Investing in Health Insurance Stocks

Top health insurance stocks for 2025

Here are four publicly traded health insurance companies and one exchange-traded fund (ETF) likely to perform well over the long term:

What to look for in health insurance stocks

There are some metrics, such as revenue and earnings growth, that you should evaluate no matter what kind of stock you're buying. There are also a few specific factors to consider when you're choosing health insurance companies on the stock market:

• Revenue mix: Understanding a company's revenue mix -- how it generates most of its revenue -- can give you a better idea of its growth prospects and weaknesses. Some health insurers generate most of their revenue from Medicare Advantage, while others are more heavily focused on Medicaid or commercial markets.
• Medical care ratio (MCR): Also sometimes referred to as the benefit expense ratio, medical cost ratio, medical loss ratio, or medical benefit ratio, this metric measures medical costs as a percentage of premium revenue. The higher the MCR, the less profitable the health insurer.
• Diversification beyond health insurance: It's increasingly common for health insurers to diversify into other businesses (and for other businesses to diversify into health insurance). That's been the case with several of the companies on our list, especially UnitedHealth Group and CVS Health. Pay close attention to health insurers' other areas of focus since they can significantly affect a company's growth prospects and associated risks.

Risks for health insurance companies

Like all businesses, healthcare companies face risks, including economic downturns and rising competition. However, health insurance companies also have a few unique risks, including those related to:

• Regulatory changes: The health insurance industry is highly regulated at the federal and state levels. The potential for major regulatory changes that cause challenges for health insurers is an ongoing risk. For example, if the U.S. implemented a single-payer health plan in the future, health insurers would likely see many of their business opportunities vanish. It's also possible that presidential administrations could curtail federal funding for Medicare and Medicaid.
• Reimbursement pressure: Even without major regulatory changes, health insurers continually face potential pressures related to reimbursement rates that can significantly alter their profits. Companies must secure approvals for insurance premiums from state regulators, who can be reluctant to pass on higher costs to their states' residents. Medicare and Medicaid programs also set reimbursement rates that can hurt health insurers' bottom lines.
• Unforeseen medical costs: Health insurers set their monthly or annual rates based on expected medical costs, and there's always the possibility that medical costs could be much higher than anticipated. For example, some major health insurers have noted modest increases in costs due to COVID-19.

Opportunities ahead for health insurers

Even with the risks health insurers face, major opportunities lie ahead. As baby boomers age, demand for Medicare Advantage and Medicare supplemental plans is increasing. The second Trump administration could especially promote Medicare Advantage plans.

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