Rising medical costs, reduced reimbursement rates and shifting regulations are squeezing health insurers’ margins and challenging their ability to achieve long-term strategic and financial goals.
As they prepare for another year of volatility, insurers are reassessing their long-term incentive (LTI) programs to retain and motivate the talent critical to navigating heightened uncertainty and cost pressures.
How we got here
In 2025, health insurers faced numerous challenges affecting the viability of their strategic plans:
- Lower Medicare reimbursement rates
- Higher medical services utilization, resulting in higher claims
- Widespread use of expensive drugs, particularly GLP-1s
- Heightened industry competition
- Growing price sensitivity among consumers
These pressures made it harder to set reliable long-term performance goals and maintain competitive compensation programs. Without thoughtful design, organizations risk misaligned incentives, reduced engagement and difficulty retaining top talent — at a time when strong leadership is essential to weathering the ongoing uncertainty.
To address these challenges, health insurers should focus on practical steps that make LTI programs more adaptable and aligned with organizational priorities. Based on market observations, the following strategies have helped some organizations manage volatility while maintaining competitive and motivating compensation structures.
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01
Widen performance-goal ranges
- Context: Historical performance ranges for financial measures may not be wide enough to accommodate the level of uncertainty many companies currently face
- Approach: Expand performance-goal ranges from threshold to target to increase the probability of payout. This must be done thoughtfully and often needs to balance the context of maintaining some sense of year-over-year improvement and the level of payout associated with it.
When expanding the goal range below target, organizations also should weigh if the upper end of the curve (i.e., from target to max) should be expanded to maintain balance and symmetry. While companies often endeavor to have symmetrical performance ranges above and below target, we see some organizations embracing asymmetry as a tool and extending the performance range only below target to mitigate the risk of a zero-payout scenario.
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02
Re-evaluate financial metrics and circuit breakers/triggers
- Context: Financial measures (that often carry significant weighting) may feel unattainable by mid-cycle if the level of stretch inherent in the performance goals is too great, creating disengagement and undermining the desired incentive effects of the plan.
- Approach: Consider decreasing the weighting or shifting key financial measures to act as circuit breakers rather than heavily weighted metrics. Consider introducing less volatile financial indicators (e.g., risk-based capital (RBC)) to assess overall organizational health and ensure payouts remain aligned with financial stability.
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03
Integrate non-financial measures thoughtfully
- Context: Strategic initiatives — such as technology transformation, operational efficiency, member satisfaction and quality of services — are critical to business competitiveness.
- Approach: Incorporate measurable strategic and/or operational goals into incentive plans, ensuring they are tangible and aligned with long-term priorities. These goals typically focus on the key drivers of strong long-term performance and have an impact on financial results.
When incorporating, consider the overall weighting on financial versus non-financial metrics and how the mix aligns with the pay philosophy and organizational strategy. Performance goals should be aligned to business outcomes vs. tactical, “check the box” results.
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04
Revisit quality measures
- Context: Given the volatility and uncertainty in the CMS/Medicare market, organizations are revisiting their strategy around quality measures (NCQA, Medicare Stars ratings). Depending on a health insurer’s product/portfolio mix, Medicare Stars has been a highly prevalent measure; however, in recent years organizations have struggled with goal setting given how much the methodology changes and results are out of direct control of management and the lag between the measurement period, reported results and impact on payments.
- Approach: Discuss use and structure of quality ratings, particularly Medicare Stars ratings, in terms of use of external/relative vs. internal improvement/maintenance measurement definitions.
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05
Diversify performance metrics
- Context: Use of multiple performance metrics diversifies overall measurement, which helps promote some level of payout and limits payouts at the extremes.
- Approach: Consider the availability of performance metrics spanning financial, operational and qualitative categories, understanding some measurement may be duplicative with the annual incentive as the core drivers of business success may span both plans. However, it is important to find the right balance between holistically capturing and measuring performance and having too many metrics, which can dilute management’s focus.
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06
Evaluate shorter performance periods
- Context: Most health insurers use a three-year performance period to align executives to long-term goals. However, setting financial targets over three years is increasingly difficult in an unpredictable environment.
- Approach: For metrics for which three-year goals are difficult, some organizations are considering dividing the traditional three-year performance period into three individual one-year goals, with goals set annually based on a predetermined growth rate or average over the period. While performance is measured annually, any earned payouts occur at the end of the three-year cycle to reinforce retention and maintain the multi-year nature of the long-term incentive plan.
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07
Develop a structured adjustment framework
- Context: Most compensation committees have authority to exercise positive or negative discretion when determining final payouts. Committees make these adjustments infrequently and only in extraordinary circumstances outside of management’s control to preserve the organization’s pay for performance framework.
- Approach: Develop an enduring framework that provides the committee with guidance on when adjustments may or may not be appropriate. The framework also can include the level of adjustment possible for specific scenarios.
Preparing for the future
Ongoing market volatility and cost pressures require health insurers to design incentive frameworks that are resilient to uncertainty while also incenting employees. Taking a thoughtful and robust approach to 2026 design allows organizations to build programs that not only reflect today’s financial realities but also support long-term strategic business and talent objectives.
