US health care costs are rising faster than the economy again in 2026, and the insurers that price that risk are responding with tighter benefit designs and smaller memberships. The Centers for Medicare and Medicaid Services projects national health spending grew 7.3% in 2025 to $5.7 trillion and will grow 6.3% in 2026, with average growth of 5.4% a year through 2034 against 4.1% for GDP [1]. UnitedHealth Group (UNH) cut its medical care ratio to 86.7% in the second quarter of 2026 from 89.4% a year earlier, while Elevance Health (ELV) saw its benefit expense ratio rise 80 basis points to 89.7%, as of July 16, 2026 [2][3]. This note lays out the cost trend, how the two largest insurers are managing it, and what it means for premiums.
Why are US health care costs rising faster than GDP?
The CMS Office of the Actuary's 2025 to 2034 projections attribute the near-term increase to utilization, meaning more services and goods per person, rather than to price alone. Health spending is projected to have grown 7.3% in 2025, reaching $5.7 trillion, and hospital spending alone grew 8.2% to $1.8 trillion [1]. Retail prescription drug spending rose 11.1% in 2025 to $518.7 billion, with diabetes and obesity drugs cited as a driver [1]. Over the full decade, spending is projected to average 5.4% growth versus 4.1% for GDP, lifting health care's share of the economy from 18.0% in 2024 to 20.6% in 2034, when total spending reaches $9.0 trillion [1].
By payer, Medicare grows fastest at 7.7% a year on average, with a 9.2% increase expected in 2026 as some drug costs shift from beneficiaries to the program under price negotiation [1]. Private health insurance spending grew 8.2% in 2025 to $1.8 trillion and is projected to slow to 6.3% in 2026, partly because enrollment in direct purchase coverage is expected to fall by 3.7 million with the expiration of enhanced marketplace subsidies [1]. Medicaid spending growth is projected to slow from 8.3% in 2025 to 4.8% in 2026 as limits on state-directed payments and provider taxes take effect [1].
| CMS projection | 2025 | 2026 |
|---|---|---|
| National health expenditure growth | 7.3% | 6.3% |
| Medicare spending growth | 7.7% | 9.2% |
| Medicaid spending growth | 8.3% | 4.8% |
| Private health insurance spending growth | 8.2% | 6.3% |
| Retail prescription drug spending growth | 11.1% | 8.2% |
All rows are from the CMS forecast summary [1].
How are insurers managing medical cost trend in 2026?
UnitedHealth: pricing discipline and a smaller book
UnitedHealth's second-quarter 2026 results, released July 16, 2026, show the playbook. Revenue was $112.0 billion, almost flat against $111.6 billion a year earlier, but earnings from operations rose to $8.0 billion from $5.2 billion [2]. The medical care ratio fell to 86.7% from 89.4%, a 270 basis point improvement the company attributed to benefit design changes, improved medical management and better aligned pricing, while the operating cost ratio rose to 12.7% from 12.3% on technology investment [2]. The cost of that discipline is membership: UnitedHealthcare served 48.5 million consumers, down 525,000 from the prior quarter, and Medicare Advantage enrollment fell by 965,000 since the end of 2025 [2]. The company raised its full-year adjusted earnings outlook to $19.50 to $20.00 per share [2].
Elevance: government business trend still elevated
Elevance reported operating revenue of $49.8 billion, up 0.8%, and adjusted diluted earnings of $7.45 per share for the second quarter [3]. Its benefit expense ratio rose 80 basis points to 89.7%, which management attributed to expected elevated medical cost trend in its government businesses, partly offset by better performance in individual Affordable Care Act plans [3]. Total medical membership was 44.9 million, down 1.5% from a year earlier, with Medicaid membership down 4.3% to 8.36 million and Medicare Advantage down 15.9% to 1.90 million [3]. Elevance raised its full-year adjusted earnings guidance to at least $27.00 per share [3].
- UnitedHealth: medical care ratio 86.7%, membership 48.5 million, 2026 adjusted EPS outlook $19.50 to $20.00 [2].
- Elevance: benefit expense ratio 89.7%, membership 44.9 million, 2026 adjusted EPS at least $27.00 [3].
- Both insurers are shrinking Medicare Advantage and Medicaid membership to restore margin [2][3].
What do rising health care costs mean for premiums and margins?
The insurer results and the CMS projections point the same way. When medical cost trend runs above 6%, insurers restore margin by raising premiums, trimming benefits and exiting unprofitable counties and plans. That is why both companies report falling membership and rising earnings in the same quarter. For employers and households, it means 2027 premium increases will track the 6.3% private insurance spending growth CMS expects for 2026, not general inflation [1].
DataPorium's sector data shows NASDAQ health care stocks trading at an average price to earnings ratio of about 23.9 as of July 6, 2026, and the group was roughly flat on July 31, 2026, up 0.05% on average [4]. Readers can compare insurers, pharmaceutical companies and providers on DataPorium's health care dashboard.
Insurers are proving they can protect margins by repricing and shrinking, but that shifts the cost of a 6% medical trend onto employers, households and federal programs rather than removing it from the system.
From a fiscal standpoint, the CMS numbers deserve attention. The federal government's share of national health spending is projected to rise from 31% in 2024 to 33% in 2034, and Medicare spending is projected to reach $1.2 trillion in 2025 and keep growing 7.3% a year from 2029 to 2034 as the last baby boomers enroll [1]. Sustainability requires either slower cost growth or structural change in the programs. Market-based tools that align incentives, price transparency, competition among plans and consumer-directed accounts, address the utilization problem the actuaries identify. The fair counterpoint is that the CMS projections also show the insured share of the population falling from 91.8% in 2024 to 90.5% in 2034, so cost control achieved through lower coverage carries its own costs in uncompensated care [1].
Key takeaways
- CMS projects US health spending grew 7.3% in 2025 to $5.7 trillion and will grow 6.3% in 2026, averaging 5.4% a year through 2034 versus 4.1% for GDP [1].
- UnitedHealth's medical care ratio improved 270 basis points to 86.7% in Q2 2026 while its membership fell to 48.5 million; full-year adjusted EPS guidance rose to $19.50 to $20.00 [2].
- Elevance's benefit expense ratio rose to 89.7% on government business trend, but it still raised guidance to at least $27.00 of adjusted EPS [3].
- Medicare spending is projected to grow 9.2% in 2026 and the federal share of health spending to reach 33% by 2034, a sustainability concern [1].
- NASDAQ health care stocks traded at an average P/E near 23.9 as of July 6, 2026, according to DataPorium [4].
Frequently asked questions
How much will US health care costs rise in 2026?
CMS projects national health spending growth of 6.3% in 2026, down from 7.3% in 2025, with private insurance spending also up 6.3% and Medicare up 9.2% [1].
What is UnitedHealth's medical care ratio in 2026?
It was 86.7% in the second quarter of 2026, down from 89.4% a year earlier, as the company changed benefit designs and pricing [2].
Why are health insurers losing members in 2026?
Both UnitedHealth and Elevance are exiting less profitable Medicare Advantage and Medicaid business; UnitedHealth's Medicare Advantage enrollment fell 965,000 since year-end 2025 and Elevance's fell 15.9% year over year [2][3].
What share of GDP will health care reach?
CMS projects health spending rising from 18.0% of GDP in 2024 to 20.6% in 2034, when it reaches $9.0 trillion [1].
Sources & References
- [1] CMS Office of the Actuary, National Health Expenditure Projections 2025-2034: Forecast Summary (PDF)
- [2] UnitedHealth Group Reports Second Quarter 2026 Results, Exhibit 99.1 (SEC EDGAR, July 16, 2026)
- [3] Elevance Health Reports Second Quarter 2026 Results, Exhibit 99.1 (SEC EDGAR, July 15, 2026)
- [4] DataPorium Healthcare dashboard and sector performance data
