Q4 2024 Earnings Summary
- CVS Health is making significant progress in stabilizing its Aetna business, with a focus on restoring margins in Medicare Advantage and Individual Exchange. Leadership emphasizes improved capabilities in forecasting, managing total cost of care, and pricing discipline, expressing confidence in returning these businesses to target margins.
- The successful implementation of CostVantage is expected to deliver more than $100 million of annualized purchasing improvement across generics. This initiative enhances pricing transparency, benefits PBMs and payers, and positions CVS as a leader in transforming the pharmacy reimbursement model.
- Early success in Medicaid repricing efforts, with an anticipated 4.5% year-over-year rate increase for 40% of renewals in January, suggests improved profitability prospects. Leadership is cautiously optimistic about securing further rate increases throughout 2025, enhancing margins in the Medicaid business.
- CVS's Medicare Advantage business continues to face significant challenges, ending 2024 with margins of negative 4.5% to 5%, and is not expected to breakeven in 2025, remaining loss-making. Returning to target margins will take multiple years, impacting overall profitability.
- Elevated medical cost trends across several segments, including Medicare Advantage, Medicaid, Commercial, and Individual Exchange, are expected to persist into 2025. These trends pressure margins and could result in lower-than-expected earnings.
- CVS expects aggregate membership to decline by over 1 million members in 2025, primarily driven by reductions in Individual Exchange (over 800,000 lives) and Medicare products. This contraction could negatively affect revenues and market share. ,
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2025 | no prior guidance | $5.75 to $6.00 | no prior guidance |
Health Care Benefits Revenue | FY 2025 | no prior guidance | ~$132 billion | no prior guidance |
Medical Benefit Ratio (MBR) | FY 2025 | no prior guidance | ~91.5% (improve by 100 bps over 2024) | no prior guidance |
Health Services Revenue | FY 2025 | no prior guidance | ~$185 billion | no prior guidance |
Adjusted Operating Income for Health Services | FY 2025 | no prior guidance | ~$7.54 billion (grow ~4%) | no prior guidance |
Pharmacy & Consumer Wellness Revenue | FY 2025 | no prior guidance | ~$134 billion | no prior guidance |
Adjusted Operating Income for Pharmacy & Consumer Wellness | FY 2025 | no prior guidance | ~$5.48 billion (decline ~5%) | no prior guidance |
Interest Expense | FY 2025 | no prior guidance | Increase by ~$300 million | no prior guidance |
Tax Rate | FY 2025 | no prior guidance | ~25.5% | no prior guidance |
Share Count | FY 2025 | no prior guidance | ~1.271 billion shares | no prior guidance |
Cash Flow from Operations | FY 2025 | no prior guidance | ~$6.5 billion | no prior guidance |
Earnings Cadence | FY 2025 | no prior guidance | 55-45 split | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Medicare Advantage margin challenges | Loss-making business through Q3 2024, with targets of 3%-5% margins over a multiyear period. | Ended 2024 at -4.5% to -5%; still unprofitable in 2025; committed to margin recovery over several years. | Continued focus on extended recovery timeline |
Aetna performance and leadership changes | Underperformance, leadership shakeups (Steve Nelson in Q3); focus on operational improvements. | Stability efforts ongoing; new leader focusing on better financial discipline and product mix; remains loss-making in key segments. | Ongoing turnaround with leadership changes aimed at restoring profitability |
CostVantage program and reimbursement | Introduced to simplify pharmacy reimbursement; over 50% commercial adoption by Q3 2024. | 100% of commercial scripts in CostVantage model as of January 2024; moving to Medicare and Medicaid next. | Expanded implementation across multiple markets |
Elevated medical cost trends | Higher inpatient, outpatient, and pharmacy costs across segments; seen from Q1 to Q3. | Some moderation in inpatient but supplemental costs remain high; prudent 2025 outlook reflecting persistent elevated trends. | Ongoing challenge but slight inpatient improvement |
Membership declines and market exits | Expect dis-enrollment of 5%-10% in Medicare Advantage; pulled underperforming products in underperforming counties. | High single-digit Medicare Advantage membership decline planned; Individual Exchange membership to drop by nearly half to improve margins. | Continued intentional shrinkage to boost margins |
Medicaid repricing and rate increases | Dislocation between acuity and rates; modest improvements expected; gradual resolution. | Mid-4% rate increases for ~40% of book; redeterminations completed; another repricing in late 2025. | Partial rate improvements; remains a work in progress |
Pharmacy script share and service levels | Record-high script share (~27%+); improved Net Promoter Scores through Q3 2024. | Maintained ~27% share in Q4; strong customer experience and PBM retention. | Sustained high script share and service quality |
Star ratings and margin expansion | Star rating improvements seen as key to stronger margins (4%-5% target); started improving in Q1-Q3 2024. | Enhanced Star ratings to aid 2025 margin recovery; emphasizable for Medicare Advantage turnaround. | Ongoing Star rating gains supporting margin goals |
Biosimilars strategy (Cordavis) | Early launches with significant cost savings; strong initial adoption of a Humira biosimilar. | Over 90% of eligible Humira patients converted; 80% list price reduction; nearly $1B in client savings; ongoing pipeline expansion. | Successful large-scale adoption, continued expansion |
AI and integrated care management | Integration of Signify Health and Oak Street Health; AI used for care coordination and cost control. | Record volumes in in-home visits (Signify) and revenue growth at Oak Street; AI to streamline member experiences. | Accelerating use of AI and integrated models to reduce costs |
Focus on margin over membership (MA) | Shifting benefits, pricing, and products to recapture margins in Medicare Advantage; willing to lose membership. | High single-digit membership decline planned; continuing margin-first strategy. | Reiterated priority on profitability vs. growth |
Double-digit EPS growth & cost initiatives | Targeting low double-digit EPS growth; enterprise productivity to yield ~$2B in savings over multiple years. | Anticipating ~10% EPS growth at low end in 2025 due to cost savings; $2B efficiency program ongoing. | Steady cost reductions expected to drive EPS expansion |
Exiting underperforming products/counties | Pulling underperforming MA products and pruning underperforming Individual Exchange geographies to improve margins. | Aggressive pullback in Individual Exchange; membership halved; focus on profitable segments in MA. | Continued exits to strengthen segment profitability |
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Medicare Advantage Margins
Q: Where did Medicare Advantage margins end in 2024 and what's expected for 2025?
A: Medicare Advantage margins were negative 4.5% to 5% in 2024 and are improving in 2025 but won't reach breakeven, remaining loss-making. Management is committed to returning to target margins over a multi-year period through pricing discipline and operational improvements. -
Individual ACA Business Actions
Q: What actions were taken on the individual ACA business and impact on margins?
A: CVS reduced individual ACA membership from 1.85 million to below 1 million in 2025 by implementing pricing discipline and adjusting product mix. Although they expect margin improvement this year, the business will not return to breakeven in 2025. The focus is on returning to target margins over time. -
Medical Loss Ratio Progression
Q: How will the quarterly MLR progress in 2025, considering IRA impacts?
A: Medical Loss Ratios will be lowest in Q1 and higher in Q4 due to the Inflation Reduction Act's impact on Part D premiums and reinsurance. Earnings will have a 55-45 split between first and second half, with MLRs increasing as the year progresses. -
CostVantage Impact and Expansion to Medicare
Q: What's the headwind from CostVantage implementation and plans for Medicare?
A: CostVantage achieves stable pharmacy margins and transparent pricing, with 100% adoption in the commercial market. CVS is working towards implementing a similar model for Medicare and Medicaid by 1/1/26, aiming to deliver over $100 million in annualized purchasing improvements across generics. -
Medicaid Rate Increases
Q: How will the 4.5% Medicaid rate increase catch up over 2025?
A: CVS received a 4.5% rate increase on 40% of Medicaid renewals in January. They are cautiously optimistic about additional increases but have not assumed the same level for the next 40% renewing around Q3. Advocacy continues with states to achieve actuarially sound rates. -
CEO's First 100 Days and Guidance
Q: What are the CEO's observations in his first 100 days and thoughts on guidance?
A: The CEO focused on stabilizing Aetna's operations, enhancing financial discipline, and advancing pharmacy transformation. He expresses confidence in Aetna's continued recovery and guidance for 2025 is set as an achievable target with opportunities for upside, emphasizing the importance of delivering on commitments.