Newsletter · · Ashutosh Agarwal

CVS Closes a Strong Payer Quarter as 2027 Tightens - Managed Care Under Pressure - Week of August 8, 2026

Podcast synthesis on managed care for the week of August 1-8, 2026: CVS caps a strong Q2 payer earnings season with Aetna's MLR down to 87 percent, a deep-value investor finally pitches UNH, Star-ratings litigation goes live, and a 2.5 percent 2027 Medicare Advantage rate sets up a much harder year.

Managed Care Under Pressure

Week of August 8, 2026: CVS Closes a Strong Payer Quarter as 2027 Tightens

Week of August 1–8, 2026

The Q2 2026 earnings season for the big health insurers is now done, and this week the podcasts finally caught up to it in full, including the last big payer to report, CVS Health (CVS). The story is the one that has been building all summer: the insurers had a good quarter. They shed money-losing members, their medical costs came in lower than a year ago, and profits jumped. But the same podcasts that celebrated the prints spent most of their time on what comes next, and 2027 looks a lot harder than 2026. Two things also showed up this week that had been missing for two months: an actual investor pitching one of these stocks, and open legal warfare over Star ratings.

Quick definition before we start, because it comes up in every item: MLR (medical loss ratio, sometimes MBR) is the share of premium dollars an insurer pays out in medical claims. Lower is better for the insurer, it means more of each premium dollar drops to profit. Anything in the low-to-mid 80s is healthy; the 90s is where these companies were bleeding all last year.

TL;DR

  • The payers won Q2. Cigna (CI) MLR 84.5, Centene (CNC) 79.2, CVS/Aetna 87 (down from nearly 90 a year ago), and UnitedHealth (UNH) "beat pretty handily." The recovery from last year's disaster is real and now confirmed across the whole group.
  • 2027 is the bear case. The 2027 Medicare Advantage rate increase is only about 2.5% against medical costs running 6–8% and drug costs in the double digits. A Part D subsidy is going away, forcing benefit cuts. Star-ratings lawsuits are multiplying (Clover, Elevance). The margin math gets worse before it gets better.
  • Two long-absent signals returned. A deep-value investor called UNH's margin squeeze "a buying opportunity," and carriers (Clover, then Elevance) are now suing CMS over Star-ratings math, the first real investor voice and the first litigation color we've heard in two months.

What's new

1. CVS caps the payer earnings season, and makes peace with Eli Lilly on GLP-1s. CVS was the last of the big insurers to report, and on The Morning Market Briefing (August 5) the hosts flagged the number that matters: Aetna's medical loss ratio came in at 87%, "it was almost 90 this time last year." Translation: the healthier, re-priced book is now paying off for CVS the same way it did for its peers. The eye-catching strategic move came alongside the print. CVS "famously cut off Eli Lilly from its formulary this time last year," the hosts noted, "but now they're best buds." CVS is pushing GLP-1 weight-loss drugs hard: a $29 one-time digital option, transparent pricing on the CVS Health app, Zepbound added to formularies on October 1, and the weight-loss pill orforglipron-class option already covered. Why the pivot? As the hosts put it, CVS is "seeing the benefits of it" in its own MLR: a healthier population costs less to insure, so CVS now wants more of its members on these drugs, not fewer. It is a notable reversal for a company that a year ago was fighting to keep GLP-1 spend off its books.

2. The Q2 scorecard: Cigna and Centene shine, Humana lags. Health:Further (August 1) walked through the payer prints in detail. Cigna (CI) raised its outlook on a Q2 profit of $1.7B and revenue of $71.1B, up 7% year over year; adjusted income from operations was $2.1B (up from $1.9B), with the MLR at 84.5 (up slightly from 83.2). The hosts' verdict: Cigna "is really well run in that they've been in front of a lot of things that are being difficult for other payers." Centene (CNC) was the turnaround story: a swing of more than $1B into profit, a raised 2026 outlook, and a CFO "literally using the word fantastic." Its MLR of 79.2 is "very aggressive… even a touch lower than the best-run payers have been traditionally." The catch: Centene's ACA exchange membership fell by 2.4M, leaving 3.5M, roughly 40% of the book gone, but management says the members who remain are "significantly more profitable." Humana (HUM) beat Wall Street's estimates and yet the stock fell 6.1% on the day (still up 38% year to date). The problem is relative: its MLR of 91.2 is simply worse than its peers', and Humana is again "exiting more Medicare Advantage plans in 2027" (three states and 194 counties) to hit its margin targets. As one host summed up the group: they are "laser focused on reaching their margin targets, going to sacrifice some plans with lower returns."

3. A value investor finally pitches UNH, and it's a buy. For two months these recaps have noted the absence of any actual buy-side or investor voice on these names. This week one showed up. On Schwab Network's Market Matters (August 4), Raul Shah, founder of Doc Shah Financial and a self-described deep-value healthcare investor, laid out why "UnitedHealth's margin squeeze is a buying opportunity," and said UNH is one of his two largest healthcare holdings. His angle on the AI question is worth quoting for how simple the math is:

"When you're an insurance company like UnitedHealth Group and you're making so much money at the top line, even if AI improves your margins by like 1%, that's like tens of millions of dollars that get added to your bottom line. So it makes a very monumental difference."

He was candid about the mechanism, AI in claims processing means "they're going to probably deny more claims" plus cost cuts, and framed the whole thing in classic value-investing terms (Graham, Buffett, Munger). Take the record with a grain of salt (it is a promotional show, and he cites a 42.3% annual return since 2023 for his own firm), but the substance is the signal: someone is now willing to say out loud that the sell-off has gone too far. A separate Schwab Network segment, The Big 3 (August 3), noted UNH is "coming off their earnings event… showed some strong performance. They had some pricing adjustments. Their margins improved a bit."

4. The 2027 setup is where the pain lives. The most valuable item of the week came from an unlikely place, The Broker Link (August 4), an insurance-agent show recapping the 2027 carrier rollouts for Aetna and Cigna's HealthSpring. The headline number: the 2027 Medicare Advantage rate notice landed at roughly 2.5%, down from about 5% in 2026, while "medical costs are trending at around 6% to 8% annually, and prescription drug costs are in the double digits." In plain terms, the government is paying MA plans a raise that does not come close to covering their rising costs, CMS's justification being that past raises made benefits "too rich" and the market needs "a correction." On top of that, a standalone Part D subsidy demonstration is ending and the replacement "direct subsidy came in lower than expectations," which the hosts expect to force both higher standalone drug-plan costs and "MA benefit trims." And the risk-adjustment model called V28 keeps tightening: it is now "much more difficult for carriers to code each member and get the amount of funding that they were getting in the past." (Risk adjustment is how CMS pays plans more for sicker members; V28 makes that coding harder and cuts the payments.) MA enrollment reached about 35.4M in 2026, up 2.5%, with most large carriers shrinking except the ones aggressively re-pricing.

5. Star-ratings litigation goes live. Also from The Broker Link (August 4): the fight between insurers and CMS over Star ratings, the quality scores that unlock billions in bonus payments, has moved into the courts. Clover Health filed suit in May 2026 and won a ruling from the District of Georgia that it "was not awarded the correct amount of payments based on these Stars calculations." Elevance (ELV) has since filed its own suit, and the hosts expect "more potential lawsuits ahead." This is the first concrete Star-ratings litigation color to surface in these recaps, and it matters because Star bonuses are a direct, high-margin revenue line, an unresolved legal overhang on the entire MA group's 2027 guidance.

The debate

Bull: the recovery is real and the worst is behind them. Every payer that reported showed the "shrink to fix" playbook working: dump unprofitable members, re-price aggressively, and watch the MLR fall back into the 80s (Cigna 84.5, Centene 79.2, Aetna 87, UNH a clean beat). The provider side of the ledger actually supports this: hospitals are reporting an elective-surgery slowdown (see read-throughs), which means less utilization and lower claims for the insurers. And for the first time in months there is an investor willing to buy the dip, arguing UNH's earnings power, helped by AI margin gains that drop straight to a very large bottom line, is being underpriced.

Bear: 2026 was the easy year; 2027 is a vice. The forward math is ugly. A 2.5% MA rate increase cannot absorb 6–8% medical trend and double-digit drug inflation. The Part D direct subsidy came in light, forcing benefit cuts that hurt enrollment. V28 keeps grinding down risk-adjustment revenue. Star-ratings bonuses, high-margin dollars, are now tied up in litigation with no resolution in sight. Humana is still at a 91.2 MLR and is buying its recovery by shedding members, which is not a growth story. And the ACA exchange profits look like a one-year sugar high: with enhanced subsidies gone, the risk pool is deteriorating (average premium payments already up 58% this year, a median 15% rate hike proposed for 2027, and the healthy people are the ones dropping out). Layer on structural GLP-1 cost pressure and the "margins have bottomed" story starts to look like "margins bottomed for one quarter."

Stocks in play

  • UNH, UnitedHealth. Bull: "beat pretty handily" in Q2; a deep-value investor now publicly calls the margin squeeze a buying opportunity, with AI-driven margin gains as the kicker. Bear: the same AI ("deny more claims") invites regulatory and reputational risk; V28 and Star-ratings litigation are group-wide overhangs. Next catalyst: whether the margin-rebuild narrative holds into the 2027 bid season; any read on the DOJ MA-coding probe (no podcast coverage this week).
  • CVS, CVS Health. Bull: the last domino fell the right way: Aetna MLR down to 87% from nearly 90%, and a strategic embrace of GLP-1s that management believes lowers medical costs over time. Bear: leaning into GLP-1 volume is a bet that healthier-population savings outrun the drug bill, unproven at scale. Next catalyst: whether the Lilly partnership actually bends Aetna's MLR further, and 2027 benefit-design detail.
  • HUM, Humana. Bull: beat estimates, stock still up 38% YTD, disciplined margin focus. Bear: MLR 91.2 is the worst of the group, and the recovery is being purchased with membership, three states and 194 counties exited for 2027. Next catalyst: can the 2027 bids stop the shrinking; Star-ratings resolution.
  • ELV, Elevance. Bull: further into its re-pricing cycle than peers. Bear: now suing CMS over Star-ratings payments, a signal that the quality-bonus hit is material enough to litigate; ACA and Medicaid exposure. Next catalyst: the Star-ratings suit and 2027 Medicaid acuity trends.
  • CNC, Centene. Bull: the standout turnaround, a $1B+ profit swing, MLR 79.2, and a raised 2026 outlook even after cutting 2.4M exchange members. Bear: most exposed to the subsidy cliff and to Medicaid work requirements; the profitable-remaining-members story is untested over a full year. Next catalyst: 2027 exchange enrollment and Medicaid rate adequacy versus rising acuity.
  • MOH, Molina. Bull: disciplined Medicaid underwriter. Bear: most levered to the Medicaid work-requirement losses now firming up for January 1, 2027. Next catalyst: Medicaid rate adequacy versus a sicker remaining pool (read-through only this week).
  • CI, Cigna. Bull: the cleanest print of the group, $1.7B profit, +7% revenue, MLR 84.5, raised outlook, "in front of" the problems hurting peers; no MA cost or Star exposure. Bear: Express Scripts remains a PBM-regulation target. Next catalyst: Evernorth/Express Scripts growth.

Read-throughs

Medicaid / exchange insurers (CNC, MOH): Medicaid work requirements take effect in every expansion state by January 1, 2027: 80 hours a month of work, school, training, or community service, re-verified every four months. On CareTalk (August 7), hosts David Williams and John Driscoll walked through a new twist: a federal rule narrowing who counts as "medically frail" (a cancer or HIV patient can no longer simply point to the diagnosis in their record), which 25 states plus DC are now suing over. The evidence from Arkansas and Georgia, and from the Congressional Budget Office, is consistent: work requirements "don't actually meaningfully increase employment, but they do increase disenrollment that's driven by just paperwork errors." Separately, Health:Further (August 1) noted a federal judge (Richard Stern) denied a 25-state bid to block the underlying work rules, giving CMS "a clear path" to finalize. The read-through to Centene and Molina is the same as last week's, now firmer: Medicaid rolls shrink, and the members who fall off are disproportionately the healthy ones, leaving a sicker, costlier pool against rates set before the shrinkage.

GLP-1 cost exposure: The drug-cost pressure that shows up in every payer's MLR was quantified this week. On Relentless Health Value (August 5), the discussion pegged GLP-1 spend as "single-handedly increasing the pharmacy costs of any given plan 9%, 12%… 20% in one case," against adherence so poor that many patients quit within one to three months and an ROI horizon of "eight years or something like that." That is why employers are pulling back or routing coverage through wrap-around vendors. Morning Brew Daily (August 7) put a face on the spend: Bank of America now pays about $250M a year for employee GLP-1s (from zero four or five years ago), roughly 13% of its $2B health bill, while only about a third of employers cover the drugs, 6% of large employers dropped weight-loss coverage in 2026, and another 5% plan to in 2027. And On The Pen (August 7) recapped Lilly's quarter: Manjaro and Zepbound generated $14.9B in Q2, the US incretin market grew 78% year over year, and 45% of all Zepbound scripts (55% of new ones) are cash-pay at about $450 a month, evidence that a lot of demand is bypassing insurers entirely. CVS is betting the opposite way (item 1), which makes it the most interesting GLP-1 test case in the group.

Hospitals / providers on the other side of utilization: Becker's Healthcare Podcast with Alan Condon (August 5) is the mirror image of the payer story. The for-profit hospitals (HCA, CHS, UHS, Tenet) all took a bigger ACA hit than modeled. HCA had assumed 80–85% of people losing exchange coverage would go uninsured; the actual number was "almost all of them." HCA's exchange adjusted admissions fell 15% year over year, uninsured admissions rose 50%, and its full-year ACA EBITDA hit was raised from $600–900M to $1.0–1.2B. Just as important for the insurers: all four hospital systems flagged an elective-surgery slowdown (HCA electives down about 6% in Q2, CHS inpatient surgeries down 4%, led by orthopedics) because "commercially insured patients who cannot clear their deductibles are likely postponing their surgeries." Deferred elective surgery is a direct tailwind to payer MLRs, and a headwind to hospital volumes. On the reimbursement side, Becker's with Laura Dyrda (August 5) noted CMS finalized a 2.3% hospital inpatient increase for FY2027 and a mandatory hip/knee/ankle bundled-payment model (CJR-X) now starting January 1, 2028, while ACA marketplace insurers are proposing a median 15% rate hike for 2027, a second straight year of double-digit increases, driven by roughly 10% medical trend plus the shrinking, sicker post-subsidy risk pool.

PBMs and Optum-style services arms: Quiet on new legislative movement this week: no fresh podcast coverage of the HR 6610 PBM-reform bill that led last week's recap. The live PBM story is instead the GLP-1 pivot above: CVS's Caremark rewriting its Lilly relationship, and the broader question of who eats the drug bill. Cigna's Express Scripts remains a standing regulatory target but drew no new claims this week.

What changed vs last week

  • The payer season closed on a high note. Last week we had a trade-press recap; this week CVS actually reported (Aetna MLR 87%, down from nearly 90%), completing the group. The "shrink to fix" thesis is now confirmed across every major insurer.
  • The buy-side finally spoke. After two months of noting the absence of any investor voice, a deep-value manager publicly called UNH a buy this week. Whether you trust the messenger or not, the sell-side/buy-side silence has broken.
  • Star-ratings litigation surfaced. Also previously absent: this week brought concrete color: Clover's District of Georgia ruling and Elevance's follow-on suit against CMS over Star-ratings payments. This is now a named, active revenue overhang for the group.
  • A number for the 2027 MA rate. Last week had no figure; this week we have one: roughly 2.5%, versus 6–8% medical trend. That gap is the whole 2027 bear case in a single line.
  • CVS flipped its GLP-1 stance. From cutting Lilly off its formulary a year ago to actively pushing GLP-1s this quarter, a strategic reversal driven by the MLR benefit of a healthier book.
  • Medicaid work requirements moved from "starting early" to "in the courts." Last week Nebraska began terminations; this week the legal fight is the story: a 25-state block denied, and a separate 25-state-plus-DC suit over the narrowed "medically frail" rule.