What the 2026 Rate Reset is Really Telling Us

The ACA marketplace didn’t suddenly break in 2026. It’s finally reacting to pressures that have been building for years.

This reality is easy to miss when focusing only on the 2026 individual rate filings. Amid rising medical and pharmacy costs, pandemic-era utilization distortions, policy-driven enrollment shifts, and years of tight competitive pricing, requested increases are up dramatically nationwide. In some states, such as Texas, the average proposed increase is as high as +34.7%.

But states are not experiencing these pressures and rate increases evenly. When we zoom out to look at performance across individual, small-group, and large-group over the last several years, we see a different story: a delayed correction to these pressures. 

The real challenge ahead is not simply absorbing today’s rate shock, but redirecting the market to stop the swing from underpricing to overcorrection. Here, we take a data-driven look at where today’s correction is warranted and where it may be tipping too far.

A High-Level Note on the Data We’re Using

This analysis is based on the NAIC annual statement data across the following market segments:

  • Small group – all states (excluding CA and NY)
  • Large group – all states (excluding CA and NY)
  • Individual – all states (excluding CA and NY)
  • Individual – Texas only

For each segment, we:

  • Estimated medical loss ratios (MLRs) using adjusted earned premiums and incurred claims.
  • Cross-checked against insurer-reported underwriting gains or losses.
  • Focused on 2019–2024 for pre-COVID, COVID-era disruption, and post-COVID “normalization” viewpoints.

While this isn’t a full actuarial analysis, it reflects actual plan performance to show market results over time. 

What All Three Segments Have in Common

Across individual, small group, and large group, a few patterns emerge:

Cost trend is real and persistent
  • Medical and pharmacy costs have been compounding at a high single-digit rate for years.
Margins are thin across the board
  • Small-group plans have generally had MLRs in the mid-80s, with low single-digit underwriting margins trending down.
  • Large-group plans have generally hovered around 90% MLR.
  • Individual market plans have generally been sitting in the high 80s MLR, with modest margins.
  • Individual and Small Group plans have minimum loss ratios of 80%, and Large Group plans have minimum loss ratios of 85%.

Below are two visuals reflecting these patterns:

The Estimated Medical Loss Ratio (MLRs) for all four segments increased in 2021 (with individual being the most drastic). Since then, they’ve generally hovered between 80-90%.
Reported Underwriting Gain (PMPM) varied between the four segments by year.
The COVID Bump (and Hangover)

COVID-era utilization swings appear clearly across all lines:

  • 2020: Utilization dropped, elective procedures were delayed, and loss ratios fell – especially in individual and small group. Margins for health plans temporarily spiked.
  • 2021: Utilization rose, along with deferred care, and loss ratios jumped. Margins fell back down or went negative.

It’s common to tell the 2026 marketplace story in isolation, but the picture is incomplete without including 2020-2021. Temporary gains during COVID caused some plans to either hold rates flat or grow membership aggressively, causing the delay in correction that we’re now seeing unfold.

Why the Individual Premium Trend Looks Low on Paper

One of the big puzzles in the data is why individual premiums appear not to have kept pace with the trend.

Part of the explanation is rating decisions. Another part is who’s buying what:

  • Consumers are buying cheaper plans through metal and benefit design shifts.
  • Enhanced premium tax credits were attracting younger, healthier buyers.
  • The Individual Market grew 94% from 2019 to 2024, while small and large groups declined 20% and 2%, respectively.

These changes in enrollment mix can make the observed per-member premium trend appear to grow more slowly than it actually does, even if unit prices and underlying costs are rising faster. 

Zooming in on Texas: How Delayed Correction Turned into an Overcorrection

According to acasignups.net, Texas’s average individual rate changes were:

  • 2024: +4.2%
  • 2025: +5.8%
  • 2026: +34.7%

Looking at Texas individual plan performance, we see:

  • Loss ratios averaged mid-80s from 2021–2024.
  • Underwriting margins were in the low single digits.
  • 2020 shows the classic COVID dip: a low loss ratio and high margins followed by a correction in 2021.

This tells us the Texas individual market wasn’t in an obvious crisis heading into 2024. Now, layering on some reasonable assumptions, including 7–8% trend per year and a one-time 5–10% morbidity adjustment as enhanced tax credits expire and healthier enrollees leave, and the actual rate increases for 2025 (+5.8%) and 2026 (+34.7%), you end up with a projected 2026 loss ratio in the low- to mid-70s, which is well below the 80% federal minimum for individual plans.

In other words, the market overcorrected. Given the starting point and underlying dynamics, you don’t need +34.7% to reach an appropriate 80% MLR.

Remember: this is one state. Other states may have higher loss ratios, different competitive dynamics, and/or different starting points, meaning some may need larger adjustments while others need less. State-level cycles matter, and fear and uncertainty can push rate requests higher than what data alone would justify.

We’ve Been Here Before: Think 2018

We saw this story around 2017-2018. Individual market carriers faced similar pressures, causing many to either exit or reprice sharply. 

The plans that remained in the market and implemented big increases (with some help from cost-sharing reductions) posted very strong profits once the dust settled. The combination of higher rates, a somewhat stabilized risk pool, and fewer competitors was highly favorable.

Not every 30%+ increase is wrong. We should be cautious, however, about assuming that big increases are necessary. Sometimes we swing the pendulum too far and create overcorrection even after years of underpricing.

Key Takeaways: Why We Need to Redirect the Market from Underpricing to Overcorrection

2026 is not about the market “breaking.” It’s about the market finally reacting – sometimes too hard – to pressures that have been building for years. The challenge now is to steer that reaction back toward sustainability, rather than letting the cycle swing from underpricing to overcorrection.

Here’s what health plan CEOs and CFOs can walk away with as we head into 2026:

  • These 2026 hikes didn’t come out of nowhere. They’re the result of multiple years of rising medical and pharmacy costs, COVID-era distortions, policy changes, and competitive pressures, all of which are finally catching up to the market.
  • Uncertainty can drive overcorrection. Texas shows how layering trends, new therapies (GLP-1s), behavioral health utilization, and expiring tax credits can push rate increases too high, undermining affordability and market stability.
  • State-by-state cycles matter. A 35% increase might be too much in one state and not enough in another. Looking at multi-year performance (not just filed rate changes) is key.
  • Markets are interconnected. Individual, small-group, and large-group markets all face pressure – just in different ways. Employers and consumers move between them, and product strategy should reflect that.
  • Payers should get more proactive with analytics. Surviving this volatility means understanding where risk is shifting, how it varies by product, and how much rate is needed to hit long-run MLR targets without swinging from underpricing to overcorrection.