Facing rising spending in Medicare Advantage, CVS Health lowered its 2024 earnings guidance.
According to CVS Health's fourth-quarter earnings results published Feb. 7, the company revised its 2024 earnings guidance to $7.06 per share, down from $7.26. On an adjusted basis, the company projected $8.30 per share, down from $8.50.
The company expects its Medicare Advantage business to be "marginally profitable" in 2024, CFO Tom Cowhey told investors on a Feb. 7 call. CVS Health first warned medical benefit ratios from the first quarter of 2024 could be higher than projected in January.
The medical benefit ratio in the fourth quarter of 2023 was 88.5%, up from 85.8% in the same period the previous year. CVS reported a full-year medical benefit ratio of 86.2%.
Outpatient costs accelerated in the fourth quarter, along with spending in dental and vision and increased costs from vaccinations, Mr. Cowhey said.
"It's a lot of the same categories that we've been talking about all year, and we've been trying to actively get ahead of in our guidance," Mr. Cowhey said.
CVS Health beat its expectations for Medicare Advantage membership growth during open enrollment and expects to add 800,000 members in 2024.
Every other major insurer has noted rising costs in the Medicare Advantage business. Humana, the second-largest MA insurer, reported a $541 million loss in the fourth quarter of 2023, and also lowered its earnings guidance based on the rising cost. UnitedHealth Group, the largest MA insurer, reported rising costs, but said the trend was priced for in its guidance.
In addition to rising costs, insurers are facing a proposed decrease in benchmark payments from CMS. CVS Health CEO Karen Lynch said the rates are "not sufficient to cover current medical cost trends."
"While the Medicare Advantage market has been challenged recently, our view of the long-term opportunity offered by this business remains unchanged," Ms. Lynch said.