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What's Shaping CVS' Health Care Benefits Arm for the Rest of 2025?
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Key Takeaways
CVS' Health Care Benefits segment rose 8% in Q1 2025, led by Medicare strength and better star ratings.
CVS says Aetna is nearing target margins, with gains across business lines and better plan sponsor feedback.
CVS booked a $448M reserve for 2025 losses, mostly tied to expected ACA-related healthcare costs.
In the first quarter of 2025, CVS Health’s (CVS - Free Report) Health Care Benefits segment grew 8% year over year, mainly due to strength in Medicare. Elevated utilization trends in inpatient, outpatient and medical pharmacy categories persisted, though a seasonally strong performance in the Part D products provided a boost. CVS highlighted improved Medicare Advantage star ratings for the payment year 2025 as a key contributor. Encouragingly, Aetna is making headway in returning to its target margins, supported by improvements across all its business lines.
Medical cost trends remained elevated but showed initial signs of stabilization. In Medicaid, the company’s rate advocacy efforts are tracking in line with 2025 expectations. The commercial business could continue to modestly outperform, aided by regained competitiveness in CVS’ fully insured book through disciplined pricing, trend and stronger retention.
Meanwhile, CVS plans to exit its individual exchange business in 2026 from the states, where Aetna independently operates Affordable Care Act (“ACA”) plans, to concentrate on Medicare, commercial and Medicaid areas. In this regard, a $448 million premium deficiency reserve was created for expected 2025 losses, including $431 million tied to healthcare costs. Further, Aetna’s new approach of bundling prior authorizations for certain cancer-related scans and tests has received positive feedback from plan sponsors, with expansion planned for musculoskeletal and select cardiology services this year.
Medical membership stayed flat sequentially at 27.1 million. The medical benefit ratio (MBR) improved 310 basis points from last year to 87.3%. Following the quarter, the expiration of a premium grace period for the Individual Exchange members led to a nearly 300,000-member decline, which will be reflected in second-quarter numbers. CVS projects full-year 2025 MBR to land around 91.3% while maintaining a “respectful view” of medical cost trends.
Lastly, Health Care Benefit adjusted operating income is expected to reach around $1.91 billion, an increase of approximately $400 million. The gain largely reflects the prior-year reserve development, offset by changes in estimates related to prior-period revenues that it experienced in the first quarter.
A Note on CVS Health Care Benefits’ Rivals
UnitedHealth Group’s (UNH - Free Report) UnitedHealthcare revenues grew 12% in the first quarter of 2025, supported by higher individuals served through Medicare Advantage, fee-based commercial offerings and those with higher acuity needs and the IRA-driven impacts on Medicare Part D plans. Unexpectedly, UNH saw heightened Medicare Advantage care activity trends in the quarter, especially in physician and outpatient services. As a result, UNH now projects operating earnings in UnitedHealthcare between $16 billion and $16.5 billion for the year.
The Cigna Group (CI - Free Report) reported strong first-quarter 2025 revenues from Cigna Healthcare, driven by growth in Select segment customers and strong rate execution. Within the U.S. Healthcare unit, Cigna completed the divestiture of Medicare businesses to Health Care Services Corporation on March 19, 2025, a month later than planned, which modestly lifted earnings for the quarter. However, CI’s medical care ratio (MCR) rose as businesses typically run at a higher MCR than the rest.
CVS’ Price Performance, Valuation and Estimates
Year to date, CVS Health shares have risen 36.1% against the industry’s 10.3% fall.
Image Source: Zacks Investment Research
CVS shares are trading at a forward five-year price-to-earnings ratio of 9.24, much discounted than the 13.59 industry average. The stock sits with a Value Score of A.
Image Source: Zacks Investment Research
Analyst estimates for the company’s 2025 earnings are showing a bullish trend.
Image: Bigstock
What's Shaping CVS' Health Care Benefits Arm for the Rest of 2025?
Key Takeaways
In the first quarter of 2025, CVS Health’s (CVS - Free Report) Health Care Benefits segment grew 8% year over year, mainly due to strength in Medicare. Elevated utilization trends in inpatient, outpatient and medical pharmacy categories persisted, though a seasonally strong performance in the Part D products provided a boost. CVS highlighted improved Medicare Advantage star ratings for the payment year 2025 as a key contributor. Encouragingly, Aetna is making headway in returning to its target margins, supported by improvements across all its business lines.
Medical cost trends remained elevated but showed initial signs of stabilization. In Medicaid, the company’s rate advocacy efforts are tracking in line with 2025 expectations. The commercial business could continue to modestly outperform, aided by regained competitiveness in CVS’ fully insured book through disciplined pricing, trend and stronger retention.
Meanwhile, CVS plans to exit its individual exchange business in 2026 from the states, where Aetna independently operates Affordable Care Act (“ACA”) plans, to concentrate on Medicare, commercial and Medicaid areas. In this regard, a $448 million premium deficiency reserve was created for expected 2025 losses, including $431 million tied to healthcare costs. Further, Aetna’s new approach of bundling prior authorizations for certain cancer-related scans and tests has received positive feedback from plan sponsors, with expansion planned for musculoskeletal and select cardiology services this year.
Medical membership stayed flat sequentially at 27.1 million. The medical benefit ratio (MBR) improved 310 basis points from last year to 87.3%. Following the quarter, the expiration of a premium grace period for the Individual Exchange members led to a nearly 300,000-member decline, which will be reflected in second-quarter numbers. CVS projects full-year 2025 MBR to land around 91.3% while maintaining a “respectful view” of medical cost trends.
Lastly, Health Care Benefit adjusted operating income is expected to reach around $1.91 billion, an increase of approximately $400 million. The gain largely reflects the prior-year reserve development, offset by changes in estimates related to prior-period revenues that it experienced in the first quarter.
A Note on CVS Health Care Benefits’ Rivals
UnitedHealth Group’s (UNH - Free Report) UnitedHealthcare revenues grew 12% in the first quarter of 2025, supported by higher individuals served through Medicare Advantage, fee-based commercial offerings and those with higher acuity needs and the IRA-driven impacts on Medicare Part D plans. Unexpectedly, UNH saw heightened Medicare Advantage care activity trends in the quarter, especially in physician and outpatient services. As a result, UNH now projects operating earnings in UnitedHealthcare between $16 billion and $16.5 billion for the year.
The Cigna Group (CI - Free Report) reported strong first-quarter 2025 revenues from Cigna Healthcare, driven by growth in Select segment customers and strong rate execution. Within the U.S. Healthcare unit, Cigna completed the divestiture of Medicare businesses to Health Care Services Corporation on March 19, 2025, a month later than planned, which modestly lifted earnings for the quarter. However, CI’s medical care ratio (MCR) rose as businesses typically run at a higher MCR than the rest.
CVS’ Price Performance, Valuation and Estimates
Year to date, CVS Health shares have risen 36.1% against the industry’s 10.3% fall.
Image Source: Zacks Investment Research
CVS shares are trading at a forward five-year price-to-earnings ratio of 9.24, much discounted than the 13.59 industry average. The stock sits with a Value Score of A.
Image Source: Zacks Investment Research
Analyst estimates for the company’s 2025 earnings are showing a bullish trend.
Image Source: Zacks Investment Research
CVS stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.