Navigating the ACA Premium Surge: Opportunities and Risks in Healthcare Insurers

The Affordable Care Act (ACA) is entering a period of unprecedented uncertainty. With enhanced premium tax credits (ePTCs) set to expire at year-end and CMS's 2025 Marketplace Integrity and Affordability Final Rule now in effect, insurers face a perfect storm of rising premiums, shrinking risk pools, and regulatory volatility. Early 2026 rate filings show statewide average increases of 10% to 24%, with Connecticut and Maryland projecting further hikes if subsidies aren't extended. For investors, this environment isn't all doom and gloom—it's a catalyst for sector divergence, favoring insurers with diversified portfolios while penalizing those overly reliant on individual market exposure.

The Subsidy Cliff and Its Ripple Effects

The expiration of ePTCs, which covered up to 90% of premiums for millions, is the single largest driver of the coming premium surge. Health insurers, particularly those dominant in ACA exchanges, now confront a dual threat: losing healthier, subsidized enrollees who stabilize risk pools and absorbing higher medical costs from the remaining sicker population. CMS's own projections suggest premiums could rise by 5% less than expected if subsidies were maintained—but reality is proving harsher.

Take Rhode Island, where rates could jump 24%, or Oregon, where a 10% increase is already priced in. These numbers reflect a stark truth: insurers in states with high ePTC dependency face margin pressure. For example, Molina Healthcare (MOH), which derives 22% of revenue from individual markets, is particularly vulnerable. Meanwhile, insurers like Humana (HUM), focused on Medicare Advantage and employer groups, are better insulated.

Regulatory Uncertainty Compounds the Pain

Beyond subsidies, CMS's new rules—such as income verification and SEP elimination—aim to reduce improper enrollments but risk alienating consumers. The 2027 OEP deadline shift and the prohibition of coverage for certain procedures further add to enrollment uncertainty. Insurers now face a “sunset clause”: many of these rules expire in 2026, leaving markets in flux.

The wildcard is H.R. 1, which could strip ACA coverage for millions of enrollees if passed. This legislative overhang has already caused insurers to pad their 2026 rate filings with contingency buffers. For instance, Anthem (ANTM)'s 2026 rates in California include a 15% increase, partly due to this uncertainty.

Investment Strategy: Diversify or Perish

The path to profitability now hinges on geographic and product diversification. Buy insurers with exposure to Medicaid, employer markets, or Medicare Advantage, where enrollment stability and federal funding act as ballast.

• Top Picks:
• Centene (CNC): 60% of revenue comes from Medicaid, which is less subsidy-dependent.
• UnitedHealth Group (UNH): 84% of business is employer- and Medicare-focused.
• CVS Health (CVS): Its Aetna division benefits from diversified health plans.

Avoid:
- Insurers like Molina (MOH) or AmeriHealth (APH) with >20% exposure to individual markets.

The Consolidation Play

The pressure to stabilize margins will accelerate industry consolidation. Look for mid-sized insurers to be acquired by giants like Humana or UnitedHealth, which can leverage scale to offset premium volatility. Anthem's recent bid for Cigna (CI) in 2023—though abandoned—hints at this trend.

Final Take: Position for Resilience

Investors should view ACA premium spikes as a sector reset, not an apocalypse. The winners will be those who've hedged against individual market volatility. For now, favor insurers with stable revenue streams and avoid those dancing on the edge of subsidy-dependent risk pools. The coming quarters will separate the diversified survivors from the subsidy-dependent casualties.

Recommendation: Overweight UNH and CNC; underweight MOH and APH. Monitor premium trends and H.R. 1's legislative progress—both are catalysts for sector rotation.

This article was last updated on July 7, 2025.