CVS Health is entering a pivotal transitional year that will be crucial to the long-term success of its health insurance segment.
The healthcare conglomerate is doubling down on its Aetna business with hopes of moving past the significant cost pressures and high medical utilization that have strained operations over the past couple years, executives said Wednesday on a fourth-quarter earnings call with financial analysts.
Related: CVS soars after Q4 profit signals improvement
CVS Health unveiled a multi-year $2 billion cost-cutting plan in August to offset significant headwinds hitting its insurance business, which covers nearly 27.1 million members in commercial, Medicare and Medicaid plans. The company has reshuffled leadership, closed hundreds of stores, laid off thousands of employees, and made significant changes to its insurance strategy.
“I’m happy to report we spent a lot of time focusing on Aetna, and we’ve actually delivered material progress in terms of stabilizing Aetna’s operations and also bringing the financial discipline back to the organization,” CVS Health President and CEO David Joyner said. “I’m very bullish on the continued recovery of that business.”
To turn around Aetna this year, CVS Health plans to shed enrollment by more than 1 million members, mostly in its Medicare Advantage and individual exchange plans; reprice offerings; and lobby state and federal officials for higher payment rates. Still, stronger financial results will take at least a year to pan out.
“We expect healthcare delivery performance to improve starting in 2026 as the current medical costs experienced across the industry are more appropriately reflected in rates and plan bids and our continued investments in this business,” Chief Financial Officer Tom Cowhey said.
Even though CVS Health paid a large share of premiums on medical care and lost money in Medicare Advantage in 2024, Wall Street was pleasantly surprised given financial results weren’t as bad as anticipated. CVS Health shares opened Wednesday at $60.61, up 10.2% from the previous day’s closing price.
Elevated costs in inpatient, outpatient, supplemental benefits and pharmacy have particularly pummeled Aetna’s Medicare Advantage business, which grew 28.5% last year to cover more than 4.4 million people. Executives still expect to end this year with Medicare Advantage membership down by up to 10% as it prioritizes profitable markets.
Executives said they are also projecting a drop in individual exchange enrollment by more than 800,000 members this year as the company modifies plan footprints and pricing.
Meanwhile, Aetna continues to report cost pressures across all lines of business. For the fourth quarter, the company recorded a 94.8% medical loss ratio, which measures the share of premiums spent on medical care, versus 88.5% in the prior-year period. The company’s full-year medical loss ratio was also up at 92.5%, compared with 86.2% for 2023.
Fourth-quarter net income fell 20.7% to $1.6 billion as revenue rose 4.2% to $97.7 billion. Full-year earnings plummeted 45.2% to nearly $4.6 billion while revenue ticked up 4.2% to $372.8 billion. The company expects adjusted net income for the company to land between $7.3 billion and $7.6 billion for 2025.
