Diving overview:
- CVS Health has updated its projections for the year, significantly buoyed by its Aetna insurance division, which reported better-than-expected results for the first quarter.
- The company is now anticipating adjusted earnings per share between $7.30 and $7.50 in 2026, which is an increase from its previous estimate of up to $7.20. Revenues are projected to hit at least $405 billion this year, a bump from the earlier forecast of $400 billion.
- This optimistic outlook follows Aetna’s first-quarter sales growth of over 3%, as it continues to recover from recent difficulties tied to rising medical costs. “Aetna’s margin recovery plan is showing results, and we’re seeing notable improvements compared to last year,” said CFO Brian Newman during an investor call.
Dive Insight:
CVS wasn’t alone in demonstrating positive results; UnitedHealth, Elevance, Cigna, and Centene also announced increases in profit forecasts following robust first-quarter performances.
CVS exceeded market expectations, reporting revenue of $100.4 billion, rising from $94.6 billion last year. Net income jumped to $2.96 billion, up from $1.78 billion the previous year.
All segments contributed to this revenue growth, including health benefits, medical services, pharmacy, and consumer wellness. Notably, the insurance division led the way in operating income gains, according to executives who spoke during the call.
This is likely a welcome development for investors, especially considering Aetna’s ongoing challenges with rising health expenditures, particularly in privatized Medicare Advantage plans.
The insurance segment reported first-quarter sales of $35.97 billion, up from $34.81 billion a year earlier. Adjusted operating profit surged nearly 53%, aided by an improved performance in government programs and the removal of a $448 million premium shortfall reserve from last year.
The medical loss ratio, an important metric indicating spending on patient care, improved to 84.6% in the first quarter, down from 87.3% the previous year, largely due to enhancements in government insurance programs.
During a call, Aetna President Steve Nelson noted that strong results were evident across all business lines, driven by disciplined pricing strategies and better Medicaid payment rates.
CVS expressed satisfaction over receiving a higher-than-anticipated interest rate for Medicare Advantage plans, with CMS finalizing an average rate increase of 2.48% for 2027—considerably more than the flat increase initially suggested.
Insurers had pushed back against earlier proposals, warning that such minor increases could lead to benefit cuts. However, Nelson acknowledged a “strong partnership” with CMS that considered CVS’s concerns about inadequate rate increases.
Yet, CVS CEO David Joyner pointed out that the new payout rates still fall short of what’s needed.
“While April’s final tax rate notice marks progress toward sustainability, it does not fully counteract long-term health cost trends,” he remarked. “These trends have placed considerable strain on the industry over recent years.”
Additionally, CVS’ Medical Services division, which encompasses its healthcare delivery assets and Caremark pharmacy benefit management, reported an 11% revenue rise in the first quarter. Adjusted operating income for this division declined by over 7% due to cost reductions for pharmacy customers.
The results from the medical services segment were described as “slightly better” than anticipated by Newman.
As CVS and other large PBM-related healthcare companies face escalating regulatory scrutiny, it’s noteworthy that CVS recently settled with the FTC regarding claims of inflated insulin costs.
In February, federal legislation was signed into law addressing PBM reforms, including demands for transparency and prohibitions on linking PBM salaries to drug list prices in Medicare Part D.
Joyner indicated that CVS has been anticipating such policy changes, which motivated the company to introduce its TrueCost drug pricing model over two years ago.
“We see both initiatives as clarifying the operational rules for our industry, similar to our work with the FTC,” he said, suggesting that it’s a positive step toward establishing clearer guidelines moving forward.
