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- CVS Health on Wednesday lowered its 2024 outlook, citing rising health care costs, despite posting sales and profits that beat Wall Street expectations in the fourth quarter.
- Giant healthcare conglomerates now expect Adjusted earnings per share this year are expected to be at least $8.30, compared with the previous outlook of $8.50.
- CVS became the latest insurance company to release a 2024 outlook that fell short of investors’ expectations, after Humana reported disappointing earnings guidance last month.
CVS ended 2023 on a strong note. The Rhode Island-based company reported revenue of $357.8 billion last year, up 11% year over year, and profits of $8.3 billion, a whopping 94% increase compared to 2022.
But CVS, like its health insurance industry peers, is bracing for revenue pressure this year as health care usage continues to soar following a pandemic-era decline.
In the second quarter of last year, older adults began returning to clinics for elective surgeries and other treatments. This trend further increased in the fourth quarter as vaccinations and treatments for seasonal diseases such as influenza and the respiratory virus RSV progressed.
“Outpatient trends accelerated slightly in the fourth quarter,” CVS Chief Financial Officer Tom Cowhey said on a conference call with investors Wednesday morning. Cauhei attributed the increase to more seniors undergoing orthopedic surgery and accessing supplemental benefits such as dental and vision care, as well as increased vaccination against respiratory syncytial virus.
The increase in utilization is expected to continue until 2024. As a result, the insurer raised his MLR guidance for this year to 87.7%. CVS previously expected its MLR in 2024 to be 87.2%.
“We are taking a cautious stance on the use of Medicare Advantage until we have more clarity,” CEO Karen Lynch told investors on a conference call.
In light of rising health care costs, rival health insurance companies, usually at odds, have found a common enemy in MA’s 2025 payment rate, which CMS proposed last week.
CVS became the latest payer to the label on Wednesday. The government’s proposals are insufficient.
Humana and Centene announced this week that interest rate changes will reduce their maturities in 2025 by 1.6% and 1.3%, respectively. But that’s before insurance companies risk score the MA population. After CMS adjusts rates to account for enrollee illness, rates in 2025 should be a net positive for payers. Additionally, interest rates have not yet been finalized, and regulators have previously finalized higher interest rates than originally proposed.
CVS did not quantify the impact of interest rate changes on redemptions. But “I don’t think that covers the overall cost trend,” Lynch said.
Given the headwinds, payers will pursue profits over expansion in the short term, executives said. CVS expects to reach its MA business profit margin target of 4% to 5% as early as 2025.
Still, other MA payers expect MA membership growth to slow this year due to headwinds. CVS is bucking that trend.
The insurer expects to add at least 800,000 MA members in 2024. The tranche of new enrollees is expected to increase medical costs this year, but margins should improve in 2025 after CVS fully codes patient symptoms, said Brian, the insurance company’s president. Kane says. CVS’s health and welfare business “Aetna.”
Coding, or risk adjustment for individual enrollee health conditions, is one way MA insurers increase payments from the government. This practice has drawn significant criticism after incidents of payers inflating members’ illnesses in order to receive higher reimbursements.
CVS also expects this year’s MA enrollment growth to further boost margins in 2025. the Improving star rating. Star ratings are the government’s way of measuring the quality of his MA plans and can bring huge bonuses to the plans.
“The large membership we acquired in 2024 gives us a tailwind going into 2025. But I will say, first and foremost, we are focused on recovering margins and market share. expansion is secondary,” Cowhey said.
Overall, CVS The number of members at the end of the year was 25.7 million, an increase of 1.3 million from 2022.