CVS Health's MBR Improves: Can It Sustain Amid Elevated Cost Trends?

Core Insights - CVS Health's medical benefit ratio (MBR) improved to 87.3% in Q1 2025, a 310 basis point increase year over year, driven by favorable reserve development and stronger Medicare performance [1][9] - The company recorded a $431 million premium deficiency reserve (PDR) for expected losses in the individual exchange business, which will be exited in 2026, raising the MBR by approximately 130 basis points [1][9] - CVS anticipates a full-year MBR of approximately 91.3%, slightly better than its previous forecast of 91.5%, with expectations of stabilization in medical cost trends [4][9] Industry Trends - Elevated medical cost trends persisted across the industry, with major health insurers like UnitedHealth Group and Elevance Health experiencing similar dynamics [2][3] - UnitedHealth Group's medical care ratio rose by 50 basis points year over year to 84.8%, reflecting increased care activity in its Medicare Advantage business [2] - Elevance Health reported a benefit expense ratio of 86.4%, up 80 basis points year over year, primarily due to Medicaid rates not keeping pace with medical cost trends [3] Valuation and Performance - CVS Health shares have increased by 9.6% over the past year, contrasting with an 18.5% decline in the industry [7] - The company is trading at a forward 12-month price-to-earnings ratio of 10.12X, compared to the industry average of 14.60X, indicating a favorable valuation [8]