CVS Health cut its profit forecast for this year, citing a surge in health care utilization among older Americans that has rocked the managed care sector over the past month.
Wednesday's forecast cut came alongside the company's fourth-quarter earnings report, which beat Wall Street expectations. CVS stock rose 3.2% in early trading Wednesday.
The first few weeks of 2024 have been uncertain for health insurance companies. A sharp rise in doctor visits and hospitalizations in the second half of 2023 has disrupted expectations for the performance of Medicare Advantage, which provides government-funded private health insurance for older Americans.
Insurers are divided on whether they expect high utilization rates to continue.united health group
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In mid-January, he said it was a one-time spike.But humana
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The company, which specializes in Medicare Advantage plans, announced a significant reduction in guidance. As of Tuesday's close, Humana stock is down 20% since the beginning of the year.
CVS had a surprisingly strong fourth quarter. The company on Wednesday reported fourth-quarter adjusted earnings of $2.12 per share on revenue of $93.8 billion. Analysts had expected quarterly earnings of $1.98 per share and revenue of $90.6 billion, according to FactSet.
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CVS' medical benefits ratio for the fourth quarter was 88.5%, roughly in line with the FactSet consensus estimate of 88.2%. This closely monitored metric (commonly known as the medical loss ratio) tracks the percentage of premiums paid to cover medical costs.
However, the company recently lowered its full-year outlook, citing “better than expected Medicare Advantage usage.” CVS lowered its 2024 adjusted earnings forecast to more than $8.30 per share from more than $8.50 per share. Analysts had expected earnings of $8.47 per share, according to FactSet.
The company also raised its expected medical loss rate for 2024 to 87.7% from the previous forecast of 87.2%.
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Raymond James analyst John Ransom said in a note early Wednesday that the MLR increase was “a move that many had expected due to emerging usage trends and comments from industry peers.” I wrote.
At an investment conference in early January, CVS Chief Financial Officer Thomas Cowhey said the company's health benefits business “continues to be under pressure” and that the company's 2023 MLR is expected to rise by November. He said there was a possibility of exceeding the 86% target that had been discussed. .
CVS stock has fallen about 14% over the past 12 months.
Email Josh Nathan-Kazis at josh.nathan-kazis@barrons.com.
