CVS Faces Financial Struggles Amid Rising Medical Costs

CVS has struggled with elevated medical costs throughout 2024, and the third quarter presented significant challenges. CFO Tom Cowhey stated that the company has been more significantly impacted than others in the industry due to rising medical costs, particularly in Massachusetts (MA) and Medicaid. Aetna, which is part of CVS, miscalculated utilization trends for pricing Medicare Advantage plans, resulting in substantial costs and a reported medical loss ratio of 95.2%. Aetna's operating loss reached $1.2 billion in the quarter compared to a profit of $1.1 billion last year, largely due to a large premium deficiency reserve.

The company is cautious about its financial outlook, having withdrawn previous guidance for 2024 and suggesting the potential for more operating losses. Despite the challenges, CVS executives expressed confidence in future strategies to stabilize Aetna's operating performance, including cutting unprofitable plans and raising premiums. Changes in leadership were also noted, with new appointments intended to address the company's performance issues and improve margins moving forward. CVS' stock has seen declines, prompting layoffs and the closure of underperforming services as part of their restructuring efforts.