US health insurers reported a challenging second quarter, as rising medical costs and higher utilization weighed on profit margins. In contrast, workers’ compensation carriers remained relatively insulated, continuing to act as a stabilizing force for commercial insurers, even as emerging pressures could test profitability in the coming months.
According to the National Council on Compensation Insurance (NCCI), the workers’ comp weighted medical index rose 2.2% in June, below the 2.7% increase in the Consumer Price Index for medical care and the 3% gain in the Producer Price Index for care services. Medical severity, which accounts for both price and utilization, increased 6% year-over-year, with physician services driving much of the change.
“In workers’ comp, physician services are definitely the largest share of total services,” said Jon Sinclair, NCCI director and actuary. Tying reimbursement rates to Medicare has helped temper costs, while physician payments in private insurance have risen 3% to 3.5%.
By contrast, health insurers faced mounting pressures. Centene and Molina Healthcare cited elevated behavioral health costs as key drivers of higher loss ratios, pointing to pent-up demand, network expansions, and demographic shifts. CVS Health reported that weight-loss drug expenses accounted for 15% of employer-sponsored pharmacy spend, prompting the company to scale back coverage. These trends continue to strain profitability across the health insurance sector.
Workers’ comp profitability has also tightened due to falling premium volumes and higher utilization, yet AM Best analysts note it remains a strong contributor to commercial lines earnings. “Long-term declines in the frequency of lost-time claims have tended to mute the impact of medical claims inflation,” said Gordon McLean, senior financial analyst at AM Best.
Looking ahead, industry observers caution that broader healthcare inflation, particularly in pharmaceuticals, could spill into workers’ comp. Proposed US drug tariffs and “most-favored nation” pricing could add further uncertainty.
For now, however, workers’ comp’s structural protections and historically stable claims profile continue to help carriers preserve margins, even as other health-related lines face mounting pressure.
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