CVS Health expects Medicare’s lower performance rating to affect 2024

CVS Health expects Medicare’s lower performance rating to affect 2024

(Reuters) – CVS Health (NYSE:) said its largest health insurance plan for Medicare recipients received a lower performance rating than the federal government program, sending the company’s shares down about 5% in expanded trading.

In a regulatory report late Thursday, CVS said newly issued star ratings for Medicare Advantage plans in 2023 lowered the company’s Aetna National PPO plan’s rating to 3.5 stars from 4.5.

The downgraded rating means the plan, which has more than 1.9 million members, is ineligible for performance-based bonus payments from the government in 2024 and is likely to impact earnings.

Medicare Advantage plans are operated by private insurance companies and are an alternative to original Medicare — a government program for older Americans.

Star Ratings is a performance and quality score provided by the American Centers for Medicare and Medicaid Services, since 2007, based on annual consumer surveys.

Ratings range from one to five stars, with five stars being the highest possible rating, and customers use them to decide which insurance plans they want to sign up for. Typically, the score drops with a drop in ratings.

CVS said it does not expect any impact on its 2022 earnings outlook from the rating change and expects to mitigate any financial impact on its preliminary 2023 forecast.

Evercore analysts wrote in a note that ratings were low for the health insurance industry in general, but the move was expected as part of a normalization of high ratings that reversed allowances related to disruptions caused by the pandemic.

CVS said it still aims to increase adjusted earnings per share “by low double-digit rates year over year in 2024.”

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The Rhode Island-based Woonsocket Rhode Island added that it is evaluating some alternatives to deploying capital, including share buybacks, to mitigate any potential impact on 2024 earnings.

CVS shares fell as much as 5.2% to $93.5 in extended trading.

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