After a rocky start to the year, health insurer stocks have roared back. But the big test comes this week, when the companies begin to report second quarter earnings.

The insurers are trying to end a difficult cycle that began about three years ago, when healthcare use, and the costs to cover it, accelerated postpandemic. Managed care companies missed earnings expectations, cut profit outlooks and saw large drops in their stock prices at various points in 2024 and 2025.

Positive first quarter results across the sector this spring showed signs the pressure was easing.

So far, collective relief in the managed care sector is reflected in the iShares U.S. Healthcare Providers ETF, up nearly 19% this year compared with nearly 11% for the S&P 500.

The fund's top 10 holdings encompass six health insurers, three of which -- UnitedHealth Group, Aetna parent CVS Health, and Elevance Health -- comprise more than 40% of the fund.

Elevance reports results July 15, followed by UnitedHealth July 16, and CVS Health on Aug. 5.

The market's usual focus on healthcare utilization is "even more pronounced" now, says Goldman Sachs healthcare services analyst Scott Fidel, "because we're coming off the last two-and-a-half years where utilization had been in a really relentless, unmitigated march higher."

Goldman Sachs sees reason for optimism in the sector. In a research note published Tuesday, the bank said it continues to a view "a more favorable underwriting environment" for managed care companies.

For the Medicare Advantage market specifically, Goldman reaffirmed its call that the underwriting cycle reached a "positive inflection point" in the first quarter, "setting the stage for a multi-year cyclical margin recovery in this critical end-market..."

Goldman has a Buy rating on UnitedHealth and CVS.

The bank's recent note was informed by its quarterly hospital due diligence day, a series of panels with hospital administrators across national health systems and community hospitals, among other types of hospitals.

"We came away with a view that hospital volume trends were largely stable in the second quarter," but coming off a lower baseline for volumes in the first quarter, says Fidel.

Lower healthcare utilization could serve as a tailwind for insurers that have raised prices and adjusted member benefits to catch up with rising spending.

Even as insurer stocks were recovering earlier this year, investors were spooked by a payment proposal from the federal Medicare agency in January, smaller than what Wall Street had expected. Shares tumbled. Insurers, who cover health benefits for seniors in the Medicare Advantage program, said the government's initial proposal didn't match up with elevated healthcare costs.

But then things started looking up. Medicare officials ultimately announced a higher rate increase in April -- good news for the stocks. And one by one large managed care companies meet or beat expectations for first quarter earnings and medical cost ratios.

The picture hasn't entirely cleared up. Whereas Goldman is bullish on Medicare Advantage trends, Fidel says the bank has a "relatively more cautious view" on Medicaid managed care.

Elevance executives have referred to 2026 as a "trough year" for Medicaid margins, forecasting a -1.75% expectation for the year. Medicaid also faces regulatory pressures from last year's One Big Beautiful Bill Act.

In the Medicaid space, Goldman has a Sell rating on Centene and a Neutral rating on Elevance and Molina Healthcare.