CVS Health: Topping Estimates Despite High Medical Costs in Insurance Unit

CVS Health Corporation (CVS) reported its fourth-quarter 2024 earnings on Wednesday, February 12, 2025, topping analysts' estimates despite the drag of high medical costs in its insurance unit. The healthcare conglomerate, which owns a pharmacy benefit manager, a large insurance unit, and one of the largest U.S. retail pharmacy chains, has been grappling with rising costs in its insurance business and a retail pharmacy unit pressured by softer consumer spending and lower reimbursements for prescription drugs.

CVS reported adjusted earnings per share (EPS) of $1.19, surpassing the consensus estimate of $0.93, and revenue of $97.71 billion, slightly above the expected $97.19 billion. The company's insurance unit, Aetna, continued to face elevated medical costs, particularly in its Medicare Advantage plans for older adults. However, CVS managed to offset some of these pressures through cost-cutting measures and aggressive pricing strategies.



CVS's medical loss ratio (MLR) – the percentage of premiums spent on medical care – reached a record high of 95.2% in October 2024, as Medicaid eligibility redetermination by states after the end of a pandemic-era policy added to insurers' costs. The company's Medicare Advantage star ratings also declined, further impacting its margins. However, CVS expects its MLR to improve in the coming quarters as it implements turnaround initiatives and benefits from better bonus payments following improved star ratings.



CVS's new CEO, David Joyner, who succeeded Karen Lynch in mid-October 2024, has been spearheading a turnaround plan that includes $2 billion in cost cuts over the next several years. The company has also been focusing on improving its Medicare Advantage star ratings and implementing aggressive pricing strategies to gain market share. These efforts have helped CVS offset some of the pressures from higher medical costs and maintain profitability.

CVS's healthcare benefits segment, including the Aetna unit, recorded a medical cost ratio of 94.8% for the fourth quarter, compared to 88.5% a year earlier. The company's pharmacy and consumer wellness segment generated $33.51 billion in sales for the quarter, up more than 7% from the same period a year earlier. CVS's health services segment booked $47.02 billion in revenue for the quarter, down more than 4% compared with the same quarter in 2023.

CVS's shares have been volatile in recent months, slumping more than 40% in 2024 due to missed earnings targets and a withdrawn annual forecast. However, the company's strong fourth-quarter results and its turnaround initiatives have sparked optimism among investors, with CVS shares rising about 21% year-to-date in 2025.

In conclusion, CVS Health's fourth-quarter 2024 earnings report demonstrated the company's ability to top estimates despite the challenges posed by high medical costs in its insurance unit. By implementing cost-cutting measures, aggressive pricing strategies, and turnaround initiatives, CVS has managed to offset some of the pressures from rising medical costs and maintain profitability. As the company continues to execute its turnaround strategy, investors will be closely watching its progress in managing medical costs and improving its Medicare Advantage star ratings.