Results from UnitedHealth, Cigna and Humana show insurers are recovering

The big health insurers appear to be off to an encouraging start to the year – but a crucial test for the sector still lies ahead.

Strong first-quarter results helped boost investor confidence, even as insurers continue to face higher medical costs. Companies including UnitedHealth, Elevance, Cigna And Human all beat estimates for the quarter, with some increasing their 2026 outlook.

These results were largely expected due to seasonal factors such as a milder flu season and weather disruptions that temporarily suppressed medical costs, said Andrew Mok, an analyst at Barclays. A more significant signal, Mok said, is that insurers have been bolstering their medical reserves – money set aside to pay future claims – adding a cushion that could support their prospects.

But there still remains a “huge caveat,” according to Michael Ha, an analyst at Baird.

Insurers have incomplete data on medical expenses in the first quarter due to a delay in processing claims, as expenses such as hospital stays and procedures can take a month or two to be fully reviewed and reimbursed. By the end of the quarter, companies may only have “actual claims data” from January, which is why “we always tell investors to take the first quarter with a grain of salt,” Ha said.

This makes the second quarter the real testing ground. As these delayed claims come in, insurers and investors can get a clearer picture of whether medical costs are actually tracking as expected, whether companies have priced their plans appropriately, and how their profits might pan out for the rest of the year.

“The second quarter is the real underwriting hurdle to pay attention to, as you get more claims data that further crystallizes your performance for the year,” Ha said. “If you overcome this hurdle, it could have positive earnings implications for 2026.”

Beneath the surface, insurers’ better start to the year also reflects the steps they have taken to control costs after two years of significant pressure.

Ha said he attributes the quarterly beats to “conservative pricing” for key plans like Medicare Advantage. These private Medicare plans have been a significant source of out-of-control medical costs for many insurers as older adults rely more on medical care. medical services after the pandemic.

Companies have exited less profitable markets and reduced their membership numbers, while adjusting their prices and benefits to better align with rising medical spending, Ha noted. For example, UnitedHealth announced in October that it would stop offering Medicare Advantage plans in 109 U.S. counties starting in 2026, affecting 180,000 members who have had to seek new insurance options.

“At the beginning of this year, companies had a lot of inherent wiggle room on pricing,” Ha said.

Those efforts are starting to show up in metrics like medical loss ratios — a key measure of medical costs as a proportion of premiums — which came in lower than the Street had expected for several companies in the first quarter.

Barclays’ Mok noted that the first quarter results were supported by strength in all major segments. In commercial coverage, higher premiums helped offset rising medical costs, while offering fewer benefits boosted Medicare’s performance, he said.

Mok also said that improving cost controls and stabilizing medical costs have contributed to Medicaid’s “surprisingly strong results.” He called it an “encouraging sign” even as states expand eligibility and Medicaid enrollment declines.

However, the industry is not yet out of the woods.

The question is whether these improvements will be sustained as more complete data becomes available during the second quarter.

Due to the delay in processing medical claims, insurers are relying more on estimates when reporting their first quarter results. Companies receive more medical claims in the second quarter, giving them a clearer view of underlying cost trends.

“Seeing how these claims evolve in the second quarter will really help you understand whether you’ve evaluated your plans correctly,” Mok said.

Ha said the second quarter will be particularly key for Humana, which expects Medicare Advantage enrollment to grow 25% in 2026 while keeping benefits stable.

He said CVS Health followed a similar trend in the second quarter of 2024, increasing Medicare Advantage enrollment while maintaining benefits. But the company then significantly missed its medical loss ratio targets, with costs coming in higher than expected.

While CVS isn’t a direct comparison, Ha said a repeat of its disappointing results has become a potential concern heading into Humana’s second-quarter results.

The Affordable Care Act market is also being closely watched in the second quarter by insurers like Centene, Molina and Elevance, Ha added. A key data point is the Wakely analysis, released in late June, which helps determine whether insurers’ revenue assumptions match the actual health risk profile of enrolled members, he said.

Even small changes in enrollment or member health can result in significant revenue gains or losses, Ha added.

Investors will closely monitor medical loss ratios, as well as any changes in the full-year outlook, as second-quarter results are released.

For the moment, insurers are benefiting from a favorable situation, but the coming months will determine whether this dynamic is sustainable.