national insurers' financial performance, 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 forward

High-level trends across the national insurers' financial performance in Q3 2025

The national insurers’ financial performance in Q3 2025 mirrors what we saw in the first half of 2025—mixed results. On one hand, there’s been strong revenue growth across the board powered by non-traditional lines of business (PBM, specialty pharmacy, provider). On the other, persistent cost and regulatory pressures, especially in government segments, have pressured margins and medical loss ratios (MLRs). That’s unsurprising, considering many of them stem from long-term, complex forces that are hard to reverse in a single quarter.

Rising utilization and medical costs continue to hammer MLRs

Insurers’ MLRs continue to trend in the wrong direction, due to rising utilization and associated medical costs. MLRs are a key financial metric for insurers’ overall performance, representing how much of a plan’s premiums is spent on patient care. Looking back, we saw a slight stabilization of MLRs in the first quarter. But they trended up again in Q2 and continued that trend in the Q3. More important, MLRs are extremely high on an absolute basis (post-ACA, large insurers are required to spend at least 85% of the premiums they collect on member care). This is somewhat surprising—after all, managing MLR is essentially what the insurance business is all about—accurately predicting utilization and managing costs accordingly. We covered why insurers’ have fallen short of this aim in our insurers’ financial performance in Q2 blog. Our hypothesis is that 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. Across all lines of business, insurers failed to anticipate the speed and scale of shift in both patient behavior and cost pressures.

More specifically, insurers have struggled in the government segments, including Medicare Advantage (MA) and Medicare/ACA marketplaces.

• MA: Insurers’ financial performance is highly correlated with the size of their MA footprint—meaning the bigger the footprint, the more financial challenges (more on this in a bit).

• Medicaid/ACA exchanges: Alongside rising utilization and costs (multiple insurers stated in their Q3 earnings calls that Medicaid state funding has not kept up with actual cost trends), the looming challenge in the Medicaid and ACA markets is the deterioration of the risk pool, which could worsen with the passage of the One Big Beautiful Bill Act (OBBBA) and the possible expiration of the ACA enhanced subsides. (We’ll be closely watching to see if Congress will agree to extend the subsidies another year. As of November 11, Congress approved a bill that funds the government through Jan. 30 and brings the 43-day government shutdown to an end. Democrats had been holding out for a promise that the subsidies would be extended. They didn’t get that, but as part of the bill, Republicans agreed to vote on the subsides during the second week of December.) These policies 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.

Medicare Advantage is an ongoing challenge for insurers—prompting many to exit MA markets

While MA was considered an industry cash cow for well over a decade—due to rapid growth in MA enrollment of the “young-old” (CMS's terminology, not ours, for the record), who tend to be healthier and have lower utilization than traditional Medicare enrollees, and higher reimbursement/profitability than other lines of business—recent reimbursement pressures and legal challenges around star rating methodologies have introduced new financial pressures and made the MA outlook more uncertain. (We covered those changes in a recent blog post.)

Insurers—most notably UnitedHealthcare (UHG's insurance arm)—have struggled to adjust to the MA changes, prompting some plans to restrict or exit unprofitable MA markets across 2024 and early 2025. Those who exited earlier were shielded from some of the pressures that hit United in the first half of the year. But in Q2, United also announced that it would exit some MA markets. It seems that the exit strategy is working, as UHG’s performance was not impacted as heavily by MA in the third quarter as it was earlier this year. Insurers must feel confident about their exit strategies because this trend is not slowing down. As recently as this October, CVS Health, Elevance Health, Humana, and United all announced plans to further scale back MA plans in 2026.

While not directly called out in the earnings calls, another interesting trend we’ve seen in the second half of this year is an uptick in hospitals and health systems opting to end or not renew contracts with some MA plans over administrative challenges. Specifically, provider organizations cite rising prior authorization denial rates and slow payments from insurers as the main reasons they are ending MA contracts. As plans and providers exit MA, patients will have fewer options: they could opt to switch to traditional Medicare, or they could switch to one of the remaining MA plans available in their region.

Insurers rely on PBM/specialty pharmacy performance—but PBMs are, and will continue to be, under heavy scrutiny

In response to the pressures in the traditional insurance segments, many of these conglomerates have relied on performance in their PBM/specialty pharmacy segments to buoy overall performance. Strong growth in these segments has allowed many of the insurers to beat revenue expectations and have strong quarterly performance.

It’s an open question how much longer this will last, especially as PBMs face significantly more regulatory and public scrutiny. Critics argue common PBM practices (such as opaque pricing, rebates, and spreads) contribute to higher net prices—and feed broader concerns about affordability in the health system. Against this contentious backdrop, Congress is facing pressure to take tangible steps to curb rising pharmacy costs and potentially anti-competitive behavior within PBMs. Insurers certainly expect more federal action in 2026; many of the national insurers acknowledged PBM-related headwinds heading into 2026 in the Q3 earnings calls.

AI investment is not slowing down

A clear common theme amongst all payer earnings calls was an intention to continue investing in artificial intelligence (AI) applications across the continuum. Payers reported consumer-facing applications, claims processing, prior authorization and more. Such moves align with prior data points (such as the NAIC AI survey from earlier this year) that indicated an intent for widespread use of AI by payers throughout nearly all aspects of their business. One notable change in recent weeks has been payer finger-pointing toward providers (as evidenced by numerous comments made in last quarter’s earnings calls) for driving higher costs and worse overall MLR performance due to their use of AI in denial-fighting efforts. It remains to be seen whether payers maintain pace of their earlier intended AI deployment efforts, or accelerate, as some have suggested.

Deep dives into specific players

Cigna

Cigna continued its strong financial performance into the third quarter. Revenue came in at $69.7 billion—surpassing expectations and representing a year-over-year increase. Like previous quarters, Cigna’s performance was largely driven by strong specialty pharmacy growth in its Evernorth division, which includes its Pharmacy Benefit Services and Specialty and Care Services (more on this in a minute).

Cigna’s stock dropped 11.7% following the earnings call due to investors’ concerns about Cigna’s guidance for next year as leaders acknowledged two potential headwinds for its 2026 performance (both of which are directly tied to the tailwinds in this quarter):

• New pharmacy benefits model: Starting in January 2028, a new rebate-free model for pharmacy benefits will remove the traditional post-purchase rebate structure, instead applying negotiated drug discounts upfront. In the old model, rebates negotiated with drugmakers were applied after purchase. The new model would allow the customer to see the discounts at the time of purchase—hypothetically improving price transparency. Evernorth reported that the new approach could reduce monthly brand-name prescription costs by an average of 30% for people with high-deductible plans. However, leaders acknowledged that while the new model may lead to a stronger market position in the long term, it will likely result in “significant short-term investment and transition costs.”

• Successful client retention: Cigna’s Evernorth division saw a 97% client retention rate and “proactively secured a number of long-term large client renewals and extensions” with strategically important clients including the US Department of Defense, Prime Therapeutics, and Centene. However, while this was a big boost this year, it can’t be replicated annually.

CVS Health

CVS Health’s PBM and government insurance segments drove overall performance, contributing to third quarter revenue of $102.9 billion—beating Wall Street estimates and coming in a record high for the company. CVS Health also benefited from improvement in its MA business directly attributable to star ratings improvements, with 81% of its MA members expected to be in plans rated 4 stars or higher. Like previous quarters, CVS’ Caremark segment helped overall performance with strong pharmacy growth.

However, Aetna’s MLR increased to 92.8% in the third quarter, up from the previous quarter but down from 95.2% in Q3 2024. MLR was driven by elevated medical cost trends and increased utilization. It was also affected by changes in the seasonality of the Medicare Part D program because of the Inflation Reduction Act (IRA). For context, many Medicare enrollees used to experience a "seasonality" in their drug costs: drug costs were high early in the year (before deductibles/coverage limits were hit) and then were often even higher during the coverage gap (or “donut hole”) phase before catastrophic coverage kicked in. The IRA addressed the seasonality in out-of-pocket costs by 1) eliminating the coverage gap phase by creating a continuous initial coverage phase that extends directly to the 2) new $2,000 cap on out-of-pocket spending. Effectively these changes mean that members reach the catastrophic coverage phase later in the year—and then the plan's costs increase significantly.

Elevance Health

Elevance Health had a better third quarter following a disappointing second quarter. Its revenue reached $50.1 billion, surpassing expectations. Leaders attributed improved performance to investment in AI and digital tools for operational efficiency across the organization (including solutions that improve contact resolution in customer service, better real-time data to reduce denials, and a personalized match feature that helps members select the right provider).

Despite revenue growth, Elevance’s MLR increased year-over-year, coming in at 91.3% and driven by an elevated—but expected—Medicare cost trend. Leaders expressed concern about challenging market dynamics heading into 2026, primarily elevated acuity and utilization in the Medicaid market driven by continued membership reverifications and state program changes (including payment updates that lag rising costs).

Humana

Humana reported a year-over-year increase in total revenue, coming in at $32.7 billion, driven by membership growth and increased premiums for Medicare and state-based contracts. Humana also remains focused on sales of non-core assets, with the sale of the Enclara Pharmacia business (a mail-order pharmacy and retail PBM acquired in 2019) completed in the third quarter.

But MLR was higher than last quarter, at 91% as (like the other insurers) Humana experienced elevated medical costs across Medicare, Medicaid, and ACA plans. Looking forward, leaders expect that rising costs and regulatory changes will continue to pressure margins.

UnitedHealth Group

UnitedHealth Group (UHG) had a better quarter following a tough first half of 2025—but it’s still not in the clear. While MLR still trended up (coming in at 89.9%), its overall performance exceeded analysts’ estimates and lead UHG to raise its 2025 outlook. Leaders acknowledged ongoing utilization and cost challenges contributed to MLR, including ongoing MA challenges and more recent Medicaid challenges related to state funding not keeping up with actual cost trends.

But UHG leaders painted an optimistic picture about its strategic positioning and future growth prospect because of a couple strategic changes, including: 

• Exiting unprofitable MA markets: After being a holdout, UHG made the decision to exit some unprofitable MA markets in an effort to “offset elevated medical trends and government funding decreases.” As a result of those actions, UHG is expecting a contraction of about 1 million MA members, including individual and group markets. But, with that contraction, it also expects margin improvements in 2026.

• Restoring Optum Health’s value-based care (VBC) strategy to the “initial intent of the model.” Leaders shared that Optum Health has dealt with three critical issues over the past few years: 1) the provider network grew too large; 2) the rapid pace of expansion and slower pace of integration resulted in operating inconsistencies; and 3) Optum Health was accepting risk in products and services less suited for a clinically oriented value-based model.

  Moving into 2026, leaders plan to make significant changes to the integrated VBC provider model, including: 1) returning to the original intended clinical framework that best supports VBC; 2) moving toward a narrower, more integrated, and dedicated value-based care provider model and network; and 3) focusing on the appropriate managed benefit product and patient base.

In addition to the comments in the Q3 earnings call, UnitedHealth made some newsworthy announcements at the HLTH conference in October including the unveiling of Optum Real, an AI-enabled prior authorization platform. The platform “allows real-time data exchange between payers and providers, enabling the identification and interception of known issues at the point of claim submission.” Notably, Optum is piloting Real with its payer arm, UnitedHealthcare—which has garnered a ton of publicity.

Still, it’s clear that UHG isn’t out of the woods. Like all the national insurers, its MLR increased in the third quarter, as it’s still working through many long-term, complex challenges that will take time to turn around.

What we’re watching moving forward

There have been a few open questions circulating across the entire year that we are likely to see come to a head in 2026, including:

• How will PBM regulation look like? With the increasing regulation and scrutiny of PBMs (widespread bans on spread pricing, mandatory rebate pass-throughs, etc.), national insurers should expect tighter financial performance and a need to adapt their PBM-related business models in response to intensified oversight and transparency demands in 2026.

• What will happen with the enhanced subsidies? National insurers may experience increased volatility in their ACA marketplaces with potential enrollment declines and premium pressure in 2026 unless Congress renews these subsidies. As of this week, Congress has not extended the enhanced subsidies—but Congress did approve a bill that ends the government shutdown and sets a vote on the ACA subsidies for the second week of December.

• What’s going on with the consolidation of smaller, regional plans? While we’ve focusing on the national insurers, we’re also interested in a recent trend among smaller, regional health plans, like the Blues. There is a continuing trend of consolidation in these regional plans as they face growing competitive pressures from large national insurers and escalating regulatory complexities. Overall, the trend reflects market dynamics favoring scale and integration to navigate financial and regulatory challenges more effectively.

• What’s next for payer-provider contract negotiations? Payer-provider dynamics are growing increasingly contentious as the players clash over reimbursement levels, prior authorization, coding and claims accuracy, and more. We’re seeing this play out most obviously in healthcare payment (with both sides amping up the “AI arms race”). We’ve also seen it in the MA market as providers eliminate contracts with MA plans due to rising prior authorization denial rates and slow payments. And the tense contract negotiations extend beyond MA plans. Just recently, Johns Hopkins Medicine and UHC officially ended contract talks after months of negotiations, which will impact about 60,000 patients.

Parting thoughts: What can we expect in 2026?

In response to these ongoing challenges, we expect insurers to make a couple of moves in the new year, including:

• Increase premiums in response to utilization challenges: We do not expect utilization challenges to subside anytime soon. As a result, we expect insurer’s 2026 pricing (especially in the commercial segment) to increase in response to the elevated cost levels we’ve seen this year. The goal is to more accurately set premiums to effectively manage costs (and MLRs).

• Increased use of AI (specifically in clinical use cases): All the national insurers have highlighted AI’s ability to help payers improve processes and drive revenue. With that said, we expect payers to avoid the outright denial of claims—which has drawn a significant amount of scrutiny— and instead continue to push harder on the clinical side of the revenue cycle (i.e. more pushback around clinical justifications, coding levels, etc.). One potential move under this strategy is the use of automatic payment downgrades that transfer clinical burden-of-proof to providers. Payment policies like this enable insurers to retain financial control by reducing reimbursement and also chips away at the traditional provider denials playbook, which is usually centered around high dollar inpatient procedures. From a payer perspective this is having your cake and eating it too: initial denials fall, and due to low paying, high volume E&M codes, providers likely won’t have the resources to chase down every case for justification.

• Continued diversification of vertically integrated businesses: As we covered in a recent blog post, there’s a strong case that the conglomerate model (i.e. vertical consolidation) is faltering as all the major insurers are being pressured by strong headwinds across the industry. In response, we predict that insurers will move to protect profit centers, divest where possible, and integrate where opportunities arrive.

• Explore strategic divestitures: Let's unpack that last prediction that the conglomerates will "divest where possible." Candidly, most of the conglomerates are reluctant to divest—many of the conglomerates continue to hold on to underperforming businesses. But we expect that could change if continued pressure on MLRs and renewed pressure on PBMs force the bigger behemoths (like UHG, Elevance, and CVS Health) to make some painful divestitures. Now, that's not to say that the conglomerates will divest PBMs—in many ways the PBM performance this year is an example of how the conglomerate model should work (as a hedge and a flywheel) and, despite the 2026 headwinds, that's exactly how they've functioned this year. Instead, we do expect that the conglomerates will need to take a hard look across the vast portfolio of businesses and start making some hard choices about which ones live above and below the requisite cash line.

We’ll continue to track the national insurers’ financial performance across the rest of this year and 2026. Be on the lookout for more blogs at the end of each quarter.