Uncertainty among investors likely to increase due to the company's revised earnings forecasts in light of the Medicare insurance business. CVS Health recorded solid results in the fourth quarter, however, it lowered its forecast for the year 2024 due to rising medical costs in the Medicare business.

The Health Company, which in addition to its pharmacies of the same name also includes a large insurer and a pharmacy benefits manager, stated on Wednesday that it saw an increased use of health services by members in its Medicare plans in the last quarter of 2023.

The translation of the heading to English is:
"Nevertheless, Quarterly Earnings Exceeded Analyst Expectations. CVS Shares Rose in Pre-Market Trading, Possibly Due to Investors Anticipating a Forecast Revision for This Year's Results."

CVS announced that it has reduced its earnings estimate for 2024 following an analysis of rising costs in its Medicare business. The company now expects that the increased healthcare expenditures could continue this year, potentially leading to additional expenses of around 400 million US dollars.

During a conversation with analysts, CVS executives explained that the company had seen higher rates in outpatient care, including hip and knee surgeries, as well as the use of complementary services such as dental care.

"We are cautious regarding our forecast for the use of Medicare Advantage," said CEO Karen Lynch. The company revised its earnings forecast for 2024 from at least $7.26 to at least $7.06 per share.

On an adjusted basis, the new forecast is at least $8.30 per share, compared to the previous $8.50. According to FactSet, analysts expect adjusted annual results of $8.47 per share for 2024. This forecast revision is another sign for investors who are already concerned about the Medicare business, after the Medicare-focused insurer Humana reported a significant loss in the fourth quarter and stated that its financial troubles will continue into the next year.

Other insurers have also pointed out the increased costs in their Medicare plans at the end of last year, however, their assessments regarding the impacts in 2024 vary. Medicare Advantage, the version of the federal program offered by private insurers, has long been an important source of growth and profit for the industry.

More than half of Medicare beneficiaries are enrolled in such plans. However, the business faces challenges due to rising costs and regulatory changes. CVS reiterated that it expects its Medicare enrollments to increase by about 800,000 this year.

The company also stated that the new members are not expected to impact profits. By the end of 2023, CVS had 3.46 million Medicare Advantage members. CVS announced that it believes the Medicare Advantage rates proposed by the federal Medicare agency for 2025 are insufficient and that it will advocate for a higher final outcome.

The company stated that it will aim for higher margins in its tenders for its Medicare business this year. For the fourth quarter, CVS reported a net profit of $2 billion, compared to $2.3 billion in the previous year.

On an adjusted basis, the profit for the fourth quarter of 2023 amounted to $2.12 per share, thereby exceeding the consensus estimate of analysts at $1.98 according to FactSet. CVS reported that its earnings were bolstered by its pharmacy business, which was driven by vaccinations, higher prescription volumes, and lower expenditures, among other factors.

CVS also stated that it has already initiated discussions with pharmacy benefits managers about its planned new pharmaceutical payment model and has so far received positive feedback. The insurance segment's medical loss ratio to premium amounted to 88.5% in the fourth quarter, while analysts had expected 88.2% according to FactSet. Revenue for the fourth quarter of 2023 amounted to 93.8 billion US dollars, compared to 83.8 billion US dollars.