CVS Health has downgraded its 2024 earnings guidance as its Aetna health insurance subsidiary contends with higher-than-expected Medicare Advantage costs and a looming federal rate cut, the company announced Wednesday.
Aetna's Medicare Advantage business failed to achieve its margin target in 2023, according to CVS Health's fourth-quarter and full-year earnings report. The company will respond by raising premiums and deemphasizing strategies to gain market share, executives said during a call with investor analysts Wednesday.
CVS Health is "prudently assuming” higher medical cost trends will persist, Chief Financial Officer Tom Cowhey said. The company expects Medicare Advantage medical costs will be $400 million greater this year than previously projected, and has reduced its earnings per share guidance from $7.26 to $7.06 for 2024. The company previewed its cost problems at the J.P. Morgan Healthcare Conference last month.
"We targeted a 4%-5% margin for 2023. We clearly didn't achieve that. As we look at our projections for 2024 ... it's only marginally profitable,” Cowhey said. Reaching that profitability goal will take multiple years, Aetna President Brian Kane said.
Medicare Advantage claims for outpatient hip and knee procedures, supplemental services such as dental and vision care, and respiratory syncytial virus vaccinations drove higher-than-projected medical spending, CVS Health reported. Aetna's medical loss ratio increased 2.7 % to 88.5% for the fourth quarter and 2.4 % to 86.2% for the full year.
Fourth-quarter net earnings declined 12.2% to $2 billion, or $1.58 per share, and revenue grew 11.9% to $93.8 billion. Full-year net earnings rose 93.4% to $8.4 billion, or $6.47 per diluted share, on a 10.9% revenue increase to $357.8 billion. CVS Health projects 2024 revenue will reach at least $371.3 billion, $5.3 billion more than the company predicted in December.
Aenta now joins other leading Medicare Advantage carriers such as UnitedHealth Group, Humana and Centene in warning investors that the segment is under stress. In addition to accelerated medical spending, especially during the fourth quarter, the sector faces a modest reduction in Medicare Advantage benchmark rates next year under a proposed rule the Centers for Medicare and Medicaid Services published last week.
“It's in line with our expectations," CVS Health President and CEO Karen Lynch said. "However, we do not believe it covers overall cost trends that have been emerging in Medicare Advantage.”
Insurers also are feeling the cumulative effects of other recent CMS policies, such as modifications to the Star Ratings quality program and the risk-adjustment methodology, and are cautioning policymakers and consumers that they will react by taking steps such as raising premiums and scaling back supplemental benefits.