CVS Shakes Up Aetna Leadership, Strategy as Insurer's Struggles Continue

The company also announced plans to slash $2 billion in costs to relieve pressure on its bottom line.

CVS Health is making major moves to turn around the floundering performance of its insurance arm.

The retail giant said CEO Karen Lynch will take over “day-to-day management” of Aetna, with the insurer’s president, Brian Kane, leaving the company. Lynch, who was president of Aetna from 2015 to 2021 before becoming CVS Health’s CEO, will oversee the insurer’s operations along with CFO Tom Cowhey.

The announcement accompanied CVS’ second quarter earnings report, which revealed a downturn that caused the organization to reduce its earnings expectations for the third time this year. Now, CVS anticipates an adjusted earnings per share of $6.40 to $6.65, down from at least $7.

The reduction is the result of the company experiencing nearly a 9% drop in net income year-over-year to $1.77 billion, compared to $1.9 billion in the same period last year. Much of that is attributed to the woes of Aetna, which suffered a 39% decrease in operating income to $938 million for the quarter.

“The financial performance of this business was not meeting my expectations, and I decided to make a change,” Lynch told investors in an earnings call.

“Relative to the priorities there, I will be establishing a very strong management process, driving execution of improved financial and operational performance, and those will be my key priorities.”

In the news release reporting its earnings, CVS said Aetna’s struggles are being spurred by “increased utilization and the unfavorable impact of the previously disclosed decline in the Company's Medicare Advantage star ratings for the 2024 payment year within the Medicare product line, higher acuity in Medicaid primarily attributable to the resumption of redeterminations, as well as a change in estimate related to the individual exchange business risk adjustment accrual for the 2023 plan year recorded in the second quarter of 2024.”

Insurers are finding Medicare Advantage (MA) not as profitable as before with the new rate cuts and adjustments to star ratings, which determine how much payers will earn in bonus payments.

Aetna has also expanded its MA supplemental benefits and is seeing higher utilization of dental and pharmacy services, Cowhey told investors.

To combat the rising expenses, CVS also announced its plan to achieve $2 billion in cost savings, “driven by further streamlining and optimizing our operations and processes, continuing to rationalize our business portfolio, and accelerating the use of artificial intelligence and automation across the enterprise as we consolidate and integrate,” Lynch said.

Primary care is one area where CVS continues to invest in. The company recently said it will open 25 Oak Street Health clinics alongside their stores in 14 states by the end of this year, during a time when other retailers are backing off from the space.

For the second quarter, Oak Street’s revenue grew 32% year-over-year, “reflecting strong membership and growth,” Lynch said.

CVS is hoping the integration of Oak Street clinics with Aetna, as well as the introduction of co-branded Aetna and Oak Street plans in the 2025 annual enrollment period, will continue to benefit both its primary care and insurance business going forward.