Health plans must anchor value in health to survive and thrive in the BBB era

The Big Beautiful Bill Act (BBB) and the expiry of the premium tax credits and subsidies for the exchange market will eliminate ~15% of the insured market as early as 2026. This puts the financial viability of health plans at significant risk and will, for the first time in US history, lead to health insurers filing for bankruptcy. The only way out of this jam is for health plan CXOs to start addressing health (preventing disease, delaying onset, and extending healthy life expectancy) and diversifying the health plan value proposition.

A history of declining margins and an inability to manage MLR means the gig is over

HFS Research estimates that ~80% of health plans generate ~90% of their revenues through services and ~10% through underwriting medical risk. Underwriting (risk) businesses tend to attract premium pricing with higher margins (higher revenues), while services businesses tend to be lower on both pricing and margins. Exhibit 1 clearly indicates that the health plan business is now predominantly services-based.

Exhibit 1: Higher the member loss ratio (MLR), lower the margin

Source: NAIC (1000+ health plans reporting), HFS Research, 2025

Seventy-two percent of all US lives are underwritten by either the government (Medicare, Medicaid, CHIP) or self-insured employers, not health plans, a trend that is 15 years in the making. To make matters worse for health plans, their inability to manage medical costs continues to worsen year over year (see Exhibit 2), further diluting their value proposition as medical fiduciaries and impacting their margins. Consequently, some health plans (Cigna, Humana, Highmark) are diversifying by acquiring provider, technology, and services businesses to build vertically integrated businesses. However, there is limited evidence that vertical integration is improving the financial story; case in point: five of the six largest publicly traded healthcare enterprises operate at margins of ~2.5%.

Exhibit 2: Health plans have lost the plot on managing medical costs

Source: 10k filings, annual reports, HFS Research, 2025

The health architecture enabled paradigm will cure the revenue disease

The current healthcare paradigm is reactive in addressing sickness and disease. The systems deployed by health plans (Core Admin Process Systems – CAPS) and health systems (Electronic Medical Records – EMR) are purpose-built for healthcare, not health. To address health and navigate the revenue challenges in a collapsing market, health plan CXOs must invest in a health-built system with a new architecture (see Exhibit 3), thereby preventing disease, delaying onset, and increasing healthy life expectancy.

Exhibit 3: A ground-up health delivery architecture that is delivered through Services-as-Service^TM is core to the health plan pivot

Source: HFS Research, 2025

The health architecture will manifest through five key pillars.

• Identifying clinical and non-clinical data sources: Capturing relevant and actionable signals is the starting point. This includes data from wearables, implants, and home clinical devices, which can be integrated into platforms such as Validic that can support over 600 connected devices. In addition, ambient and environmental sensors, including TV usage (a cognitive and engagement proxy), motion detectors, fridge door sensors (nutrition behavior proxy), CO₂ and humidity (air quality, sleep, and cognition) sensors, and occupancy sensors, are starting to provide a holistic and personalized view of individuals. The layering of clinical systems such as EHR (encounters, meds, labs, imaging) and SDoH neighborhood indices, transportation access, food deserts, etc.) can make addressing health real.
• Ingesting, storing, and managing data: The goal is to normalize and secure signals to make them usable in health workflows. The choice of technologies should be based on device connectivity, authentication, and data quality of patient-generated data. As FHIR/HL7 gains some traction, all data should be exposed via compliant APIs. This will lead to a single source of truth using a longitudinal view for each person’s evolving health trajectory.
• Analytical and clinical intelligence: Making data actionable requires a roadmap that flags and predicts risk, triggers next-best actions, and determines how best to engage. For instance, if the average nightly sleep is less than six hours for 14 days and the resting heart rate is up 10% from the baseline, that data should prompt lifestyle coaching.
• Engagement and orchestration: Preventive bias becomes real through systematic nudges and interventions. An always-on mobile app can drive a daily “health stability” with micro goals and scores that combine vitals, behavior, and environmental factors (air quality, access to food, human contact). Dynamic benefit designs (premium discounts, HSA contributions, rewards) in health plans based on sustained behavior change, not single events, will make engagement sticky.
• Governance and security: The health architecture must always listen and watch. It requires strong guardrails, including explicit opt-in for each data category (wearables, TV, refrigerator), with a clear explanation of what’s used for care vs. incentives vs. research. The use of AI must trigger tests for bias in the models along the SDoH dimensions, ensuring that ambient data does not penalize those with limited resources. Data minimization is vital for liability and resource optimization, so store and process only what is necessary for a specific purpose.

The health architecture represents a minimally viable, technology-enabled manifestation for delivering health objectives. Without it, all that talk about health is disingenuous. Health plans must thus invest in developing the health architecture if they want to survive as a business.

Prioritizing health is an economic lifeline for health plans

A common refrain is that there is no money in health, hence its deprioritization. Yet, it is perhaps the most crucial driver for reducing expensive clinical interventions. Exhibit 4 identifies three models that can help monetize health. Model 3, in particular, is the most advantageous one, where smart investments delivered through a curated ecosystem using Services-as-Software^TM will yield rapid results. The other models, in comparison, are biased toward traditional technology enablement.

Exhibit 4: Model 3 has the highest potential to help reinvent health plans

Source: HFS Research, 2025

The Bottom Line: The health insurance business is toast if health, not just care, remains unaddressed.

The traditional healthcare market is undeniably in decline. To remain relevant, expand your value proposition to health by harnessing technologies and building a health architecture that urgently addresses the real priorities—preventing disease, delaying onset, and increasing healthy life expectancy.