US managed care Q3 2025 earnings recap: Costs grow as ACA worries loom

US managed care insurers' third-quarter earnings season was characterized by higher medical costs amid political uncertainty surrounding extensions of Affordable Care Act tax credits.

Many of the top publicly traded US managed care insurers' medical costs grew during the third quarter, resulting in mixed responses from investors even as revenues grew year over year and earnings per share remained largely stable.

A common issue affecting the sector's third-quarter earnings calls was ongoing cost pressure, primarily related to government-subsidized Medicaid and Medicare Advantage plans.

Costs still on the rise

After a challenging 2025 for industry leader UnitedHealth Group Inc., the managed care insurer again highlighted the high costs associated with its Medicaid plans, which experienced heightened acuity levels since state-led procedural disenrollment resumed in March 2023 following the COVID-19 pandemic.

The path to Medicaid recovery will be challenging, as states have not funded the program in line with actual cost trends, according to comments on an Oct. 28 earnings call by Tim Noel, CEO of UnitedHealthcare, UnitedHealth's insurance arm.

"While we're making steady progress in bridging this gap with states, the mismatch between rate adequacy and member acuity will likely extend through 2026," Noel said.

Similarly, Molina Healthcare Inc. CEO Joseph Zubretsky lamented a "very challenging medical cost environment" during an earnings call and said that Medicaid rates may not be adequate.

"Our early 2025 rate increases were sufficient at the beginning of the year, but as medical cost trends increased beyond those rates, our [medical cost ratio increased each quarter]," Zubretsky said. "The rate updates we received later in the year and risk corridors did not provide an adequate buffer."

Molina's Medicaid medical cost ratio reached 92% during the quarter, according to Zubretsky, while its senior-aimed Medicare plan hit 93.6% as high levels of utilization continued. However, even Molina's marketplace plans were not immune to rising costs, as plans purchased through state exchanges had a medical cost ratio of 95.6%, significantly higher than expected, according to the CEO.

Although Humana Inc. maintained its full-year EPS estimate, CEO James Rechtin acknowledged during an earnings call that the company's Medicare Advantage Stars ratings were "disappointing."

"We are disappointed, but we are not surprised by our bonus year '27 Stars results," Rechtin said. "The results are consistent with our baseline planning scenario, and our outlook remains the same as we previously communicated at our investor conference in June."

Humana previously took issue with how the Centers for Medicare & Medicaid Services calculates its Star ratings, filing its first lawsuit against the body in October 2024, which was ultimately dismissed a year later. The government body annually issues quality ratings of Medicare Advantage offerings, which impact bonus payments insurers receive from the US government.

In Humana's current measurement year, bonus year 2028, the company is seeing meaningful year-over-year improvement across most metrics and is on the right track, Rechtin said.

ACA credits to lapse

Rate issues are not limited to Medicaid, as UnitedHealth joined a growing chorus of insurers expecting to be affected by changes in the Affordable Care Act markets.

ACA plans, which are offered through state-based marketplaces and directly from insurers rather than through an employer, have been under scrutiny as the extension of tax credits to lower plan costs has become a key issue for the recent federal government shutdown. While chatter remains of possible legislative solutions, several Democratic senators relented and ended the shutdown.

Prior to the shutdown, most insurers had already priced in the expectation that the tax credits would not be extended.

UnitedHealth's insurance arm submitted rate filings in nearly all of the 30 states where it offers ACA plans, reflecting an average rate increase of over 25%, according to Noel. Consequently, the company expects its ACA membership to drop significantly, Noel said.

"Where we are unable to reach agreement on sustainable rates, we are enacting targeted service area reductions," Noel said. "We believe these actions will establish a sustainable premium base, while likely reducing our ACA enrollment by approximately two-thirds."

Despite these challenges, analysts at J.P. Morgan ranked the insurer's stock "overweight," noting that the company expects to expand margins in 2026 through improvements in Medicare Advantage and commercial plans, which will offset the expected margin contraction in Medicaid.

Shares in UnitedHealth are down nearly 50% over the past year but rebounded some after Berkshire Hathaway revealed it had picked up about $1.57 billion in stock in the health insurer in the second quarter.

"We see this as not necessarily dissimilar from commentary in the second quarter; however, with the benefit of several more months of claims/trend progression, we think the incremental visibility underlines this positive commentary," the analysts wrote.

The ACA rate repricing may pose a more significant challenge for Centene Corp., which has a disproportionately large number of members in the plans compared to its similarly sized competitors.

During a third-quarter earnings call, Centene CEO Sarah London touted the benefits of extending ACA tax credits and that Centene believes "these tax credits offer critical support for hard-working Americans, small business owners and rural healthcare infrastructure."