Busy Medicare Advantage businesses have CVS Health and other insurance providers spooked about the new year.
The health care giant said Wednesday that it was scaling back already cautious expectations for 2024 as it tries to understand why costs keep rising from the privately run version of the government’s Medicare program.
Medicare Advantage plans cover people who are age 65 and older and others with severe disabilities or illnesses. CVS Health has about 3.5 million people in that business through its Aetna arm.
Health insurers started warning last year about higher-than-expected costs in their Medicare Advantage plans. CVS Health said Wednesday those costs were coming from outpatient care like hip and knee surgeries and supplemental benefits such as dental and vision coverage.
Rivals Humana and UnitedHealthcare, the two largest Medicare Advantage insurers, have pointed to similar problems. Humana said late last month that more of its customers had been admitted for short hospital stays than it had expected.
Chief Financial Officer Thomas Cowhey told analysts on Wednesday that CVS Health was “prudently assuming” these higher costs would persist in 2024.
The company now expects earnings adjusted for one-time items to total at least $8.30 per share in 2024.
That’s well below the Wall Street consensus of $8.47 per share, according to the data firm FactSet.
It also falls 20 cents short of what CVS predicted at its annual investor presentation in December. And that forecast told Wall Street that the company may not see growth compared to 2023.
CEO Karen Lynch said Wednesday that the company was committed to improving the profitability of its Medicare Advantage business and will account for that when it sets coverage prices for next year.
The 2024 guidance cut was likely no surprise for investors, according to Edward Jones analyst John Boylan. He said changes the company is making internally to adjust its business may take time to translate to earnings growth due to the rising care cost.
“Eventually, we believe these changes will shine through, as the rate seniors are getting procedures done begins to normalize,” Boylan said.
Aside from selling health insurance, CVS Health also runs one of the nation’s largest drugstore chains and a huge pharmacy benefit management business that operates prescription drug coverage for big clients like insurers and employers.
The company booked a $2.05 billion profit in the final quarter of 2023, as earnings adjusted for one-time items totaled $2.12 per share.
Total revenue grew 12% to $93.81 billion.
Analysts expected earnings of $2.01 per share on $90.8 billion in revenue, according to Zacks Investment Research.
Shares of CVS Health Corp., based in Woonsocket, Rhode Island, rose about $2 to $75.84 Wednesday morning.
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