CVS names former UnitedHealth CEO to run Aetna's insurance unit

Steve Nelson will have to grapple with the rising medical costs and decreased government payments that crimped the unit’s returns.

Photo: Diego M. Radzinschi/ALM

CVS Health Corp.’s new Chief Executive Officer David Joyner offered investors no guidance on the company’s expected financial performance for 2024 or 2025 in Wednesday’s earnings report, the first of his tenure.

The company did announce a new president for its troubled Aetna insurance unit, where Steve Nelson, a former CEO of UnitedHealth Group Inc.’s insurance division, will start today. He will have to grapple with the rising medical costs and decreased government payments that crimped the unit’s returns and attracted the ire of activist investor Glenview Capital Management.

“There are clearly both macro and company-specific factors driving the challenges within our Aetna business,” Joyner said on a conference call with analysts.

CVS had offered plans at lower prices with a wide swath of benefits, and underestimated medical costs. To fix this, the company is changing the design of plans with the goal of a “multi-year earnings recovery,” Joyner said.

While offering no official guidance, Chief Financial Officer Thomas Cowhey said the company feels “very good” about its ability to meet the forecasts provided last quarter for health services and pharmacy and consumer wellness segments. The uncertainty comes from the insurance unit.

The company’s shares, buttressed by the election of Donald Trump, rose as much as 14%, the most intraday in 24 years, after markets opened in New York. Shares of other large insurers also rose, as Trump is expected to be friendlier toward health care mergers and Medicare Advantage plans than Vice President Kamala Harris would have been.

The growing challenges led CVS to cut its profit outlook three times this year before withdrawing it completely last month when Joyner took over from former CEO Karen Lynch.

The company’s pharmacy benefits manager has faced government scrutiny, Aetna has struggled to contain costs, and the retail pharmacy has closed hundreds of brick-and-mortar stores. Glenview has been pushing for changes, including a refreshing of the board, without giving specific details.

Revenue in the third quarter was $95.4 billion, up 6.3% from the prior year. Adjusted earnings per share were $1.09. They included a charge accounting for anticipated losses in the fourth quarter in Medicare and individual exchange health plans, which caused a 63 cents per share drop, the company said.

CVS expects the deficit will be substantially made up for in the fourth quarter.

Read more: CVS Health expands primary care access for Aetna members via MinuteClinics

Aetna has struggled as its Medicare Advantage business got lower quality ratings from the government. This cut its reimbursement levels even as it faced rising medical costs. While the government quality ratings have improved, it takes time for those metrics to lead to increased payouts.

Aetna spent a larger percentage of health care premiums on medical expenses in the third quarter than it did last year, recording a medical benefit ratio of 95.2% that includes charges related to anticipated future losses.

While Aetna had challenges, rest of the CVS “performed admirably,” Morningstar analyst Julie Utterback wrote in a note to clients. However, she still wanted to hear more about the company’s near-term prospects.

Joyner is also starting to build out his executive team, elevating Prem Shah to group president overseeing the company’s pharmacy benefit manager services, pharmacies and health care delivery.

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