UNH and OSCR File for 26% and 21% ACA Rate Hikes for 2026 Signalling Sector Margin Recovery

Healthcare insurers in the United States are positioning themselves for a potential rebound in profitability, driven by substantial rate increases proposed under the Affordable Care Act (ACA) for 2026. Major players, including UnitedHealth Group and Oscar Health, have submitted requests for premium hikes exceeding 20%, signalling a strategic response to escalating medical costs that have pressured margins throughout 2025. This development could herald a V-shaped recovery in earnings, particularly as the sector trades at historically low valuations relative to the broader S&P 500.

The Push for Higher ACA Premiums

As of mid-2025, preliminary filings with state regulators reveal a wave of aggressive rate requests from leading health insurers. UnitedHealth Group has sought an average increase of 26% for its ACA marketplace plans, while Oscar Health has proposed a 21% uplift. These moves are not isolated; peers such as Cigna and Centene have tabled even steeper hikes, with some requests reaching 35% and 27% respectively. Such adjustments aim to counteract the surge in medical loss ratios (MLRs) observed this year, where claims expenses have outpaced premium revenues amid rising utilisation and inflationary pressures in healthcare delivery.

The rationale is straightforward: insurers are recalibrating pricing to restore margins eroded by unfavourable trends. For instance, UnitedHealth’s MLR climbed to 89.4% in the second quarter of 2025, up sharply from prior periods, contributing to a downward revision in its full-year earnings guidance. Similarly, Oscar Health reported an MLR of 91.1% in the same quarter, flipping the company back into losses despite robust revenue growth. These figures underscore an industry-wide challenge, but the proposed rate increases could provide a buffer, enabling firms to recapture profitability as early as 2026.

Implications for Margin Recovery

Analysts anticipate that successful implementation of these rate hikes could facilitate a swift margin rebound. A V-shaped recovery scenario hinges on regulators approving a significant portion of the requests, which historical precedents suggest is plausible during periods of elevated cost trends. For UnitedHealth, whose ACA exposure constitutes a notable but not dominant revenue slice, the adjustments could stabilise its medical expense ratio and bolster operating margins, which dipped to 4.6% in Q2 2025 from 8.3% in Q1.

Oscar Health, more heavily reliant on the ACA marketplace, stands to benefit disproportionately. The company’s model, focused on individual and small-group plans, has demonstrated resilience in membership growth despite market turbulence. With premiums potentially rising by over 20%, Oscar could see its path to profitability accelerate, aligning with its own projections of returning to positive earnings in 2026. Broader sector dynamics support this outlook; as one web analysis notes, the ACA marketplace’s instability has prompted insurers to prioritise pricing discipline over aggressive market share gains.

However, risks remain. Regulatory pushback could temper the hikes, especially if political pressures mount ahead of elections. Additionally, price elasticity might lead to enrolment declines if consumers balk at higher costs, potentially offsetting revenue gains. Yet, with average proposed increases clustering around 20-30%, the net effect is likely positive for margins, assuming utilisation trends normalise.

Sector Valuation: An Attractive Entry Point?

Amid these operational shifts, the healthcare sector within the S&P 500 presents compelling valuations. As of 13 August 2025, the sector trades at approximately 16 times forward earnings, marking it as the cheapest among major S&P 500 groups. This discount reflects a brutal sell-off earlier in the year, triggered by earnings misses and forecast cuts tied to soaring medical costs.

Consider UnitedHealth Group (NYSE: UNH), currently priced at $261.57 with a forward P/E of 8.75 based on analyst estimates of $29.90 in EPS for the next year. This represents a steep discount to its historical average and the broader market’s 20+ multiple. Elevance Health (NYSE: ELV) trades at $292.48 with a forward P/E of 8.37, while Centene (NYSE: CNC) sits at an even lower 3.72 times forward earnings on a price of $26.17. Oscar Health (NYSE: OSCR), at $14.98, carries a forward P/E of 26.75, reflecting its growth-oriented profile but still offering value relative to projected revenue expansion.

The Cigna Group (NYSE: CI), priced at $280.47, rounds out the group with a forward P/E of 8.95. These metrics, drawn from live ticker data as of 13 August 2025, highlight a sector trading well below its long-term norms. For context, the S&P 500 healthcare index has slumped 25% year-to-date, with individual names like UnitedHealth down over 50% from 52-week highs, despite many beating quarterly profit expectations.

Analyst Sentiment and Forecasts

Credible sources express optimism tempered by caution. Morningstar rates UnitedHealth as a buy, citing resilient fundamentals and long-term growth potential despite near-term headwinds. Seeking Alpha contributors have upgraded the stock, viewing current levels as a contrarian opportunity amid unfavourable medical trends. Analyst consensus, as aggregated by platforms like Public.com, assigns UnitedHealth a ‘Buy’ rating with a 2025 price target averaging $377.21, implying significant upside.

For Oscar Health, sentiment is mixed but improving. While some ratings label it as ‘Underperform’ due to recent losses, web analyses from AInvest highlight its financial resilience and potential to seize market share in a consolidating ACA landscape. Forecasts suggest Oscar could trade at 1.2 times 2025 revenue estimates, offering asymmetric risk-reward for long-term investors.

Broader projections from Reuters and CNBC indicate that while 2025 remains challenging—with UnitedHealth forecasting earnings around $16 per share against expectations of $20.91—the 2026 recovery could be robust. Model-based estimates from Barchart posit UnitedHealth stock reaching $552 by year-end 2025, contingent on margin stabilisation and policy tailwinds.

Broader Market Context and Risks

The healthcare sector’s woes in 2025 stem from a confluence of factors: post-pandemic utilisation spikes, regulatory changes in Medicare Advantage, and persistent inflation in drug and procedure costs. UnitedHealth’s April 2025 earnings miss, which slashed its annual profit outlook due to higher-than-expected claims, exemplifies the pressure. Shares cratered over 20% in a single session, reverberating across peers.

Yet, historical resilience offers encouragement. During the 2008 financial crisis and the 2020 pandemic, firms like UnitedHealth navigated turbulence through diversification and pricing power. Today, with ACA subsidies potentially extended—as discussed in recent Senate proposals—the revenue base could solidify, mitigating downside risks.

Investors should monitor key catalysts: regulatory approvals for 2026 rates, Q3 earnings in October 2025 (e.g., Cigna’s on 30 October), and any shifts in federal policy. While the sector’s low valuation provides a margin of safety, volatility persists; a failure to secure adequate rate relief could prolong the downturn.

Investment Considerations

• Diversified Plays: UnitedHealth and Elevance offer broad exposure, blending ACA with Medicare and employer-sponsored plans, reducing single-market risk.
• Growth Focus: Oscar Health appeals to those betting on digital innovation in individual insurance, though its higher volatility suits risk-tolerant portfolios.
• Value Angles: Centene and Cigna, at depressed multiples, could deliver outsized returns if margins inflect positively.

In summary, the proposed ACA rate increases set the stage for a potential margin revival in 2026, positioning the healthcare sector as an undervalued opportunity within the S&P 500. While challenges linger, the combination of pricing power and discounted valuations could reward patient investors.

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