CVS braces for more Medicare Advantage pressure

Medical costs for 2023 may be higher than CVS Health projected, CFO Thomas Cowhey said. 

At a Jan. 8 presentation at the JPMorgan Healthcare Conference, Mr. Cowhey said the company's medical-loss ratio, the proportion of premium dollars spent on health benefits, may be higher than the 86% the company projected, based on higher spending in the fourth quarter of 2023. 

Several insurers warned of rising medical costs in 2023, especially in the Medicare Advantage business, where pent-up demand drove higher utilization of elective procedures. 

CVS Health, and several other payers' stock prices, dipped after Mr. Cowhey's remarks, Bloomberg reported Jan. 8. 

Aetna, CVS Health's insurance business, will also face pressure from its star ratings in 2024. The company will lose out on bonus payments from CMS in 2024 because its large national PPO contract lost its four-star rating in 2024. 

Aetna will regain bonus payments in 2025 because the company improved its star ratings for 2024. 

Still, CVS expects the Medicare Advantage business to break even in 2024, because of higher-than-expected growth and a higher proportion of members switching from other insurers' MA plans to Aetna, Mr. Cowhey said. Members switching to a new MA plan tend to have lower medical costs than those receiving Medicare coverage for the first time. 

"We've seen significantly enhanced retention inside that growth, more so than we were anticipating," Mr. Cowhey said. "The combination of those factors gives us confidence that we should see a neutral contribution from those numbers." 

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