CVS Health cuts 2024 profit forecast again on elevated medical costs

By Sriparna Roy and Leroy Leo

(Reuters) -CVS Health Corp on Wednesday cut its 2024 profit forecast for at least the fourth time due to persistently high medical costs in its business that provides government-backed insurance plans.

The healthcare conglomerate, which also recorded a sharp decline in its second-quarter profit, announced a multi-year plan to save $2 billion in costs and made some leadership changes in its insurance business.

CVS's Aetna insurance unit has been struggling with elevated medical costs since late last year, like other insurers, as older adults catch up on delayed procedures, and lower-than-expected payments from the government for managing healthcare hurt its margins.

Costs from Medicaid plans for lower income people have also been high due to sicker patients gaining coverage.

CVS said Brian Kane, chief of the health care benefits unit that runs Aetna, was leaving the company effective immediately, and CEO Karen Lynch, former president of Aetna, will assume leadership of the unit.

Shares of the company were marginally down in premarket trading after CVS cut its annual profit forecast to $6.40 to $6.65 per share from at least $7.00 earlier.

"It's another frustrating quarter," said James Harlow, senior vice president at Novare Capital Management, which owns 101,522 shares of CVS.

"The fact that they have to cut their outlook yet again really damages (the) management's credibility."

In the second quarter ended June 30, the company's adjusted profit dropped to $1.83 per share from $2.21 a year earlier, but was ahead of LSEG estimates, which have come down sharply in the past month.

The company's healthcare benefit ratio - the percentage of premiums spent on medical care - also rose more than 3 percentage points to 89.6%, but was lower than estimates of 90.5%.

CVS raised its forecast for 2024 healthcare benefit ratio to 90.6% to 90.8%, from about 89.8% it estimated in May.

(Reporting by Sriparna Roy and Leroy Leo in Bengaluru; Editing by Shailesh Kuber and Shinjini Ganguli)