Spotlight on CVS Health Corp’s Health Care Benefits (Health Insurance) Segment

May 8, 2024 | Corporate Insights, No Bull Economics

CVS Health Corp’s 1Q24 operating profit declined -47% y/y because of a significant increase in costs to treat patients insured by its Medicare plans. CVS, which owns the large health insurer Aetna, reported that seniors were using medical services at a much higher rate than expected. Hopefully everyone is doing OK, or at least better than CVS shares…

Health Care Benefits

  • By way of background, The Affordable Care Act requires insurance companies to spend 80% (for individuals & small groups) to 85% (for large groups & Medicare) of its premium dollars on medical care. If an issuer fails to meet the applicable MBR (medical benefits ratio) standard it is required to provide a rebate to its customers.
  • As we can see from the table below, CVS’ MBR increased significantly (from an actuary standpoint) from 84.6% during 1Q23 to 90.4% during 1Q24.
  • Something happened that prompted seniors to seek more medical attention than would be expected last quarter. While CVS did not identify the causes, it is notable that a large spike in illness among seniors will have an impact on consumer spending (which is our focus).
  • In any case, CVS reported that its medical costs (primarily related to its Medicare Advantage program) were a whopping $900MM more than expected during the quarter. In our opinion, this development warrants more explanation from management, particularly as it relates to going forward implications about the health status of its senior health insurance customers.

CVS Health Care Benefits Segment Highlights

CVS 1Q24 Financials

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