CVS Health is expecting a tough year for Medicare Advantage.
The company reported its first-quarter earnings May 1. CVS lowered its earnings guidance for the second time in 2024, based on rising medical utilization in the Medicare Advantage population.
CFO Tom Cowhey told investors May 1 the company expects its Aetna MA business to "lose a significant amount of money this year." In January, Mr. Cowhey predicted the business would be marginally profitable.
CVS Health CEO Karen Lynch said the company's top priority is addressing Medicare Advantage pressures.
"The current environment does not diminish our opportunities, our enthusiasm, or the long-term earnings power of our company," Ms. Lynch said. "We are confident that we have a pathway to address our near-term Medicare Advantage challenges."
Here are five things to know about CVS's Medicare Advantage strategy:
- CVS Health reported a 90.4% medical loss ratio in the first quarter of 2024, up from 84.6% in the same time period last year. Rising costs were partly driven by seasonal inpatient admissions, including increased spending related to RSV, Mr. Cowhey said. Outpatient services, including mental health and pharmacy, and dental spending also increased costs.
- Aetna CEO Brian Kane told investors the company will prioritize "margin over membership" for the next year. The company will likely exit some counties where it does not believe it can recover margins in 2025, Mr. Kane said. Aetna will also look to cut back plan-level benefits, executives said.
- At the beginning of 2024, Aetna said it exceeded its Medicare Advantage growth expectations for the year. The company led the industry in growth in 2024 but was a "notable outlier" compared to its peers in adding on supplemental benefits to entice members, The Wall Street Journal reported May 1.
- In addition to rising spending, CVS is facing a tougher reimbursement environment from CMS. Mr. Cowhey called the agency's 2025 rate notice "just disappointing."
"It's clear as we look at our trends, as we look at the market trends, we don't think that the rate sufficiently reflects that," he said. - Other insurers have reported similar increases in utilization. Humana executives said they will also consider market exits in 2025. The company pulled its 2025 earnings guidance based on the trends, and executives said Humana will issue new earnings guidance later this year.
UnitedHealth executives said while Medicare Advantage costs are elevated, they have stabilized.