CVS Health, a prominent health company, faced a significant drop in its shares as it revised its profit outlook due to higher medical costs impacting the U.S. insurance industry. The company reported first-quarter revenue and adjusted earnings below expectations, prompting a downward revision in its full-year profit forecast.

According to CVS Health’s latest update, the surge in medical costs has been a major concern for insurers, particularly with the rise in Medicare Advantage patients returning to hospitals for procedures postponed during the pandemic. This trend has led to a challenging financial outlook for companies like CVS Health, Humana, and UnitedHealth Group.

The market response to CVS Health’s announcement was drastic, with shares plummeting by nearly 18% in a single day, marking the company’s worst performance since November 2009. The revised guidance for 2024 now anticipates adjusted earnings of at least $7 per share, down from the previous target of $8.30 per share, reflecting the impact of escalating medical expenses on the company’s operations.

CVS Health’s insurance business, including Aetna, has been particularly affected by the heightened medical costs, leading to a reassessment of its earnings projections. The company highlighted the persistent nature of these increased costs, especially in Medicare Advantage services, which have become a focal point for financial challenges within the insurance sector.

During an earnings call, CVS Health’s CEO, Karen Lynch, acknowledged the unexpected utilization pressure in their Medicare Advantage business, primarily driven by elevated outpatient services and supplemental benefits. The company also noted increased pressure on inpatient and pharmacy utilization, attributing some of these factors to seasonal variations and one-time events.

Looking ahead, CVS Health aims to enhance its Medicare Advantage margins in the coming year, as stated by Chief Financial Officer Thomas Cowhey. The company’s strategic focus on managing and optimizing its insurance segment is crucial for mitigating the impact of rising medical costs and ensuring sustainable profitability in the evolving healthcare landscape.