After generating nearly $33 billion in underwriting gains in the most recent four-year period, the Managed Medicaid segment posted a $3 billion underwriting loss in 2024 due to rising utilization and declining enrollment. According to a new AM Best report, a return to profitability for this segment may take longer than expected given increased acuity and medical cost trends.

Managed Medicaid has been a steady profitability driver for decades, and the public health emergency (PHE), enacted in response to the pandemic by the federal government, contributed to an explosion of membership growth of generally healthier people that had recently lost employment. The PHE expired in March 2023, and states resumed the process of eligibility redeterminations, resulting in significant declines in enrollment.

The Best’s Special Report, “Increased Acuity, Cost Trends Remain Headwinds for Managed Medicaid,” notes that rate adjustments for renewals, which typically use historical data from the previous 12-24 months, included a healthier population that was enrolled during the PHE in the more-recent years. This resulted in lower rate increases than what would be necessary for the risks of the currently enrolled population after eligibility redeterminations resumed in 2023, ultimately leading to a mismatch between pricing and risk profiles.

“The Medicaid medical loss ratio jumped by more than four percentage points in 2024, to 92.3 from 87.9 in 2023,” said Jason Hopper, associate director, Industry Research and Analytics, AM Best. “Along with rising utilization and declining enrollment, behavioral health, home health and high-cost drugs have all contributed to these deteriorating medical loss ratios across the industry.”

According to the report, the One Big Beautiful Bill Act will add further pressure on writers as it will reduce federal Medicaid funding through various ways. The law will shift more financial responsibility to state governments beginning in 2028, adding more challenges to already low margins, though AM Best expects new work requirement provisions to have a biggest impact. “About 100 companies write Managed Medicaid premium, and many are concentrated in this business,” said Hopper. “Those insurers with a business mix more concentrated in Managed Medicaid will likely face more headwinds.”

Profitability for the overall segment may not return until late 2026, or possibly into 2027, as most contracts renew in January or July.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=358929.

A video discussion of this report also is available at http://www.ambest.com/v.asp?v=ambmedicaid925.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2025 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20251014942159/en/