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CVS Health is taking steps to turn around its health insurance business, as high medical costs from members in government-funded programs wallop the healthcare giant.
As part of that, it has parted ways with the executive leading the unit, and plans to cut hundreds of millions in costs.
On Wednesday, CVS announced that Aetna President Brian Kane would leave the company, “effective immediately,” after just a year in the role because of “the current performance and outlook” for the insurance business he ran. CVS CEO Karen Lynch and CFO Tom Cowhey will take over that business, the company said as part of its quarterly results.
It also plans to eliminate $500 million in spending by 2025, and $2 billion over time, by streamlining operations, shrinking the business portfolio and using AI and automation. It said it’s on track to close 900 stores by the end of the year.
Karen Lynch“We are disappointed by the current performance and outlook for the healthcare benefits segment and I have decided to make leadership changes,” Lynch said on a call with investors Wednesday. “We are committed to returning healthcare benefits to its rightful place and will drive execution and address the challenges facing this business.”
The same problems have dogged CVS all year. Aetna, the insurer CVS bought in 2018, bet big on growing in Medicare Advantage, expanding into new locations and adding more than 800,000 new members in 2024. But it hasn’t been able to manage their medical costs, and CVS said patients are getting more care than expected this year at hospitals, dentists and pharmacies.
And things don’t seem to be getting better. CVS executives said they saw signs after the close of the second quarter that the use of medical care among members will increase even further going forward.
Compounding these issues, the federal government has made changes that lower payments for Medicare Advantage insurers. CVS previously announced plans to exit markets and cut benefits, moves it expects to reduce Medicare Advantage membership by as much as 10% in 2025.
But there’s also a newer wrinkle weighing on CVS’ bottom line. As states kick Medicaid members from their programs in a process known as redeterminations, insurers have warned that payment rates aren’t high enough to cover the costs of the members still enrolled.
“We saw an increase in the dislocation between Medicaid acuity levels and rates,” Lynch said.
For the third time since February, CVS said it would lower its full-year earnings per share guidance to a range of $4.95 to $5.20, down from at least $5.64.
While revenue in health insurance benefits grew 21.4% to $32.5 billion in the second quarter over the same period last year, operating income plunged 50.5% to $574 million. CVS said it spent 89.6% of its premiums on medical care, compared with 86.2% of premiums a year ago.
Across the entire company, total revenue for the quarter grew 2.6% to $91.2 billion over the same period a year ago, and net income slipped 7.6% to $1.8 billion.