US health insurers delivered a strong set of first-quarter earnings, raising hopes that medical costs may finally be stabilising after several years of pressure from elevated healthcare utilisation and higher claims expenses.
The sector has struggled since 2023 as rising medical costs in government-backed health plans weighed heavily on profitability. The S&P managed care index has fallen more than 12% since July 2023 amid concerns over increasing expenses tied to Medicare and Medicaid programs.
However, major insurers, including UnitedHealth Group, Cigna, Humana, Elevance Health, and Centene, reported first-quarter results that exceeded Wall Street expectations and indicated better control over medical spending trends.
Analysts said the latest earnings season marked the industry’s strongest performance since the COVID-19 pandemic period, when insurers benefited from lower demand for healthcare services. Insurers traditionally post stronger first-quarter earnings because many policyholders have not yet met annual deductibles, resulting in lower claims payouts early in the year.
Despite the upbeat results, analysts remain cautious about declaring a full recovery in the sector. A Morningstar analyst told Reuters that lower medical costs during the quarter may have been influenced by a milder respiratory illness season during winter, although she acknowledged that insurer stock performance has improved noticeably.
Attention is now shifting towards second-quarter trends, which analysts view as a more reliable indicator of underlying medical cost pressures. Leerink Partners analyst said that the second quarter historically presents a tougher test for insurers as claims activity typically accelerates during April and May.
Reuters also reported comments from UnitedHealth Group Chief Financial Officer Wayne DeVeydt, who said investors would gain greater clarity once more first-quarter claims are processed in the coming months. He added that if first-quarter trends continue, the industry could be positioned for a particularly strong year.
Healthcare insurers have faced sustained pressure from increased demand for medical services, especially under Medicare Advantage plans serving older adults and people with disabilities. At the same time, changes to Medicaid enrolment rules have left insurers covering sicker and more expensive patients, further straining margins.
A UBS analyst told Reuters that cost trends appear to be stabilising and suggested that many insurers may have set conservative outlooks for the year, leaving room for potential earnings upgrades if current trends persist.
Some analysts noted that temporary factors such as a weaker flu season and weather-related disruptions may also have contributed to lower healthcare utilisation during the quarter. However, a Cantor Fitzgerald analyst said that investors may be underestimating the sector’s underlying strength by attributing the improved results solely to temporary conditions.
James noted that disruptions mainly affected lower-acuity procedures such as eye care and gastrointestinal treatments, while insurers continued managing more serious and costly cases. Oppenheimer analyst shared a similar view, saying medical cost trends may finally be easing after reaching unsustainable levels over the past two years.
Analysts now see the upcoming quarters as critical in determining whether the industry’s recent improvement reflects a lasting normalisation in healthcare costs or merely a reprieve.
