Rising healthcare costs sink 1Q earnings for Aetna parent CVS

HBJ PHOTO | STEVE LASCHEVER Karen Lynch is the CEO of CVS Health.

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CVS Health Corp., parent of Hartford-based Aetna Inc., said Wednesday it experienced a dramatic drop in earnings in the first quarter of this year, citing rising healthcare costs.

The Woonsocket, Rhode Island-based drugstore chain reported net income in the three-month period ended March 31 of $1.11 billion, or 88 cents per share, down 48% from $2.14 billion, or $1.65 per share, in the same period last year. Revenue totaled $88.4 billion, up 3.7% from a year earlier.

The earnings results were below analysts’ expectations of $1.69 per share. In a news release, the company said the decline was “primarily due to a decline in the Health Care Benefits segment’s operating results, reflecting utilization pressure in the company’s Medicare business.”

The Health Care Benefits segment reported adjusted operating income had fallen 59.9% in the quarter from a year earlier, primarily due to “increased Medicare utilization, the unfavorable impact of the previously disclosed decline in the company's 2024 Medicare Advantage star ratings, as well as an unfavorable year-over-year impact of prior-year development.”

The decreases were partially offset by increased volume from the growth in its Medicare and commercial product lines, an increase in net investment income, and “improved fixed-cost leverage across the business due to membership growth.”

The big drop in the segment’s earnings was not unexpected. Last year, CVS said it expected its 2024 operating income to drop by $800 million to $1 billion this year due to lost bonus payments because of lower plan star ratings in the Medicare Advantage program.

The ratings refers to a system used by the federal Centers for Medicare & Medicaid Services (CMS) to assess the quality of care offered by Medicare Advantage plan providers. Providers can receive up to five stars.

For 2024, only Cigna, Elevance, Humana and UnitedHealth have a majority of their Medicare Advantage plan providers rated with four stars or more.

CVS also said it recognizes the “potential for continued elevated medical cost trends in the remainder of 2024,” so it revised downward its full-year 2024 diluted earnings per share (EPS), adjusted EPS and cash flow from operations guidance to reflect that.

Karen S. Lynch, CVS Health’s president and CEO, issued a statement reflecting cautious optimism.

“The current environment does not diminish our opportunities, enthusiasm, or the long-term earnings power of our company,” she said. “We are confident we have a pathway to address our near-term Medicare Advantage challenges.”

Shares of CVS’ stock, which trades on the New York Stock Exchange, were down nearly 20% Wednesday morning after the earnings results were released.