(Bloomberg) — CVS Health Corp. shares tumbled the most in nine years after the company cut its annual earnings outlook for the second quarter in a row, citing increased medical costs in its Medicare insurance business.

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Adjusted earnings for the year will be at least $7 a share, CVS said in a statement Wednesday, down from the earlier view of at least $8.30. The company also lowered its forecast for cash flow from operations by $1.5 billion to at least $10.5 billion.

The shares fell as much as 20% as markets opened in New York, the most intraday since August 2015. The stock has lost 29% since the beginning of the year.

Companies including Humana Inc. and UnitedHealth Group Inc. that sell Medicare Advantage plans — private versions of the US government health program for seniors — have warned of rising costs as members seek more treatment in Covid’s wake. While those challenges prompted CVS to cut its 2024 guidance last quarter, investors had believed that CVS’s insurance unit, Aetna, could manage increasing expenses.

Star Ratings

In the most recent quarter, Aetna’s revenue rose 25% to $32.2 billion, but adjusted operating income decreased 60%. The decrease was due in part to lower star ratings from Medicare that affect reimbursement, the company said.

Those ratings, along with increased use of health services, raised the percentage of insurance premiums that go to pay for patient care. The unit’s medical benefit ratio rose to 90.4% in the first quarter missing analysts’ average view of 87.6%. A lower number is preferable for investors, as it means there’s more money left for administrative costs and profit.

While peers have seen similar pressures, CVS has added 745,000 new Medicare Advantage members from the fourth quarter, adding to the strain, Bloomberg Intelligence’s Jonathan Palmer said.

“We suspect that these new members are driving outsized costs and the company will be able to manage these down over time,” he said in an email. “The implications for 2025 and beyond are the primary question right now, as 2024 was always going to be a transition year.”

The company is determined to improve its profits in Medicare Advantage, through exiting certain counties and adjusting plan-level benefits, executives said on a call with investors.

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Journey Ahead

“Given our projected baseline performance, 2025 will be the first step in a three- to four-year journey to get back to our target margins,” Chief Financial Officer Tom Cowhey said.

One of the biggest US drugstore chains, Woonsocket, Rhode Island-based CVS has been taking steps to diversify into other dimensions of health care, such as insurance. The company revised its outlook to reflect the assumption that the trend toward elevated medical costs in the segment will persist throughout 2024, according to the statement.

Adjusted earnings for the quarter were $1.31 a share, far below the average estimate of $1.69. Revenue of $88.4 billion also missed analysts’ average view.

Sales in the health services segment, which includes pharmacy benefits management, also missed expectations at $40.3 billion. Revenue in the pharmacy and consumer wellness segment was $28.7 billion, which beat Street views.

(Adds shares in first section. Adds company, analysts’ comments from sixth paragraph.)

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