Earnings

CVS Health: Profits drop, with Medicare Advantage, Aetna challenges

Illustration showing abstract medical complex in the background with the logos for Aetna and CVS Health overlaying the image.

By John Forcucci

CVS Health reported fourth-quarter 2024 profits of $1.6 billion Wednesday, down from $2 billion one year ago, while year-over-year profits were $4.6 billion, down significantly from the $8.3 billion that the company earned in 2023.

Revenues of $97.7 billion were reported in Q4 2024, up 4.2% compared to the prior year, with full-year revenues also up 4.2% to $372.8 billion.

"This morning we reported fourth-quarter adjusted earnings per share of $1.19, an adjusted operating income of $2.7 billion," said David Joyner, CVS Health president and CEO, who took over the position in October 2024, replacing Karen Lynch. "We also provided our initial full-year 2025 guidance for adjusted EPS in the range of $5.75 to $6." The company beat Wall Street expectations on Q4 earnings and revenue, according to Zacks Investment Research.

Joyner said CVS's initial expectations presented during their earnings call reflect "meaningful recovery" in their Aetna business, particularly in Medicare Advantage, as well as "continued growth in health services.

"We can be America's leading and most trusted healthcare company ... What makes me confident that we can deliver on this promise [is] CVS Health's collection of assets, its reach, its connection with 185 million Americans, whether in our stores or clinics through our health plan or by managing the pharmacy benefits." Eighty-five percent of Americans live within 10 miles of a CVS location, according to the company.

Referring to CVS's efforts to increase Aetna profitability, Joyner said, "We have worked hard to stabilize our Aetna business and have made meaningful progress to address the issues that led to the underperformance in 2024."

CFO Tom Cowhey said, "Medical membership of approximately 27.1 million was roughly flat sequentially as membership in our individual exchange business started to modestly decline in advance of the 2025 rating increases we took in that book during the quarter, the segment generated an adjusted operating loss of $439 million." CVS cited reasons for rising health care costs as the combination of greater utilization, rising provider costs, labor shortages and dramatic price hikes for branded pharmaceuticals.

CVS cites Medicare Advantage struggles

Medicare Advantage is another area that CVS hopes to improve profitability on, according to Cowhey.

"We have significant opportunities to unlock embedded earnings that is most pronounced in our Medicare Advantage business," he said, adding, "Our focus remains on delivering on our commitments to our Medicare Advantage members while creating a viable path to appropriate margins. ... We expect that we will shrink the Medicare Advantage membership by high single-digit percentage from year-end 2024. Our deliberate approach to our 2025 Medicare Advantage bid combined with our improved star ratings, we'll improve margins this year and are part of our ongoing commitment to restore this business to target margins of three to 5%.

"We expect to generate healthcare benefits' revenue of approximately $132 billion as membership declines in Medicare Advantage and individual exchange are offset by Medicare program changes and growth in other products."

Cowhey said that CVS is "advocating for a more appropriate rate update including adjustments for the industry-wide cost trends seen in 2024. We are encouraged by the constructive dialogue with the new administration to help ensure that American seniors will not continue to see significant disruption to their benefits driven by drastic changes to the Medicare Advantage program."

Quarterly Snapshot

Health Care Benefits Segment

Total revenues: $32.96 billion vs. $26.8 billion in Q4 2023
Adjusted operating income (loss): ($439 million) vs. $676 million in Q4 2023
Medical benefit ratio: 94.8% vs. 88.5% in Q4 2023
Medical membership: 27.1 million vs. 25.7 million in Q4 2023

Health Services Segment

Total revenues: $47 billion ($49.1 billion in Q4 2023)
Adjusted operating income: $1,761 billion ($1.86 billion in Q4 2023)
Pharmacy claims processed: $499.4 million ($600.8 million in Q4 2023)

Pharmacy & Consumer Wellness segment

Total revenues $33.5 billion ($31.2 billion in Q4 2023)
Adjusted operating income: $1.76 billion ($2.03 billion in Q4 2023)
Prescriptions filled: 445.9 million (431.5 million in Q4 2023)

Management Perspective

“Our integrated model allows us to uniquely deliver a simpler, connected experience that saves time, saves money, and improves health. We have continued to see growth in key areas of our business, including the Pharmacy and Consumer Wellness segment, while we address the industry-wide challenges that have impacted our Health Care Benefits segment. Through the continued dedication of our colleagues, we will be positioned for strong performance in 2025 as we deliver simply better care for consumers while improving outcomes and reducing costs.”

— David Joyner, CVS Health president and CEO