Dive Brief:
CVS Health’s profits were nearly cut in half last year as the healthcare giant wrestled with elevated medical costs in its Aetna insurance business.
The company reported net income of $4.6 billion in 2024, compared with $8.4 billion in the prior year, according to earnings results released Wednesday.
But CVS showed signs of financial improvement in the fourth quarter, beating Wall Street expectations on earnings and revenue. CVS’ share price soared nearly 10% in pre-market trading early Wednesday.
Dive Insight:
CVS struggled throughout 2024 with heightened medical spending in its insurance business, particularly in Medicare Advantage and Medicaid.
Seniors enrolled in MA sought out more healthcare services in the aftermath of the COVID-19 pandemic, driving up costs for payers who administer the privatized Medicare plans.
In Medicaid, millions of people who had stayed continuously enrolled throughout the pandemic were removed from the safety-net program starting in spring 2023, leaving behind sicker beneficiaries who had higher medical costs.
The increased medical spending took a toll on CVS’ bottom line. The healthcare giant slashed its earnings guidance multiple times last year, eventually pulling its outlook entirely and reshaping its leadership team. At close of business Tuesday, CVS’ stock was trading well below its price at the same time last year.
But executives are confident the Aetna unit is financially recovering. The medical cost trend in the fourth quarter was “less severe” than anticipated, though spending remained elevated, CFO Tom Cowhey said during an earnings call Wednesday.
The insurer’s medical loss ratio, a marker of spending on patient care, was 94.8% in the fourth quarter, compared with 88.5% for the same quarter in the previous year.
“We’ve actually delivered material progress in terms of stabilizing Aetna’s operation and also bringing the financial discipline back to the organization,” said CEO David Joyner, who took the helm at CVS in October. “So I think as you look towards the open enrollment as well as the progress made, I’m very confident and very bullish on the continued recovery of that business.”
Overall, CVS’ health benefits segment logged an adjusted operating income of $307 million in 2024, falling from $5.6 billion the previous year. The decline was driven by increased utilization of healthcare services, worse Medicare Advantage quality ratings and sicker patients in Medicaid, according to CVS’ earnings release. The company’s medical loss ratio for the full year was 92.5% compared with 86.2% in 2023.
CVS enrolled 27.1 million beneficiaries in its health plans in 2024, an increase of 1.4 million from the previous year. But the company anticipates membership will decline by more than 1 million beneficiaries in 2025, due to reductions in Affordable Care Act exchange plans and MA products, Cowhey said on the call.
“We expect that we will shrink the Medicare Advantage membership by a high single digit percentage from year-end 2024,” Joyner said. “Our deliberate approach to our 2025 Medicare Advantage bids, combined with our improved star ratings, will improve margins this year.”
In the healthcare giant’s health services unit, which includes its Caremark pharmacy benefit manager, adjusted operating income declined 0.9% to $7.2 billion for the full year. Meanwhile, CVS’ pharmacy and wellness unit saw its adjusted operating income fall 3.2% to $5.8 billion, driven by decreased store volume and pharmacy reimbursement pressures.
Overall, CVS recorded revenue of $372.8 billion last year, up more than 4% compared with 2023. The company expects adjusted earnings per share from $5.75 to $6 in 2025.
Other insurers also struggled with high medical costs in 2024. This week, Humana reported its profit was down more than half last year due to elevated spending on beneficiaries’ care in MA and Medicaid.
