CVS again lowers outlook for the rest of the year
CVS Health Corp on Wednesday again cut its 2024 profit outlook, the fourth reduction this year. The reason is still high health care costs in government-sponsored insurance plans.
CVS$CVS+0.0%, a major player in the health care field that also saw a significant drop in second-quarter profit, announced a multiyear plan to save $2 billion and made several changes to the management of its insurance division.
Aetna's unit, which is under CVS, has faced problems with high health care costs since late last year. Those problems have been exacerbated as older patients have caught up with delayed procedures and lower-than-expected payments from the government to administer health care have affected its margins. The cost of Medicaid plans for low-income individuals also rose due to more disabled patients gaining coverage.
CVS announced that Brian Kane, head of the health benefits unit that runs Aetna, has left the company effective immediately. His place will be taken by CEO Karen Lynch, Aetna's former president. CFO Thomas Cowhey and Katerina Guerraz, chief strategy officer at CVS Health, will also work together to run the division.
CVS
CVSThe company's shares fell in pre-market trading after announcing a cut in its annual earnings outlook to $6.40 to $6.65 per share, from an initial estimate of at least $7 per share. James Harlow, a senior vice president at Novare Capital Management, which owns 101,522 CVS shares, expressed disappointment at this further reduction in the outlook, which he said seriously damages management's credibility.
For the second quarter ended June 30, the company's adjusted earnings fell to $1.83 per share, down from $2.21 for the same period a year ago. Although that profit was above analysts' expectations, estimates have been cut significantly in the past month. The health care expense ratio, the percentage of premiums spent on medical care, rose more than 3 percentage points to 89.6%, but was lower than the 90.5% estimate.
CVS also raised its 2024 health care cost ratio outlook to 90.6% to 90.8%, up from the original estimate of approximately 89.8%.
The cost-savings plan includes streamlining the company's operations, increasing the use of artificial intelligence and automation, and rationalizing its business portfolio. The company is looking to counter the pressures placed on it by high healthcare costs and the adverse impact of Medicare Advantage ratings.
Healthcare costs in the second half of the year could be higher than in the first half, which is reflected in the company's new outlook. If costs remain high, the company may need to reserve for a shortfall in Medicare premiums for 2024, which could impact performance in the third and fourth quarters.
Other insurers, such as UnitedHealth Group, Humana and Elevance Health, are facing similar health care cost issues and have seen costs rise as Medicare Advantage patients return to hospitals for deferred procedures.
Insurer Aetna includes plans for Affordable Care Act, Medicare Advantage and Medicaid, as well as dental and eye care. The company's health insurance division generated $32.48 billion in revenue in the second quarter, up more than 21% from the same period last year. The health benefits expense ratio rose to 89.6% from 86.2% a year ago, indicating higher health care costs relative to premiums received.
Source: Yahoo Finance, CNN.
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