CVS HEALTH Corp [CVS] Filings

10-Q 1 cvs-20240930.htm 10-Q cvs-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to_________

Commission File Number: 001-01011

CVS HEALTH CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						05-0494040
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One CVS Drive, Woonsocket, Rhode Island

02895

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(401) 765-1500

Former name, former address and former fiscal year, if changed since last report:

N/A

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CVS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

As of October 30, 2024, the registrant had 1,258,407,645 shares of common stock issued and outstanding.


TABLE OF CONTENTS
		Page
Part I	Financial Information

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4.	Controls and Procedures	72

Part II	Other Information

Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	74

Signatures		75

Form 10-Q Table of Contents

Part I.Financial Information

Item 1.Financial Statements

Index to Condensed Consolidated Financial Statements


			Page
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2024 and 2023			2

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2024 and 2023			3

Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2024 and December 31, 2023			4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2024 and 2023			5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended September 30, 2024 and 2023, the three months ended June 30, 2024 and 2023 and the three months ended March 31, 2024 and 2023			7

Notes to Condensed Consolidated Financial Statements (Unaudited)			9

Report of Independent Registered Public Accounting Firm			47

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions, except per share amounts	2024		2023		2024		2023
Revenues:
Products	$	59,674	$	61,298	$	169,610	$	179,984
Premiums	30,925		24,657		91,983		74,117
Services	4,279		3,532		12,108		8,977
Net investment income	550		277		1,398		885
Total revenues	95,428		89,764		275,099		263,963
Operating costs:
Cost of products sold	52,948		54,688		151,019		159,679
Health care costs	29,922		21,499		85,578		63,729
Operating expenses	10,557		9,876		31,185		29,329
Restructuring charges	1,169		11		1,169		507

Loss on assets held for sale	—		—		—		349

Total operating costs	94,596		86,074		268,951		253,593
Operating income	832		3,690		6,148		10,370
Interest expense	752		693		2,200		1,968

Other income	(25)		(22)		(74)		(66)
Income before income tax provision	105		3,019		4,022		8,468
Income tax provision	34		754		1,059		2,147


Net income	71		2,265		2,963		6,321
Net (income) loss attributable to noncontrolling interests	16		(4)		7		(23)
Net income attributable to CVS Health	$	87	$	2,261	$	2,970	$	6,298

Net income per share attributable to CVS Health:
Basic	$	0.07	$	1.76	$	2.36	$	4.90
Diluted	$	0.07	$	1.75	$	2.35	$	4.88
Weighted average shares outstanding:
Basic	1,259		1,287		1,258		1,284
Diluted	1,259		1,290		1,262		1,289










Dividends declared per share	$	0.665	$	0.605	$	1.995	$	1.815

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
In millions	2024		2023		2024		2023
Net income	$	71	$	2,265	$	2,963	$	6,321
Other comprehensive income (loss), net of tax:
Net unrealized investment gains (losses)	679		(321)		544		85
Change in discount rate on long-duration insurance reserves	(147)		181		(26)		167
Foreign currency translation adjustments	—		(2)		—		(1)
Net cash flow hedges	(4)		(4)		(12)		9

Other comprehensive income (loss)	528		(146)		506		260
Comprehensive income	599		2,119		3,469		6,581
Comprehensive (income) loss attributable to noncontrolling interests	16		(4)		7		(23)
Comprehensive income attributable to CVS Health	$	615	$	2,115	$	3,476	$	6,558

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Balance Sheets

(Unaudited)


In millions, except per share amounts	September 30, 2024		December 31, 2023
Assets:
Cash and cash equivalents	$	6,875	$	8,196
Investments	2,805		3,259
Accounts receivable, net	36,179		35,227
Inventories	17,649		18,025

Other current assets	3,835		3,151
Total current assets	67,343		67,858
Long-term investments	28,939		23,019
Property and equipment, net	12,728		13,183
Operating lease right-of-use assets	16,231		17,252
Goodwill	91,272		91,272
Intangible assets, net	27,817		29,234
Separate accounts assets	3,334		3,250
Other assets	4,763		4,660
Total assets	$	252,427	$	249,728

Liabilities:
Accounts payable	$	15,713	$	14,897
Pharmacy claims and discounts payable	23,917		22,874
Health care costs payable	15,237		12,049
Policyholders’ funds	913		1,326
Accrued expenses	20,174		22,189
Other insurance liabilities	1,051		1,141
Current portion of operating lease liabilities	1,912		1,741
Short-term debt	800		200
Current portion of long-term debt	4,910		2,772

Total current liabilities	84,627		79,189
Long-term operating lease liabilities	15,258		16,034
Long-term debt	59,824		58,638
Deferred income taxes	3,632		4,311
Separate accounts liabilities	3,334		3,250
Other long-term insurance liabilities	5,162		5,459
Other long-term liabilities	5,484		6,211
Total liabilities	177,321		173,092

Shareholders’ equity:
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding	—		—
Common stock, par value $0.01: 3,200 shares authorized; 1,777 shares issued and 1,258 shares outstanding at September 30, 2024 and 1,768 shares issued and 1,288 shares outstanding at December 31, 2023 and capital surplus	49,510		48,992
Treasury stock, at cost: 519 shares at September 30, 2024 and 480 shares at December 31, 2023	(36,813)		(33,838)
Retained earnings	62,038		61,604
Accumulated other comprehensive income (loss)	209		(297)
Total CVS Health shareholders’ equity	74,944		76,461
Noncontrolling interests	162		175
Total shareholders’ equity	75,106		76,636
Total liabilities and shareholders’ equity	$	252,427	$	249,728

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
In millions	2024		2023
Cash flows from operating activities:
Cash receipts from customers	$	264,538	$	260,300
Cash paid for inventory, prescriptions dispensed and health services rendered	(145,469)		(153,051)
Insurance benefits paid	(80,357)		(61,658)
Cash paid to other suppliers and employees	(28,933)		(26,038)
Interest and investment income received	1,288		1,174
Interest paid	(2,391)		(2,049)
Income taxes paid	(1,429)		(2,616)
Net cash provided by operating activities	7,247		16,062

Cash flows from investing activities:
Proceeds from sales and maturities of investments	7,634		5,547
Purchases of investments	(12,677)		(6,625)
Purchases of property and equipment	(2,013)		(2,120)
Acquisitions (net of cash and restricted cash acquired)	(85)		(16,492)

Other	75		43
Net cash used in investing activities	(7,066)		(19,647)

Cash flows from financing activities:
Commercial paper borrowings (repayments), net	600		—
Proceeds from issuance of short-term loan	—		5,000
Repayment of short-term loan	—		(5,000)
Proceeds from issuance of long-term debt	4,959		10,898
Repayments of long-term debt	(1,706)		(2,734)
Repurchase of common stock	(3,023)		(2,013)

Dividends paid	(2,535)		(2,353)
Proceeds from exercise of stock options	342		242
Payments for taxes related to net share settlement of equity awards	(181)		(175)
Other	(22)		(210)
Net cash provided by (used in) financing activities	(1,566)		3,655
Net increase (decrease) in cash, cash equivalents and restricted cash	(1,385)		70
Cash, cash equivalents and restricted cash at the beginning of the period	8,525		13,305
Cash, cash equivalents and restricted cash at the end of the period	$	7,140	$	13,375

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
In millions	2024		2023
Reconciliation of net income to net cash provided by operating activities:
Net income	$	2,963	$	6,321
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,450		3,232


Stock-based compensation	403		461


Restructuring charges (impairment of long-lived assets)	840		152
Deferred income taxes and other items	(912)		(163)
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(986)		(3,920)
Inventories	355		1,305
Other assets	(850)		(518)
Accounts payable and pharmacy claims and discounts payable	2,169		2,466
Health care costs payable and other insurance liabilities	2,878		4,679
Other liabilities	(3,063)		2,047
Net cash provided by operating activities	$	7,247	$	16,062

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


			Attributable to CVS Health
	Number of shares outstanding		Common Stock and Capital Surplus (2)		Treasury Stock (1)		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total CVS Health Shareholders’ Equity		Noncontrolling Interests		Total Shareholders’ Equity

	Common Shares	Treasury Shares (1)
In millions
Balance at December 31, 2023	1,768	(480)	$	48,992	$	(33,838)	$	61,604	$	(297)	$	76,461	$	175	$	76,636

Net income	—	—	—		—		1,113		—		1,113		11		1,124
Other comprehensive loss	—	—	—		—		—		(44)		(44)		—		(44)
Stock option activity, stock awards and other	3	—	244		—		—		—		244		—		244
Purchase of treasury shares, net of ESPP issuances	—	(39)	(27)		(2,935)		—		—		(2,962)		—		(2,962)
Common stock dividends	—	—	—		—		(844)		—		(844)		—		(844)
Other decreases in noncontrolling interests	—	—	—		—		—		—		—		(4)		(4)
Balance at March 31, 2024	1,771	(519)	49,209		(36,773)		61,873		(341)		73,968		182		74,150
Net income	—	—	—		—		1,770		—		1,770		(2)		1,768
Other comprehensive income	—	—	—		—		—		22		22		—		22
Stock option activity, stock awards and other	6	—	159		—		—		—		159		—		159
Purchase of treasury shares, net of ESPP issuances	—	(2)	3		(146)		—		—		(143)		—		(143)
Common stock dividends	—	—	—		—		(846)		—		(846)		—		(846)

Other increases in noncontrolling interests	—	—	—		—		—		—		—		1		1
Balance at June 30, 2024	1,777	(521)	49,371		(36,919)		62,797		(319)		74,930		181		75,111
Net income	—	—	—		—		87		—		87		(16)		71
Other comprehensive income (Note 10)	—	—	—		—		—		528		528		—		528
Stock option activity, stock awards and other	—	—	138		—		—		—		138		—		138
ESPP issuances, net of purchase of treasury shares	—	2	1		106		—		—		107		—		107
Common stock dividends	—	—	—		—		(846)		—		(846)		—		(846)
Other decreases in noncontrolling interests	—	—	—		—		—		—		—		(3)		(3)
Balance at September 30, 2024	1,777	(519)	$	49,510	$	(36,813)	$	62,038	$	209	$	74,944	$	162	$	75,106

_____________________________________________

(1)Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023.

(2)Common stock and capital surplus includes the par value of common stock of $18 million as of September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023.

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


			Attributable to CVS Health
	Number of shares outstanding		Common Stock and Capital Surplus (2)		Treasury Stock (1)		Retained Earnings		Accumulated Other Comprehensive Loss		Total CVS Health Shareholders’ Equity		Noncontrolling Interests		Total Shareholders’ Equity

	Common Shares	Treasury Shares (1)
In millions
Balance at December 31, 2022	1,758	(458)	$	48,193	$	(31,858)	$	56,398	$	(1,264)	$	71,469	$	300	$	71,769

Net income	—	—	—		—		2,136		—		2,136		6		2,142
Other comprehensive income	—	—	—		—		—		389		389		—		389
Stock option activity, stock awards and other	1	—	122		—		—		—		122		—		122
Purchase of treasury shares, net of ESPP issuances	—	(22)	(18)		(1,944)		—		—		(1,962)		—		(1,962)
Common stock dividends	—	—	—		—		(781)		—		(781)		—		(781)
Other increases (decreases) in noncontrolling interests	—	—	9		—		—		—		9		(108)		(99)
Balance at March 31, 2023	1,759	(480)	48,306		(33,802)		57,753		(875)		71,382		198		71,580
Net income	—	—	—		—		1,901		—		1,901		13		1,914
Other comprehensive income	—	—	—		—		—		17		17		—		17
Stock option activity, stock awards and other	5	—	345		—		—		—		345		—		345
Purchase of treasury shares, net of ESPP issuances	—	(2)	2		(131)		—		—		(129)		—		(129)
Common stock dividends	—	—	—		—		(786)		—		(786)		—		(786)
Acquisition of noncontrolling interests	—	—	—		—		—		—		—		66		66
Other decreases in noncontrolling interests	—	—	(4)		—		—		—		(4)		(1)		(5)
Balance at June 30, 2023	1,764	(482)	48,649		(33,933)		58,868		(858)		72,726		276		73,002
Net income	—	—	—		—		2,261		—		2,261		4		2,265
Other comprehensive loss (Note 10)	—	—	—		—		—		(146)		(146)		—		(146)
Stock option activity, stock awards and other	3	—	165		—		—		—		165		—		165
ESPP issuances, net of purchase of treasury shares	—	2	3		102		—		—		105		—		105
Common stock dividends	—	—	—		—		(786)		—		(786)		—		(786)
Other increases (decreases) in noncontrolling interests	—	—	12		—		—		—		12		(107)		(95)
Balance at September 30, 2023	1,767	(480)	$	48,829	$	(33,831)	$	60,343	$	(1,004)	$	74,337	$	173	$	74,510

_____________________________________________

(1)Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of September 30, 2023, June 30, 2023, March 31, 2023 and December 31, 2022.

(2)Common stock and capital surplus includes the par value of common stock of $18 million as of September 30, 2023, June 30, 2023, March 31, 2023 and December 31, 2022.

See accompanying notes to condensed consolidated financial statements (unaudited).

Index to Condensed Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Significant Accounting Policies

Description of Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health” or the “Company”), has more than 9,000 retail locations, more than 900 walk-in medical clinics, more than 225 primary care medical clinics, a leading pharmacy benefits manager with approximately 90 million plan members and expanding specialty pharmacy solutions, and a dedicated senior pharmacy care business serving more than 800,000 patients per year. The Company also serves an estimated more than 36 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company is creating new sources of value through its integrated model allowing it to expand into personalized, technology driven care delivery and health services, increasing access to quality care, delivering better health outcomes and lowering overall health care costs.

The Company has four reportable segments: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other, which are described below.

Health Care Benefits Segment

The Health Care Benefits segment operates as one of the nation’s leading diversified health care benefits providers. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs and Medicaid health care management services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.” The Company sold Insured plans directly to individual consumers through the individual public health insurance exchanges (“Public Exchanges”) in 17 states as of September 30, 2024.

Health Services Segment

The Health Services segment provides a full range of pharmacy benefit management (“PBM”) solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions. PBM solutions include plan design offerings and administration, formulary management, retail pharmacy network management services, and specialty and mail order pharmacy services. In addition, the Company provides clinical services, disease management services, medical spend management and pharmacy and/or other administrative services for providers and federal 340B drug pricing program covered entities (“Covered Entities”). The Company operates a group purchasing organization that negotiates pricing for the purchase of pharmaceuticals and rebates with pharmaceutical manufacturers on behalf of its participants and provides various administrative, management and reporting services to pharmaceutical manufacturers. During 2023, the Company completed the acquisition of two key health care delivery assets – Signify Health, Inc. (“Signify Health”), a leader in health risk assessments, value-based care and provider enablement services, and Oak Street Health, Inc. (“Oak Street Health”), a leading multi-payor operator of value-based primary care centers serving Medicare eligible patients. The Company also launched CordavisTM, a wholly owned subsidiary that works directly with pharmaceutical manufacturers to commercialize and/or co-produce high quality biosimilar products. The Health Services segment’s clients and customers are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, the U.S. Centers for Medicare & Medicaid Services (“CMS”), plans offered on public and private health insurance exchanges and other sponsors of health benefit plans throughout the U.S., patients who receive care in the Health Services segment’s medical clinics, virtually or in the home, as well as Covered Entities.

Pharmacy & Consumer Wellness Segment

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail pharmacies and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and ancillary services to long-term care facilities and other care settings, and provides pharmacy fulfillment services

to support the Health Services segment’s specialty and mail order pharmacy offerings. As of September 30, 2024, the Pharmacy & Consumer Wellness segment operated more than 9,000 retail locations, as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies, retail specialty pharmacy stores, compounding pharmacies and branches for infusion and enteral nutrition services.

Corporate/Other Segment

The Company presents the remainder of its financial results in the Corporate/Other segment, which primarily consists of:

•Management and administrative expenses to support the Company’s overall operations, which include certain aspects of executive management and the corporate relations, legal, compliance, human resources and finance departments, information technology, digital, data and analytics, as well as acquisition-related transaction and integration costs; and

•Products for which the Company no longer solicits or accepts new customers, such as its large case pensions and long-term care insurance products.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CVS Health and its subsidiaries have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Because of the influence of various factors on the Company’s operations, including business combinations, certain holidays and other seasonal influences, net income for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of income for the full year.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. All material intercompany balances and transactions have been eliminated.

The Company continually evaluates its investments to determine if they represent variable interests in a VIE. If the Company determines that it has a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation is a qualitative assessment as to whether the Company has the ability to direct the activities of a VIE that most significantly impact the entity’s economic performance. The Company consolidates a VIE if it is considered to be the primary beneficiary.

Assets and liabilities of VIEs for which the Company is the primary beneficiary were not significant to the Company’s unaudited condensed consolidated financial statements. VIE creditors do not have recourse against the general credit of the Company.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

Restricted Cash

Restricted cash included in other current assets on the unaudited condensed consolidated balance sheets primarily represents funds held on behalf of members and funds held in escrow in connection with agreements with accountable care organizations. Restricted cash included in other assets on the unaudited condensed consolidated balance sheets represents amounts held in a trust in one of the Company’s captive insurance companies to satisfy collateral requirements associated with the assignment of certain insurance policies. All restricted cash is invested in demand deposits, time deposits and money market funds.

The following is a reconciliation of cash and cash equivalents on the unaudited condensed consolidated balance sheets to total cash, cash equivalents and restricted cash on the unaudited condensed consolidated statements of cash flows:


In millions	September 30, 2024		December 31, 2023
Cash and cash equivalents	$	6,875	$	8,196
Restricted cash (included in other current assets)	65		90
Restricted cash (included in other assets)	200		239
Total cash, cash equivalents and restricted cash in the statements of cash flows	$	7,140	$	8,525

Accounts Receivable

Accounts receivable are stated net of allowances for credit losses, customer credit allowances, contractual allowances and estimated terminations. Accounts receivable, net at September 30, 2024 and December 31, 2023 was composed of the following:


In millions	September 30, 2024		December 31, 2023
Trade receivables	$	9,884	$	11,908
Vendor and manufacturer receivables	15,621		15,711
Premium receivables	3,942		3,714
Other receivables	6,732		3,894
Total accounts receivable, net	$	36,179	$	35,227

The Company’s allowance for credit losses was $346 million and $343 million as of September 30, 2024 and December 31, 2023, respectively. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are short duration in nature and typically settle in less than 30 days.

Health Care Contract Acquisition Costs

Insurance products included in the Health Care Benefits segment are cancellable by either the customer or the member monthly upon written notice. Acquisition costs related to prepaid health care and health indemnity contracts are generally expensed as incurred. For certain long-duration insurance contracts, acquisition costs directly related to the successful acquisition of a new or renewal insurance contract, including commissions, are deferred and are recorded as other current assets or other assets on the unaudited condensed consolidated balance sheets. Contracts are grouped by product and issue year into cohorts consistent with the grouping used in estimating the associated liability and are amortized on a constant level basis based on the remaining in-force policies over the estimated term of the contracts to approximate straight-line amortization. Changes to the Company’s assumptions, including assumptions related to persistency, are reflected at the cohort level at the time of change and are recognized prospectively over the estimated terms of the contract. The amortization of deferred acquisition costs is recorded in operating expenses in the unaudited condensed consolidated statements of operations.

The following is a roll forward of deferred acquisition costs for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
In millions		2024		2023
Deferred acquisition costs, beginning of the period		$	1,502	$	1,219
Capitalizations		405		414
Amortization expense		(217)		(196)

Deferred acquisition costs, end of the period		$	1,690	$	1,437

Premium Deficiency Reserves

The Company evaluates its short-duration insurance contracts to determine if it is probable that a loss will be incurred. For purposes of determining premium deficiency reserves, contracts are grouped consistent with the Company’s method of acquiring, servicing and measuring the profitability of such contracts. For each contract grouping, a premium deficiency reserve is recognized when it is probable that expected future incurred claims, including costs to maintain the contract grouping, exceed anticipated future premiums and reinsurance recoveries. Anticipated investment income is not considered in the calculation of premium deficiency reserves. A premium deficiency is first recognized by charging any unamortized acquisition costs to operating expenses, and to the extent the premium deficiency is greater than the unamortized acquisition costs, a premium deficiency reserve liability is established and reflected in health care costs payable on the unaudited condensed consolidated balance sheets. Losses recognized as a premium deficiency reserve result in a beneficial effect in subsequent periods as subsequent costs under these contracts are then charged to this previously established liability.

During the third quarter of 2024, the Company determined it had a premium deficiency in its Medicare product line related to the 2024 coverage year. Accordingly, during the three and nine months ended September 30, 2024, the Company recorded a premium deficiency reserve of $766 million, consisting of a $383 million charge of unamortized acquisition costs, which was recorded in operating expenses, and the establishment of a premium deficiency reserve of $383 million, which was recorded in health care costs.

Additionally, during the three and nine months ended September 30, 2024, the Company established a premium deficiency reserve of $270 million related to its individual exchange product line for the 2024 coverage year, consisting of an $11 million charge of unamortized acquisition costs, which was recorded in operating expenses, and the establishment of a premium deficiency reserve of $259 million, which was recorded in health care costs. During the three and nine months ended September 30, 2024, the Company also established a premium deficiency reserve of $28 million related to its Medicaid product line, which was recorded in health care costs.

The Company did not establish any premium deficiency reserves during the three and nine months ended September 30, 2023.

Revenue Recognition

Disaggregation of Revenue

The following tables disaggregate the Company’s revenue by major source in each segment for the three and nine months ended September 30, 2024 and 2023:


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Three Months Ended September 30, 2024
Major goods/services lines:
Pharmacy	$	—	$	41,350	$	26,666	$	—	$	(13,357)	$	54,659
Front Store	—		—		5,196		—		—		5,196
Premiums	30,914		—		—		11		—		30,925
Net investment income (loss)	423		(1)		—		128		—		550
Other	1,659		2,780		561		3		(905)		4,098
Total	$	32,996	$	44,129	$	32,423	$	142	$	(14,262)	$	95,428

Health Services distribution channel:
Pharmacy network (1)			$	24,136
Mail & specialty (2)			17,214
Other			2,780
Net investment income (loss)			(1)
Total			$	44,129

Three Months Ended September 30, 2023
Major goods/services lines: