Health Care’s Growth Engine is Slowing Down: Are You Prepared for the Shift?

IMC Board
Mar 16
8 min read

When the fastest-growing services sector starts losing speed, everyone downstream feels it. Right now, health care is doing exactly that.

Key Takeaways

Growth is decelerating fast—Health care revenue climbed 8.6% year-over-year in 2025, but that follows gains of 10.1% in 2024 and 11.2% in 2023. Quarter-over-quarter growth collapsed to just 0.7% in Q4 2025, down from 2.9% the prior quarter. Three straight years of slowdown is a trend.
Federal policy is reshaping the market—Over $1 trillion in federal health care spending cuts, Medicaid work requirements, tighter eligibility rules, and the expiration of enhanced Affordable Care Act subsidies are all in effect. The disruption has already started, and its full weight is still arriving.
Margin pressure is real and compounding—Industry profit margins fell to 1.8% at mid-year 2025, down from 2.7% a year earlier, as rising medical costs and policy turbulence squeeze the economics of coverage from multiple directions.
Disruption creates a window—Millions of people are losing Medicaid and marketplace coverage right now. Insurance carriers, agents, and marketers who move decisively to reach them will gain durable market share. Those who wait will concede it.

Health care revenue doesn't slow in a vacuum. When the numbers shift, they carry consequences for every player in the ecosystem, from the insurers setting premium rates, to the agents advising plan selection, and the marketers trying to reach newly vulnerable populations before competitors do. The 2025 data is in, and the picture it paints calls for clear-eyed strategy.

Here's what you need to understand, and more importantly, what you can do about it.

Revenue Is Still Growing, Just Not as Fast

Strong absolute numbers can obscure a meaningful trend shift. That's exactly what's happening in health care right now.

Health care revenue grew 8.6% year-over-year in 2025, outpacing every other category in the services sector, which logged a combined 6.1% increase. On the surface, that sounds like a victory lap, but context matters here.

Health care now accounts for 16.5% of total services revenue. That's the highest share in at least five years, reflecting the sector's size and pricing power.

But the growth rate trend is undeniably moving in one direction.

The fourth quarter tells the sharpest part of the story. Quarter-over-quarter revenue growth came in at just 0.7% in Q4 2025, down from 2.9% in Q3 and 3% between Q1 and Q2. That type of sequential deceleration, compressed into a single calendar year, is the kind of signal that ought to land on every executive's radar.

Within health care, hospitals posted the largest revenue gain at 9.8%, followed by ambulatory services at 7.5%. Both segments benefited from rising inpatient and outpatient volumes, driven in large part by an aging population with growing chronic care needs, but rising costs are eating into those gains.

Why Growth Is Slowing: Converging Forces

No single factor explains the deceleration, but the following headwinds are hitting the sector all at once, and they're interconnected.

Inflation and operating costs—Rising expenses for labor, supplies, and prescription drugs are compressing margins even as top-line revenue grows. Many health systems found ways to boost margins in 2025 through investment income, but that's a one-time cushion rather than a structural fix. Pharmacy cost trend ran more than 2.5 percentage points above medical trend, adding a separate layer of pressure.

Federal policy disruption—The One Big Beautiful Bill Act, signed into law July 4, 2025, imposed over $1 trillion in cuts to federal health care spending through 2034. Work requirements for Medicaid enrollees, stricter eligibility determinations, and reduced federal matching funds are all now baked into the operating environment. Providers are already preparing for the downstream hit to reimbursement.

Premium market volatility—Enhanced Affordable Care Act (ACA) subsidies expired at the end of 2025. Without them, premiums for millions of Americans have jumped sharply in 2026, with some estimates pointing to average increases exceeding 75% for certain plan types. Healthier individuals are most likely to exit the market, worsening risk pools and driving claims costs higher for those who remain.

Margin compression in public programs—Both Medicaid and Medicare Advantage programs have been operating at thin or negative margins for many insurance carriers. Industry profit margins fell to 1.8% at mid-year 2025, down nearly a full percentage point from the prior year. Carriers have responded with higher prices, network adjustments, and exits from unprofitable markets, resulting in churn and instability.

Implications for Large Insurers

Industry leaders are navigating a reconfiguring landscape. Decisions made now will determine competitive positioning well into the end of this decade.

Margins in Medicare Advantage remain below target, but are expected to improve modestly in 2026 after carriers took aggressive action: raising prices, adjusting benefits, trimming commissions on certain products, tightening networks, and exiting markets where they determined the math didn't make sense. That discipline is necessary, but not sufficient.

McKinsey projects overall health care sector earnings before interest, taxes, depreciation, and amortization (EBITDA) will grow at just 5% annually through 2027, accelerating to 10% annually between 2027 and 2029 as the market stabilizes. The near-term environment is the harder stretch.

Here's what insurance carriers should be doing right now:

Invest in group coverage growth. As millions disenroll from Medicaid and ACA marketplace plans, many of these individuals are working and potentially eligible for employer-sponsored insurance. McKinsey estimates around one to two million people who lose Medicaid coverage will transition into employer-sponsored plans. That's an enrollment opportunity that rewards carriers already positioned in the employer segment with the analytics to identify likely converters.
Double down on cost-of-care programs. Carriers with mature integrated pharmacy and medical programs are generating measurable savings. Cigna's integration data shows fully integrated pharmacy-medical benefits can save employers $241 per member per year. That's a compelling value proposition for retention and new business alike.
Rethink Medicare Advantage strategy carefully. High plan-switching activity among seniors in 2026 has introduced new actuarial unpredictability. Carriers that exited low-performing markets and repriced benefits are in a stronger position, but conservative assumptions and strong clinical engagement programs are both critical.
Use AI to reduce administrative drag. AI-powered prior authorization (the process by which insurers approve coverage for certain treatments or procedures) automation has been identified as one of the clearest near-term opportunities to cut costs. Faster decisions, fewer errors, and reduced administrative overhead all move the margin needle without requiring top-line revenue growth.

What This Means for Insurance Agents

Policy disruption creates confusion, and confusion creates demand for guidance. Agents who lean into complexity will win.

Around two million low- and middle-income individuals are expected to lose health insurance coverage in 2026, primarily due to the expiration of enhanced ACA subsidies and tightened Medicaid eligibility. Many of them will be actively searching for alternatives, and they'll need help navigating options they may not have considered before.

This is a real opportunity. Capitalizing on it requires staying current on a policy landscape that's shifting faster than many agents ever expected.

Know your Medicaid-to-group pathways—Millions of people losing Medicaid coverage are employed and potentially eligible for employer-sponsored plans through their jobs or through small group options. Understanding how to guide these transitions, and which carriers have simplified the enrollment process, is a core competency for 2026.
Understand alternative funding models—Level-funded plans that blend features of fully insured and self-funded arrangements are gaining traction among small and mid-sized employers trying to manage costs. Agents who can explain these structures clearly and match clients to appropriate stop-loss coverage will differentiate from generalists.
Be proactive about Medicare Advantage and prior authorization changes—New rules effective January 1, 2026 require faster prior authorization decisions for Medicare and Medicare Advantage beneficiaries. Agents who can explain what changed and match clients to carriers with strong track records on authorization turnaround build trust that converts to long-term retention.
Watch rural market dynamics—Rural hospitals are under severe strain from reduced Medicaid reimbursements and disproportionate hospital payment cuts. Access issues in rural areas could push more clients toward Medicare Advantage plans with broader telehealth coverage. Know your product shelf accordingly.

Playbook for Digital Marketers

Mass-market messaging won't cut it when the population is fragmenting by coverage type, income level, and eligibility status. Precision is key.

The combination of Medicaid disenrollment, ACA subsidy expiration, and Medicare Advantage market exits has created a newly uninsured or underinsured population that's actively looking for options. These individuals are reachable, but they're also anxious. Messaging needs to lead with clarity and reassurance.

Segment by coverage loss trigger. Someone losing Medicaid has completely different concerns than someone losing an ACA plan. Medicaid losers often skew younger and may be first-time buyers of commercial coverage. ACA marketplace leavers may be price-sensitive, but are not unfamiliar with the system. Messaging, channels, and call-to-action design should reflect those differences.
Use employer channels for the Medicaid pipeline. If your insurance carrier or agency has employer relationships, activate them for direct communication to newly eligible employees. HR teams at companies in construction, maintenance, and personal care services are especially important targets as these sectors have high concentrations of Medicaid-eligible workers.
Build content around complexity. Coverage confusion is at an all-time high. Long-form educational content, plain-language explainers, and comparison tools that help people understand actual costs rather than simply premiums will generate organic search traffic and demonstrate authority. Prior authorization explainers, Medicare Advantage benefit comparisons, and cost-sharing transparency tools are high-value starting points.
Optimize for urgency windows. Open enrollment periods, Medicaid redetermination notices, and premium increase letters are moments when uninsured or underinsured individuals are actively seeking help. Trigger-based email and retargeting campaigns timed to these events will dramatically outperform always-on generalist messaging.
Invest in AI for personalized member engagement. You can use AI to analyze member data to tailor benefits communication, send targeted wellness reminders, and support proactive outreach through virtual assistants. Carriers and agencies investing in these tools now are building a durable engagement advantage as the market tightens.

Bright Spots Worth Tracking

Even in a decelerating environment, pockets of growth are real and accessible to operators who position early.

Ambulatory and postacute care settings are expected to drive volume growth through 2026 and beyond, fueled by cost pressures pushing care toward lower-acuity settings and ongoing advances in value-based care. Behavioral health, home health, ambulatory surgery centers, and physician practices are all seeing demand expansion.

For insurers, the self-insured segment is a relative safe harbor. Self-insured membership is projected to grow at around 1% annually through 2029, with margins holding steady in the 9% to 11% range. Third-party administrator enrollment, which is currently about 18% of total administrative-services-only membership, is expected to climb to 22% by 2029.

Health services and technology represent another durable growth story. Technology revenue pools supporting payers and providers are projected to grow at an 8% compound annual growth rate from 2023 to 2028, driven by software platforms and advanced analytics. Insurers who build or buy these capabilities position themselves to offer value beyond coverage, which is important in a price-pressured market.

Sources:

DHI: U.S. Healthcare will face years of financial pain before a potential rebound
EY: Healthcare sector outlook: growing amid headwinds in 2026
Healthcare Dive: Health Insurers Brace for Impact in 2026
KFF: Medicaid: What to Watch in 2026
McKinsey & Company: What to Expect in US Healthcare in 2026 and Beyond
Modern Healthcare: Healthcare revenue growth slows despite 8.6% annual gain

Further Thoughts

Revenue deceleration demands a different playbook. Health care is still growing faster than the broader economy, but the era of double-digit tailwinds, when market expansion covered a multitude of operational shortcomings, is clearly behind us.

For carriers, agents, and digital marketers, this is the defining moment when strategy separates winners from the rest of the pack. Millions of people are being pushed out of Medicaid and ACA plans right now.

Insurance carriers that make it easy to transition, agents who guide with clarity, and marketers who communicate with precision will find this disruption to be a genuine growth opportunity.

Those who wait for the environment to calm down before adapting may find that they've waited too long.