CVS/Filings/10-K Diff

CVS 10-K diff: FY 2023-12-31 → FY 2024-12-31

Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).

Item 1A · Risk Factors

+113 paragraphs −119 paragraphs ~113 changed

FY 2023-12-31 (earlier)

Item 1A. Risk Factors. You should carefully consider each of the following risks and uncertainties and all of the other information set forth in this 10-K. These risks and uncertainties and other factors may affect forward-looking statements, including those we make in this 10-K or elsewhere, such as in news releases or investor or analyst calls, meetings or presentations, on our websites or through our social media channels. The risks and uncertainties described below are not the only ones we face. There can be no assurance that we have identified all the risks that affect us. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely affect our businesses. Any of these risks or uncertainties could cause our actual results to differ materially from our expectations and the expected results discussed in our forward-looking statements. You should not consider past results to be an indication of future performance.If any of the following risks or uncertainties develops into actual events or if the circumstances described in the risks or uncertainties occur or continue to occur, those events or circumstances could have a material adverse effect on our businesses, operating results, cash flows, financial condition and/or stock price, among other effects on us. You should read the following section in conjunction with the MD&A, included in Item 7 of this 10-K, our consolidated financial statements and the related notes, included in Item 8 of this 10-K, and our “Cautionary Statement Concerning Forward-Looking Statements” in this 10-K. 38Summary The following is a summary of the principal risks we face that could negatively impact our businesses, operating results, cash flows and/or financial condition: Risks Relating to Our Businesses • We may not be able to accurately forecast health care and other benefit costs. • Adverse economic conditions in the U.S. and abroad can materially and adversely impact our businesses, operating results, cash flows and financial condition. • Each of our segments operates in a highly competitive and evolving business environment. • A change in our Health Care Benefits product mix may adversely affect our profit margins.• Our recent acquisitions of Signify Health and Oak Street Health subject us to new and additional risks beyond those to which we have been historically subject.• We can provide no assurance that we will be able to compete successfully and profitably on Public Exchanges. • Negative public perception of the industries in which we operate can adversely affect our businesses, operating results, cash flows and prospects. • We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services. • We face risks relating to the availability, pricing and safety profiles of prescription drugs that we purchase and sell. • The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable, and any reserve, including a premium deficiency reserve, may be insufficient. • We are exposed to risks relating to the solvency of other insurers. Risks From Changes in Public Policy and Other Legal and Regulatory Risks • We are subject to potential changes in public policy, laws and regulations, including reform of the U.S. health care system and entitlement programs. • If we fail to comply with applicable laws and regulations, or fail to change our operations in line with any new legal or regulatory requirements, we could be subject to significant adverse regulatory actions. • If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to contractual damages, regulatory actions and/or litigation. • We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. • We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.• Our litigation and regulatory risk profiles are changing as we offer new products and services and expand in business areas beyond our historical businesses, and we may face increased regulatory risks related to our vertical integration strategy.• We face unique regulatory and other challenges in our PBM, Public Exchange, Medicare and Medicaid businesses. • Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues. • We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, MBRs and operating results, which could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes. • Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our operating results. • Our operating results may be adversely affected by changes in laws and policies governing employers and by union organizing activity.39Risks Associated with Mergers, Acquisitions, and Divestitures • We may be unable to successfully integrate companies we acquire.• We expect to continue to pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things.Risks Related to Our Operations• Failure to meet customer and investor expectations, including with respect to environmental, social and governance (“ESG”) goals, may harm our brand and reputation, our ability to retain and grow our customer base and membership. • We and our vendors have experienced and continue to experience information security incidents. We can provide no assurance that we or our vendors will be able to contain, detect or prevent incidents. • Data governance failures or the failure or disruption of our information technology or infrastructure can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ sensitive information is subject to complex regulations.• Pursuing multiple information technology improvement initiatives simultaneously could make continued development and implementation significantly more challenging. • Product liability, product recall, professional liability or personal injury issues could damage our reputation. • We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success. • Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products. • Failure of our businesses to effectively collaborate could prevent us from maximizing our operating results. • We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and disrupt our business operations. • Both our and our vendors’ operations are subject to a variety of business continuity hazards and risks that could interrupt our operations or otherwise adversely affect our performance and operating results. Financial Risks • We would be adversely affected by downgrades or potential downgrades in our credit ratings, should they occur, or if we do not effectively deploy our capital. • Goodwill and other intangible assets could, in the future, become impaired. • Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative instruments and other investments. Risks Related to Our Relationships with Manufacturers, Providers, Suppliers and Vendors • We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs and other products that we purchase and sell. • We need to be able to maintain our ability to contract with providers on competitive terms and develop and maintain attractive networks with high quality providers. • If our suppliers or service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation and/or regulatory action. • We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members. • Continuing consolidation and integration among providers and other suppliers may increase our costs and increase competition.40Risks Relating to Our Businesses We may not be able to accurately forecast health care and other benefit costs, including as a result of pandemics or disease outbreaks, which could adversely affect our Health Care Benefits segment’s operating results. There can be no assurance that future health care and other benefits costs will not exceed our projections.Premiums for our Insured Health Care Benefits products, which comprised 94% of our Health Care Benefits revenues for 2023, are priced in advance based on our forecasts of health care and other benefit costs during a fixed premium period, which is generally twelve months. These forecasts are typically developed several months before the fixed premium period begins, are influenced by historical data (and recent historical data in particular), are dependent on our ability to anticipate and detect medical cost trends and changes in our members’ behavior and health care utilization patterns and medical claim submission patterns and require a significant degree of judgment. For example, our revenue on Medicare policies is based on bids submitted in June of the year before the contract year. Cost increases in excess of our projections cannot be recovered in the fixed premium period through higher premiums. As a result, our profits are particularly sensitive to the accuracy of our forecasts of the increases in health care and other benefit costs that we expect to occur and our ability to anticipate and detect medical cost trends. During periods when health care and other benefit costs, utilization and/or medical costs trends experience significant volatility and medical claim submission patterns are changing rapidly, as they did during the COVID-19 pandemic, accurately detecting, forecasting, managing, reserving and pricing for our (and our self-insured customers’) medical cost trends and incurred and future health care and other benefits costs is more challenging. There can be no assurance regarding the accuracy of the health care or other benefit cost projections reflected in our pricing, and whether our health care and other benefit costs will be affected by pandemics, disease outbreaks and other external events over which we have no control. Even relatively small differences between predicted and actual health care and other benefit costs as a percentage of premium revenues can result in significant adverse changes in our Health Care Benefits segment’s operating results.While the public health emergency related to COVID-19 expired in May 2023, COVID-19 still exists and it may, like many other respiratory viruses, wax and wane depending on geography and seasonality. The future impact COVID-19 will have on the Company and its ability to accurately forecast health care and other benefit costs is uncertain, and will depend on geographies impacted, whether new variants emerge and their severity, the availability and costs of testing, vaccination and treatment, and legal and regulatory actions. COVID-19 may also impact provider behavior, utilization trends, membership, and overall economic conditions. These impacts could be adverse and material.A number of factors contribute to rising health care and other benefit costs, including previously uninsured members entering the health care system; Medicare members’ utilization of supplemental benefits; other changes in members’ behavior, health care utilization patterns and utilization management; turnover in our membership, health care provider and member fraud; additional government mandated benefits or other regulatory changes, including changes to or as a result of the ACA; changes in the health status of our members; the aging of the population and other changing demographic characteristics; advances in medical technology; increases in the number and cost of prescription drugs (including specialty pharmacy drugs and ultra-high cost drugs and therapies); direct-to-consumer marketing by drug manufacturers; the increasing influence of social media on our members’ health care utilization and other behaviors; the shift to a consumer-driven business model; changes in health care practices and general economic conditions (such as inflation and employment levels); increases in labor costs; pandemics, epidemics or disease outbreaks; influenza-related health care costs (which may be substantial and higher than we expected); clusters of high-cost cases; natural disasters and extreme weather events (which may increase in frequency or intensity as a result of climate change); and numerous other factors that are or may be beyond our control. For example, the 2022-2023 influenza season had an earlier than average start; the 2020-2021 influenza season was impacted by efforts taken to reduce the spread of COVID-19; and the 2019-2020 influenza season maintained a high level of severity for a longer period of time than average. In addition, government-imposed limitations on Medicare and Medicaid reimbursements to health plans and providers have caused the private sector to bear a greater share of increasing health care and other benefits costs over time, and future amendments to the ACA that increase the uninsured population may amplify this issue.Our Health Care Benefits segment’s operating results and competitiveness depend in large part on our ability to appropriately manage future health care and other benefit costs through underwriting criteria, product design, provider network configuration, negotiation of favorable provider contracts and medical management programs. Our medical cost management programs may not be successful and may have a smaller impact on health care and benefit costs than we expect. The factors described above may adversely affect our ability to predict and manage health care and other benefit costs, which can adversely affect our competitiveness and operating results.Furthermore, if we are not able to accurately and promptly anticipate and detect medical cost trends or accurately estimate the cost of incurred but not yet reported claims or reported claims that have not been paid, our ability to take timely corrective 41 actions to limit future health care costs and reflect our current benefit cost experience in our pricing process may be limited, which would further amplify the extent of any adverse impact on our operating results. These risks are particularly acute during periods when health care and other benefit costs, utilization and/or medical cost trends experience significant volatility and medical claim submission patterns are changing rapidly, as they did during the COVID-19 pandemic. Such risks are further magnified by the ACA and other existing and future legislation and regulations that limit our ability to price for our projected and/or experienced increases in utilization and/or medical cost trends. Adverse economic conditions in the U.S. and abroad can materially and adversely impact our businesses, operating results, cash flows and financial condition, and we do not expect these conditions to improve in the near future. Adverse economic conditions in the U.S. and abroad, including those caused by inflation, high interest rates and supply chain disruptions, can materially and adversely impact our businesses, operating results, cash flows and financial condition, including:• In our Health Services segment, by causing drug utilization to decline, reducing demand for PBM services and adversely affecting the financial health of our PBM clients. • In our Pharmacy & Consumer Wellness segment, by causing drug utilization to decline, changing consumer purchasing power, preferences and/or spending patterns leading to reduced consumer demand for products sold in our stores, potentially increasing levels of theft at our retail locations and adversely affecting the financial health of our LTC pharmacy customers. • By causing our existing customers to reduce workforces (including due to business failures), which would reduce our revenues, the number of covered lives in our PBM clients and/or the number of members our Health Care Benefits segment serves. Reductions in workforce by our customers can also cause unanticipated increases in the health care and other benefits costs of our Health Care Benefits segment. For example, our business associated with members who have elected to receive benefits under Consolidated Omnibus Budget Reconciliation Act (known as “COBRA”) typically has an MBR that is significantly higher than our overall Commercial MBR.• By causing our clients and customers and potential clients and customers, particularly those with the most employees or members, and state and local governments, to force us to compete more vigorously on factors such as price and service, including service, discount and other performance guarantees, to retain or obtain their business.• By causing customers and potential customers of our Health Care Benefits and Pharmacy & Consumer Wellness segments to purchase fewer products and/or products that generate less profit for us than the ones they currently purchase or otherwise would have purchased. • By causing customers and potential customers of our Health Care Benefits segment, particularly smaller employers and individuals, to forego obtaining or renewing their health and other coverage with us. • In our Health Care Benefits segment, by causing unanticipated increases and volatility in utilization of medical and other covered services by our medical members, increases in fraudulent claims and claim disputes, changes in medical claim submission patterns and/or increases in medical unit costs and/or provider behavior as hospitals and other providers attempt to maintain revenue levels in their efforts to adjust to their own economic challenges, each of which would increase our costs and limit our ability to accurately detect, forecast, manage, reserve and price for our (and our self-insured customers’) medical cost trends and incurred and future health care and other benefits costs.• By weakening the ability or perceived ability of the issuers and/or guarantors of the debt or other securities we hold in our investment portfolio to perform on their obligations to us, which could result in defaults in those securities and has reduced, and may further reduce, the value of those securities and has created, and may continue to create, net realized capital losses for us that reduce our operating results.• By weakening the ability of our customers, including self-insured customers in our Health Care Benefits segment, medical providers and the other companies with which we do business as well as our medical members to perform their obligations to us or causing them not to perform those obligations, either of which could reduce our operating results.• By weakening the ability of our former subsidiaries and/or their purchasers to satisfy their lease obligations that we have guaranteed and causing the Company to be required to satisfy those obligations. • By weakening the financial condition of other insurers, including long-term care insurers and life insurers, which increases the risk that we will receive significant assessments for obligations of insolvent insurers to policyholders and claimants. • By continuing to cause inflation that could cause interest rates to further increase and thereby further increase our interest expense and reduce our operating results, as well as further decrease the value of the debt securities we hold in our investment portfolio, which would further reduce our operating results and/or adversely affect our financial condition.42Each of our segments operates in a highly competitive and evolving business environment; and operating income in the industries in which we compete may decline. Each of our segments, Health Care Benefits, Health Services, which includes our PBM business, and Pharmacy & Consumer Wellness, operates in a highly competitive and evolving business environment. Specifically: • As competition increases in the geographies in which we operate, including competition from new entrants, a significant increase in price compression and/or reimbursement pressures could occur, and this could require us to reevaluate our pricing structures to remain competitive.• In our Health Care Benefits segment, we are seeking to grow our dual eligible plan membership over the next several years. In many instances, to acquire and retain our government customers’ business, we must bid against our competitors in a highly competitive environment. Winning bids often are challenged successfully by unsuccessful bidders, and may also be withdrawn or cancelled by the issuing agency. CMS has proposed requiring that health plans offering certain dual eligible programs must also offer Medicaid programs, which could further impact the Company’s ability to obtain or retain membership in its dual eligible programs. • Customer contracts in our Health Care Benefits segment are generally for a period of one year, and our customers have considerable flexibility in moving between us and our competitors. We may lose members to competitors with more favorable pricing, or our customers may purchase different types of products from us that are less profitable, adversely affecting our revenues and operating results. In addition, our Medicare, Medicaid and CHIP products are subject to termination without cause, periodic re-bid, rate adjustment and program redesign, as customers seek to contain their benefit costs, particularly in an uncertain economy, and our exposure to this risk is increasing as we grow our Government products membership. These actions may adversely affect our membership, revenues and operating results. • We requested increases in our premium rates in our Commercial Health Care Benefits business for 2024 and expect to request future increases in those rates in order to adequately price for projected medical cost trends, required expansions of coverage and rating limits, and significant assessments, fees and taxes imposed by federal and state governments, including as a result of the ACA. Our rates also must be adequate to reflect the risk that our products will be selected by people with a higher risk profile or utilization rate than the pool of participants we anticipated when we established pricing for the applicable products (also known as “adverse selection”), particularly in small group Commercial products. These rate increases may be significant and thus heighten the risks of adverse publicity, adverse regulatory action and adverse selection and the likelihood that our requested premium rate increases will be denied, reduced or delayed, which could lead to operating margin compression.• The competitive success of our Health Services segment is dependent on our ability to establish and maintain contractual relationships with network pharmacies. • The competitive success of our Pharmacy & Consumer Wellness segment and our specialty pharmacy operations is dependent on our ability to establish and maintain contractual relationships with PBMs and other payors on acceptable terms as the payors’ clients evaluate adopting narrow or restricted retail pharmacy networks. • In our PBM business, we maintain contractual relationships with brand name drug manufacturers that provide for purchase discounts and/or rebates on drugs dispensed by pharmacies in our retail network and by our specialty and mail order pharmacies (all or a portion of which may be passed on to clients). Manufacturer’s rebates often depend on a PBM’s ability to meet contractual requirements, including the placement of a manufacturer’s products on the PBM’s formularies. If we lose our relationship with one or more drug manufacturers, or if the discounts or rebates provided by drug manufacturers decline, our operating results, cash flows and/or prospects could be adversely affected. • If laws or regulations are promulgated that limit the number of PBMs available in a particular business or geography, competition in those businesses and geographies could be amplified and could adversely affect our revenues and operating results.• The PBM industry has been experiencing price compression as a result of competitive pressures and increased client demands for lower prices; increased revenue sharing, including sharing in a larger portion of payments, including rebates and fees, to PBMs and group purchasing organizations received from drug manufacturers; enhanced service offerings and/or higher service levels. Marketplace dynamics and regulatory changes also have adversely affected our ability to offer plan sponsors pricing that includes the use of retail “differential” or “spread,” which could adversely affect our future profitability, and we expect these trends to continue. • Our retail pharmacy, specialty pharmacy and LTC pharmacy operations have been affected by reimbursement pressure caused by competition, including client demands for lower prices, generic drug pricing, earlier than expected generic drug introductions and network reimbursement pressure. If we are unable to increase our prices to reflect, or otherwise mitigate the impact of, increasing costs, our profitability will be adversely affected. If we are unable to limit our price increases, we may lose customers to competitors with more favorable pricing, adversely affecting our revenues and operating results.43• A shift in the mix of our pharmacy prescription volume towards programs offering lower reimbursement rates as a result of competition or otherwise could adversely affect our margins, including the ongoing shift in pharmacy mix towards 90-day prescriptions at retail and the ongoing shift in pharmacy mix towards Medicare Part D prescriptions. • PBM client contracts often are for a period of approximately three years. However, PBM clients may require early or periodic re-negotiation of pricing prior to contract expiration. PBM clients are generally well informed, can move between us and our competitors and often seek competing bids prior to expiration of their contracts. We are therefore under pressure to contain price increases despite being faced with increasing drug costs and increasing operating costs. If we are unable to increase our prices to reflect, or otherwise mitigate the impact of, increasing costs, our profitability will be adversely affected. If we are unable to limit our price increases, we may lose customers to competitors with more favorable pricing, adversely affecting our revenues and operating results. • The operating results and margins of our LTC business are further affected by the increased efforts of health care payors to negotiate reduced or capitated pricing arrangements and by the financial health of, and purchases and sales of, our LTC customers. In addition, competitors in each of our businesses may offer services and pricing terms that we may not be willing or able to offer. Competition also may come from new entrants and other sources in the future. Unless we can demonstrate enhanced value to our clients through innovative product and service offerings in the rapidly changing health care industry, we may be unable to remain competitive.Disruptive innovation by existing or new competitors could alter the competitive landscape in the future and require us to accurately identify and assess such alterations and make timely and effective changes to our strategies and business model to compete effectively. For example, decisions to buy our Health Care Benefits and Health Services products and services increasingly are made or influenced by consumers, either through direct purchasing (e.g., Medicare Advantage plans and PDPs) or through Public Exchanges and private health insurance exchanges that allow individual choice. Consumers also are increasingly seeking to access consumer goods and health care products and services locally and through other direct channels such as mobile devices and websites. To compete effectively in the consumer-driven marketplace, we will be required to develop or acquire new capabilities, attract new talent and develop new service and distribution relationships that respond to consumer needs and preferences.Changes in marketplace dynamics or the actions of competitors or manufacturers, including industry consolidation, the emergence of new competitors and strategic alliances, and decisions to exclude us from new narrow or restricted retail pharmacy networks could materially and adversely affect our businesses, operating results, cash flows and/or prospects.Our recent acquisitions of Signify Health and Oak Street Health subject us to new and additional risks beyond those to which we have been historically subject. We consummated the Signify Health acquisition in March 2023 through which we expanded our offerings to include health risk assessments, value-based care and provider enablement services, and we also consummated the Oak Street Health acquisition in May 2023 through which we offer multi-payor, senior-focused, value-based primary care for Medicare-eligible patients, broadening our ability to provide primary care services. The Signify Health and the Oak Street Health businesses are subject to many of the risks described in this Item 1A, as well as certain additional risks that are different from the risks our businesses have historically faced. The additional risks to which our Signify Health business is subject include, but are not limited to, the following:• ability to recruit, retain and grow its network of credentialed, high-quality physicians, physician assistants and nurse practitioners to provide clinical services in highly competitive markets for talent; • successful challenges to Signify Health’s treatment of health care providers as independent contractors, which could result in increased costs and subject the business to regulatory sanction;• dependence on a concentrated number of key health plan customers; • the quality of the information received about plan members of such health plans for whom Signify Health will seek to provide in-home evaluations and other services, and the regulatory restrictions and requirements associated with directly contacting plan members; • ability to perform and ensure the quality of health risk assessments; • ability to achieve and receive shared health care cost savings;44 • the regulatory and business risks associated with participation in certain government health care programs, including the Medicare Shared Savings Program through Signify Health’s Caravan accountable care organizations (“ACOs”) and identification of diagnosis codes related to risk adjustment payments under Part C of the Medicare program; • health reform initiatives and changes in the rules governing government health care programs, including rules related to the use of in-home health risk assessments; and • use of “open source” software in its technology, which may make it easier for others to gain access or compromise its proprietary technology. The additional risks to which our Oak Street Health business is subject include, but are not limited to, the following:• ability to attract new Medicare-eligible patients and credentialed, high-quality physicians and other providers for senior-focused primary care in a highly competitive market for such patients and providers; • satisfying the enrollment requirements under government health care programs for physicians and other providers in a timely manner; • dependence on a significant portion of revenue from Medicare or Medicare Advantage plans, which subjects Oak Street Health to reductions in Medicare reimbursement rates or changes in the rules governing the Medicare program; • dependence for a significant portion of revenue from agreements with a limited number of key payors with whom Oak Street Health contracts to provide services under terms that may permit a payor to amend the compensation arrangements or terminate the agreements without cause; • dependence on reimbursements from third-party payors, which can result in substantial delay, and on patients, through copayments and deductibles, which subjects Oak Street Health to additional reimbursement risk; • under the fixed fee (or capitated) agreements Oak Street Health enters into with health plans, the assumption of the risk that the actual cost of a service it provides to a patient exceeds the reimbursement provided by the health plan; • reductions in the quality ratings of Medicare health plans Oak Street Health serves could result in a shift of patients from, or the termination of, a health plan Oak Street Health serves; • submission of inaccurate, incomplete or erroneous data, including risk adjustment data, to health plans and government payors could result in inaccuracies in the revenue Oak Street Health records or receipt of overpayments, which may subject it to repayment obligations and penalties; • geographic concentration of its primary care centers; • risks associated with its existing legal proceedings and litigations;• laws regulating the corporate practice of medicine and the associated agreements entered into with physician practice groups restrict the manner in which the Oak Street Health business is able to direct the operations and otherwise exercise control of its physician practice groups;• changes in the legal treatment of its contractual arrangements with its physician practice groups could impact the ability to consolidate the revenue of these groups; and • ability to maintain and enhance its reputation and brand recognition.The additional risks faced by Signify Health and Oak Street Health may also compound, or be heightened by, many of our other risks, including the risks related to adverse economic conditions in the U.S. and abroad, cybersecurity, and compliance with applicable laws and regulations, among others. The Signify Health and the Oak Street Health businesses may also be subject to additional risks the existence or significance of which we may not have anticipated prior to the respective acquisitions of such businesses. Any risks associated with the Signify Health or the Oak Street Health business, if they materialize, could adversely affect our business, financial condition and results of operations, including our ability to timely and effectively integrate the businesses in our operations and the timing and extent of realization of synergies and other benefits that we expected in connection with the acquisitions. Our experience in managing the additional risks associated with the acquisitions is more limited than our experience in managing the risks associated with our historical businesses, and there is no assurance that we will be able to effectively manage or mitigate such risks.We can provide no assurance that we will be able to compete successfully on Public Exchanges or that our pricing or other actions will result in the profitability of our Public Exchange products.In January 2022, we entered into the Public Exchanges in eight states, expanded to a total of twelve states in 2023, and further expanded to a total of 17 states in 2024. To compete effectively on Public Exchanges, we have developed or acquired the technology, systems, tools and talent necessary to interact with Public Exchanges and engage Public Exchange consumers 45 through enhanced consumer-focused sales, marketing channels and customer interfaces. We have also created new customer service programs and product offerings. While participating on the Public Exchanges, we will have to respond to pricing and other actions taken by existing competitors and regulators as well as potentially disruptive new entrants, which could reduce our profit margins. Due to the price transparency provided by Public Exchanges, when we market products we face competitive pressures from existing and new competitors who may have lower cost structures. Our competitors may bring their Public Exchange and other consumer products to market more quickly, have greater experience marketing to consumers and/or may be targeting the higher margin portions of our business. We can provide no assurance that we will be able to compete successfully or profitably on Public Exchanges or that we will be able to benefit from any opportunities presented by Public Exchanges. In addition, there can be no assurance that our pricing or other actions will result in the profitability of our Public Exchange products in 2024 or any future year. We have set 2024 premium rates for our Public Exchange products based on our projections, including as to the health status and quantity of membership and utilization of medical and/or other covered services by members. The accuracy of the projections reflected in our pricing may be impacted by (i) adverse selection among individuals who require or utilize more expensive medical and/or other covered services, (ii) other plans’ withdrawals from participation in the Public Exchanges we serve, (iii) a rapid increase or decline in membership, and (iv) legislation, regulations, enforcement activity and/or judicial decisions that cause Public Exchanges to operate in a manner different than what we projected in setting our premium rates, including the potential expiration of premium subsidies in 2025.A change in our Health Care Benefits product mix may adversely affect our profit margins.Our Insured Health Care Benefits products that involve greater potential risk generally tend to be more profitable than our ASC products. Historically, smaller employer groups have been more likely to purchase Insured Health Care Benefits products because such purchasers are generally unable or unwilling to bear greater liability for health care expenditures, although over the last several years even relatively small employers have moved to ASC products. We also serve, and expect to grow our business with, government-sponsored programs, including Medicare and Medicaid, that are subject to competitive bids and have lower profit margins than our Commercial Insured Health Care Benefits products. A shift of enrollees from more profitable products to less profitable products could have a material adverse effect on the Health Care Benefits segment’s operating results.Negative public perception of the industries in which we operate, or of our industries’ or our practices, can adversely affect our businesses, operating results, cash flows and prospects.Our brand and reputation are two of our most important assets, and the industries in which we operate have been and are negatively perceived by the public from time to time. Negative publicity may come as a result of adverse media coverage, litigation against us and other industry participants, the ongoing public debates over drug pricing, PBMs, government involvement in drug pricing and purchasing, changes to the ACA, “surprise” medical bills, governmental hearings and/or investigations, actual or perceived shortfalls regarding our industries’ or our own products, including Medicare Advantage plans in general, and/or business practices (including PBM operations, drug pricing and insurance coverage determinations) and social media and other media relations activities. Negative publicity also may come from a failure to meet customer expectations for consistent, high quality and accessible care. This risk may increase as we continue to offer products and services that make greater use of data and as our business model becomes more focused on delivering health care to consumers.Negative public perception and/or publicity of our industries in general, or of us or our key vendors, brokers or product distribution networks in particular, can further increase our costs of doing business and adversely affect our operating results and our stock price by: • adversely affecting our brand and reputation;• adversely affecting our ability to market and sell our products and/or services and/or retain our existing customers and members; • requiring us to change our products and/or services; • reducing or restricting the revenue we can receive for our products and/or services; and/or • increasing or significantly changing the regulatory and legislative requirements with which we must comply. We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services, including proprietary brands.46The success of our businesses depends in part on customer loyalty, superior customer service and our ability to persuade customers to frequent our retail stores and online sites and to purchase products in additional categories and our proprietary brands. Failure to timely identify or effectively respond to changing consumer preferences, spending patterns and evolving demographic mixes in the communities we serve, including shifts toward online shopping, or failure to maintain desirable selections of merchandise, store environments or guests experiences could adversely affect our relationship with our customers and clients and the demand for our products and services and could result in excess inventories of products. We offer our retail customers proprietary brand products that are available exclusively at our retail stores and through our online retail sites. The sale of proprietary products subjects us to unique risks including potential product liability risks, mandatory or voluntary product recalls, potential supply chain and distribution chain disruptions for raw materials and finished products, our ability to successfully protect our intellectual property rights and the rights of applicable third parties, and other risks generally encountered by entities that source, market and sell private-label products. We also face similar risks for the other products we sell in our retail operations, including supply chain and distribution chain disruption risk. Any failure to adequately address some or all of these risks could have an adverse effect on our retail business, operating results, cash flows and/or financial condition. Additionally, an increase in the sales of our proprietary brands may adversely affect our sales of products owned by our suppliers and adversely impact certain of our supplier relationships. Our ability to locate qualified, economically stable suppliers who satisfy our requirements, and to acquire sufficient products in a timely and effective manner, is critical to ensuring, among other things, that customer confidence is not diminished. Any failure to develop sourcing relationships with a broad and deep supplier base could adversely affect our operating results and erode customer loyalty. We also could be adversely affected if we fail to identify or effectively respond to changes in marketplace dynamics. For example, specialty pharmacy represents a significant and growing proportion of prescription drug spending in the U.S., a significant portion of which is dispensed outside of traditional retail pharmacies. Because our specialty pharmacy business focuses on complex and high-cost medications, many of which are made available by manufacturers to a limited number of pharmacies (so-called limited distribution drugs) that serve a relatively limited universe of patients, the future growth of our specialty pharmacy business depends largely upon expanding our access to key drugs and penetration in certain treatment categories. Any contraction of our base of patients or reduction in demand for the prescriptions we currently dispense could have an adverse effect on our specialty pharmacy business, operating results and cash flows. We face risks relating to the availability, pricing and safety profiles of prescription drugs that we purchase and sell. The profitability of our Pharmacy & Consumer Wellness and Health Services segments is dependent upon the utilization of prescription drug products. We dispense significant volumes of brand name and generic drugs from our retail, LTC, specialty and mail order pharmacies, and the retail pharmacies in our PBM’s network also dispense significant volumes of brand name and generic drugs. Our revenues, operating results and cash flows may decline if physicians cease writing prescriptions for drugs or the utilization of drugs is reduced, including due to: • increased safety risk profiles or regulatory restrictions; • manufacturing or other supply issues; • a reduction in drug manufacturers’ participation in federal programs; • certain products being withdrawn by their manufacturers or transitioned to over-the-counter products; • future FDA rulings restricting the supply or increasing the cost of products; • the introduction of new and successful prescription drugs or lower-priced generic alternatives to existing brand name products; or • inflation in the price of drugs.In addition, increased utilization of generic drugs (which normally yield a higher gross profit rate than equivalent brand name drugs) has resulted in pressure to decrease reimbursement payments to retail, mail order, specialty and LTC pharmacies for generic drugs, causing a reduction in our margins on sales of generic drugs. Consolidation within the generic drug manufacturing industry and other external factors may enhance the ability of manufacturers to sustain or increase pricing of generic drugs and diminish our ability to negotiate reduced generic drug acquisition costs. Any inability to offset increased brand name or generic prescription drug acquisition costs or to modify our activities to lessen the financial impact of such increased costs could have a significant adverse effect on our operating results.The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable. Any reserve, including a premium deficiency reserve, may be 47 insufficient. If actual claims exceed our estimates, our operating results could be materially adversely affected, and our ability to take timely corrective actions to limit future costs may be limited.A large portion of health care claims are not submitted to us until after the end of the quarter in which services are rendered by providers to our members. Our reported health care costs payable for any particular period reflect our estimates of the ultimate cost of such claims as well as claims that have been reported to us but not yet paid. We also must estimate the amount of rebates payable under the MLR rules of the ACA, CMS and the OPM and the amounts payable by us to, and receivable by us from, the U.S. federal government under the ACA’s remaining premium stabilization program.Our estimates of health care costs payable are based on a number of factors, including those derived from historical claim experience, but this estimation process also makes use of extensive judgment. Considerable variability is inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in medical claims submission and processing patterns and/or procedures, turnover and other changes in membership, changes in product mix, changes in the utilization of medical and/or other covered services, including prescription drugs, changes in medical cost trends, changes in our medical management practices and the introduction of new benefits and products. We estimate health care costs payable periodically, and any resulting adjustments, including premium deficiency reserves, are reflected in current-period operating results within benefit costs. For example, as of December 31, 2021, we established a premium deficiency reserve of $16 million related to Medicaid products in the Health Care Benefits segment, but did not establish a premium deficiency reserve as of December 31, 2023 or 2022. A worsening (or improvement) of health care cost trend rates or changes in claim payment patterns from those that we assumed in estimating health care costs payable as of December 31, 2023 would cause these estimates to change in the near term, and such a change could be material.Furthermore, if we are not able to accurately and promptly anticipate and detect medical cost trends or accurately estimate the cost of incurred but not yet reported claims or reported claims that have not been paid, our ability to take timely corrective actions to limit future health care costs and reflect our current benefit cost experience in our pricing process may be limited, which would further exacerbate the extent of any adverse impact on our operating results. These risks are particularly acute during and following periods when utilization of medical and/or other covered services and/or medical cost trends are below recent historical levels and in products where there is significant turnover in our membership each year, and such risks are further magnified by the ACA and other legislation and regulations that limit our ability to price for our projected and/or experienced increases in utilization and/or medical cost trends.Our operating results are affected by the health of the economy in general and in the communities we serve. The U.S. financial markets have been experiencing, and may continue to experience, volatility and disruptions, including diminished liquidity and credit availability, inflation, declines in consumer confidence and economic growth and increases in unemployment rates, all of which have resulted in uncertainty about economic stability. Our businesses are affected by economic instability and declines in consumer confidence in general and in the communities we serve, and various other economic factors, including inflation and changes in consumer purchasing power, preferences and/or spending patterns. An unfavorable, uncertain or volatile economic environment, as we have experienced recently as a result of inflation, rising interest rates, supply chain disruptions and COVID-19, has caused and could cause a decline in drug utilization, an increase in health care utilization, a dampening demand for PBM services and retail products, and an increase in theft or other crime that could impact our retail locations. If our customers’ operating and financial performance deteriorates, or they are unable to make scheduled payments or obtain adequate financing, as a result of adverse economic conditions or otherwise, our customers may not be able to pay timely, or may delay payment of, amounts owed to us. Any inability of our customers to pay us for our products and services may adversely affect our businesses, operating results and cash flows. In addition, both state and federal government sponsored payers, as a result of budget deficits or spending reductions, may suspend payments or seek to reduce their health care expenditures resulting in our customers delaying payments to us or renegotiating their contracts with us. The adverse impacts on our businesses of an uncertain economic environment may be further exacerbated by the increasing prevalence of high deductible health plans and health plan designs favoring co-insurance over co-payments as members and other consumers may decide to postpone, or not to seek, medical treatment which may lead them to incur more expensive medical treatment in the future and/or decrease our prescription volumes. Further, economic conditions including interest rate fluctuations, changes in capital market conditions and regulatory changes may affect our ability to obtain necessary financing on acceptable terms, our ability to secure suitable store locations under 48 acceptable terms, our ability to execute sale-leaseback transactions under acceptable terms and the value of our investment portfolio. In addition, our Health Care Benefits membership remains concentrated in certain U.S. geographies and in certain industries. Unfavorable changes in health care or other benefit costs or reimbursement rates or increased competition in those geographic areas where our membership is concentrated could therefore have a disproportionately adverse effect on our Health Care Benefits segment’s operating results. Our Health Care Benefits membership has been and may continue to be affected by workforce reductions by our customers due to adverse and/or uncertain general economic conditions, especially in the U.S. geographies and industries where our membership is concentrated. As a result, we may not be able to profitably grow and diversify our Health Care Benefits membership geographically, by product type or by customer industry, and our revenues and operating results may be disproportionately affected by adverse changes affecting our customers. Adverse changes in the U.S. economy, consumer confidence and economic conditions could have an adverse effect on our businesses and financial results.We are exposed to risks relating to the solvency of other insurers. We are subject to assessments under guaranty fund laws existing in all states for obligations of insolvent insurance companies (including long-term care insurers), HMOs, ACA co-ops and other payors to policyholders and claimants. For example, in the first quarter of 2017, Aetna recorded a discounted estimated liability expense of $231 million pretax for our estimated share of future assessments for long-term care insurer Penn Treaty Network America Insurance Company and one of its subsidiaries. Guaranty funds are maintained by state insurance commissioners to protect policyholders and claimants in the event that an insurer, HMO, ACA co-op and/or other payor becomes insolvent or is unable to meet its financial obligations. These funds are usually financed by assessments against insurers regulated by a state. Future assessments may have an adverse effect on our operating results and cash flows. Extreme events, or the threat of extreme events, could materially impact our businesses.The occurrence of natural disasters or extreme weather events, such as hurricanes, tropical storms, floods, wildfires, earthquakes, tsunamis, cyclones, typhoons, extended winter storms, droughts and tornadoes; epidemics, pandemics or disease outbreaks and other extreme events and man-made disasters, such as nuclear or biological attacks or other acts of violence, such as active shooter situations, whether as a result of war or terrorism or otherwise, can have a material adverse effect on the U.S. economy in general, our industries and us specifically. In particular, the long-term effects of climate change are expected to be widespread and unpredictable. The physical effects of climate change, such as an increase in the frequency or intensity of extreme weather events described above and rising sea levels, could adversely affect our operations, including by increasing our energy costs, disrupting our supply chain, negatively impacting our workforce, damaging our facilities and threatening the habitability of the locations in which we operate. Climate change also presents transition risks, including risks posed by regulatory and technology changes and the associated costs as the economy and our business transitions from reliance on carbon-based energy.Extreme events or the threat of extreme events could result in significant health care costs, including those associated with behavior health offerings, waiving certain medical requirements or assisting with replacement medications or transfer prescriptions, which could also be affected by the government’s actions and the responsiveness of public health agencies and other insurers. For example, during the COVID-19 pandemic, we waived various member cost sharing and prior authorization requirements and expanded support for our members. In addition, some of our employees and our vendors are concentrated in certain large, metropolitan areas which may be particularly exposed to these events. Such events could adversely affect our businesses, operations, operating results and cash flows, and, in the event of extreme circumstances, our financial condition or viability, particularly if our responses to such events are less adequate than those of our competitors.We may be unable to achieve our environmental, social and governance goals. We are dedicated to corporate social responsibility and sustainability and we established certain goals as part of our ESG strategy. We face pressures from our colleagues, customers, stockholders and other stakeholders to meet our goals and to make significant advancements in ESG matters. Achievement of our goals is subject to risks and uncertainties, many of which are outside of our control, and it is possible that we may fail to achieve these goals or that our colleagues, customers, stockholders or other stakeholders may not be satisfied with the goals we set or our efforts to achieve them. These risks and uncertainties include, but are not limited to: our ability to set and execute on our operational strategies and achieve our goals within the currently projected costs and the expected timeframes; the availability and cost of technological advancements, renewable 49 energy and other materials necessary to meet our goals and expectations; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to climate-related goals; labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third party contractors; the actions of competitors and competitive pressures; and an acquisition of or merger with another company that has not adopted similar goals or whose progress towards reaching its goals is not as advanced as ours. A failure to meet our goals could adversely affect public perception of our business, employee morale or customer or stockholder support. Further, an increasing percentage of colleagues, customers, stockholders and other stakeholders considers ESG factors in making employment, consumer health care and investment decisions. If we are unable to meet our goals, we may have difficulty retaining or attracting colleagues, investors, customers, or partners or competing effectively, which would negatively impact our brand and reputation, as well as our business, operating results, and financial condition. In addition, we could face increased regulatory, reputational and legal scrutiny as a result of our ESG-related commitments and disclosures, and we could also face challenges with managing conflicting regulatory requirements and our various stakeholders’ expectations.Risks From Changes in Public Policy and Other Legal and Regulatory Risks We are subject to potential changes in public policy, laws and regulations, including reform of the U.S. health care system and entitlement programs, which could have a material adverse effect on our businesses, operations and/or operating results.The political environment in which we operate remains uncertain. It is reasonably possible that our business operations and operating results could be materially adversely affected by legislative, enforcement, regulatory and public policy changes at the federal or state level, including, but not limited to: changes to the regulatory environment for health care and related benefits, including Medicare, Medicare Advantage, the ACA, and related Public Exchange regulations; efforts to amend the ACA and related regulations, including through litigation aimed at challenging the ability to enforce portions of the ACA, such as the preventative services mandate; changes to laws or regulations governing drug reimbursement, pricing, purchasing and/or importation; changes to or adoption of laws or regulations governing PBMs, including those related to network restrictions, formulary management, affiliate reimbursement, contractual guarantees and reconciliations, reimbursement mandates, required reporting, purchase discount and/or rebate arrangements with drug manufacturers and/or other PBM services; changes to the laws and regulations governing PBMs’, PDPs’ and/or Managed Medicaid organizations’ interactions with government funded health care programs; changes to or adoption of laws and/or regulations relating to claims processing and billing; changes to immigration policies; changes to patent laws; changes with respect to tax and trade policies, tariffs and other government regulations affecting trade between the U.S. and other countries; and other public policy initiatives.Our businesses, profitability and growth also may be adversely affected by (i) judicial and regulatory decisions that change and/or expand the interpretations of existing statutes and regulations, expand fiduciary obligations, impose medical or bad faith liability, increase our responsibilities under ERISA or the remedies available under ERISA, or reduce the scope of ERISA and Medicare Part D preemption of state law claims or (ii) other legislation and regulations. For example, laws in Arkansas, North Dakota and Oklahoma have attempted to limit PBM practices and have been subject to recent lawsuits. Additional litigation has been filed in several states to challenge ERISA and Medicare Part D preemption.In addition, in November 2020, the HHS released the Rebate Rule, which eliminates the regulatory safe harbor from prosecution under the AKS for rebates from pharmaceutical companies to PBMs in Medicare Part D and in Medicaid MCOs, replacing it with two far narrower safe harbors designed to directly benefit patients with high out-of-pocket costs and to change the way PBMs are compensated. The new safe harbors are (i) for rebates which are passed on to the patient at the point of sale and (ii) for flat service fee payments made to PBMs which cannot be tied to the list prices of drugs. The PCMA, which represents PBMs, has filed a suit in an effort to block the Rebate Rule, claiming that the Rebate Rule would lead to higher premiums in Medicare Part D and was adopted in an unlawful manner. It is unclear whether the Rebate Rule will be enforceable, whether pharmaceutical companies will respond by reducing list prices, whether list prices in the private market may also be reduced, and what the resulting impact will be to PBMs or the Company. The Bipartisan Infrastructure Act of 2021 delays the effective date of the rebate rule to January 2026, and the IRA further delays the Rebate Rule through 2032. Additionally, the Consolidated Appropriations Act of 2021 was signed into law in December 2020 and contains transparency provisions requiring group health plans and health insurance issuers to report certain prescription drug costs, overall spending on health services and prescription drugs, and information about premiums and the impact of rebates and other remuneration on premiums and out-of-pocket costs to the Tri-Departments. No later than 18 months after the first submission and bi-annually 50 thereafter, the Tri-Departments will release a public report on drug pricing trends, drug reimbursement, and the impact of drug prices on premiums. The first filings of plan year data were required in December 2022 and will be required annually in June of each year on an ongoing basis. It is not possible to predict the enactment or content of new legislation or regulations or changes to existing laws or regulations or their enforcement, interpretation or application, or the form they will take (for example, through the use of U.S. Presidential Executive Orders or executive orders by governors or key regulators). If we fail to respond adequately to such changes, including by implementing strategic and operational initiatives, or do not respond as effectively as our competitors, our businesses, operations and operating results may be materially adversely affected. Even if we could predict such matters, it may not be possible to eliminate the adverse impact of public policy changes that would fundamentally change the dynamics of one or more industries in which we compete. Examples of such changes include, but are not limited to: the federal or one or more state governments fundamentally restructuring or reducing the funding available for government programs, increasing its involvement in drug reimbursement, pricing, purchasing and/or importation, changing the laws and regulations governing PBMs’, PDPs’ and/or Managed Medicaid organizations’ interactions with government funded health care programs, changing the tax treatment of health or related benefits, or significantly altering the ACA. The likelihood of adverse changes remains high due to state and federal budgetary pressures, and our businesses and operating results could be materially and adversely affected by such changes, even if we correctly predict their occurrence.For more information on these matters, see “Government Regulation” included in Item 1 of this 10-K. If we fail to comply with applicable laws and regulations, many of which are highly complex, we could be subject to significant adverse regulatory actions, including monetary penalties, or suffer brand and reputational harm. Our businesses are subject to extensive regulation and oversight by state, federal and international governmental authorities. The laws and regulations governing our operations and interpretations of those laws and regulations, including those related to human capital and climate change, are increasing in number and complexity, change frequently and can be inconsistent or conflict with one another. In general, these laws and regulations are designed to benefit and protect customers, members and providers rather than us or our investors. In addition, the governmental authorities that regulate our businesses have broad latitude to make, interpret and enforce the laws and regulations that govern us and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year. We also must follow various restrictions on certain of our businesses and the payment of dividends by certain of our subsidiaries put in place by certain state regulators. Certain of our Health Services and Pharmacy & Consumer Wellness operations, products and services are subject to: • the clinical quality, patient safety and other risks inherent in the dispensing, packaging and distribution of drugs and other health care products and services, including claims related to purported dispensing and other operational errors (any failure by our Health Services and/or Pharmacy & Consumer Wellness operations to adhere to the laws and regulations applicable to the dispensing of drugs could subject us to civil and criminal penalties);• federal and state anti-kickback and other laws that govern our relationship with drug manufacturers, customers and consumers; • compliance requirements under ERISA, including fiduciary obligations in connection with the development and implementation of items such as drug formularies and preferred drug listings; and • federal and state legislative proposals and/or regulatory activity that could adversely affect pharmacy benefit industry practices. Our Health Care Benefits products are highly regulated, particularly those that serve Public Exchange, Medicare, Medicaid, dual eligible, dual eligible special needs and small group Commercial customers and members. The laws and regulations governing participation in the Public Exchanges, Medicare Advantage (including dual eligible special needs plans), Medicare Part D, Medicaid, and Managed Medicaid plans are complex, are subject to interpretation and can expose us to penalties for non-compliance.The scope of the practices and activities that are prohibited by federal and state false claims acts is the subject of pending litigation. Claims under federal and state false claims acts can be brought by the government or by private individuals on behalf of the government through a qui tam or “whistleblower” suit, and we are a defendant in a number of such proceedings. If we are convicted of fraud or other criminal conduct in the performance of a government program or if there is an adverse decision against us under the False Claims Act, we may be temporarily or permanently suspended from participating in government health care programs, including Public Exchange, Medicare Advantage, Medicare Part D, Medicaid, dual eligible and dual 51 eligible special needs plan programs, and we also may be required to pay significant fines and/or other monetary penalties. Whistleblower suits have resulted in significant settlements between governmental agencies and health care companies. The significant incentives and protections provided to whistleblowers under applicable law increase the risk of whistleblower suits.If we fail to comply with laws and regulations that apply to government programs, we could be subject to criminal fines, civil penalties, premium refunds, prohibitions on marketing or active or passive enrollment of members, corrective actions, termination of our contracts or other sanctions, which could have a material adverse effect on our ability to participate in Public Exchange, Medicare Advantage, Medicare Part D, Medicaid, dual eligible, and dual eligible special needs plans and other programs, our brand and reputation, and our operating results, cash flows and financial condition. For more information on these matters, see “Government Regulation” included in Item 1 of this 10-K. If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to contractual damages, regulatory actions and/or litigation. In addition to being subject to extensive and complex laws and regulations, many of our contracts with customers include detailed requirements. In order to be eligible to offer certain products or bid on certain contracts, we must demonstrate that we have robust systems and processes in place that are designed to maintain compliance with all applicable legal, regulatory and contractual requirements. These systems and processes frequently are reviewed and audited by our customers and regulators. If our systems and processes designed to maintain compliance with applicable legal and contractual requirements, and to prevent and detect instances of, or the potential for, non-compliance fail or are deemed inadequate, we may suffer brand and reputational harm and be subject to contractual damages, regulatory actions, litigation and other proceedings which may result in damages, fines, suspension or loss of licensure, suspension or exclusion from participation in government programs and/or other penalties, any of which could adversely affect our businesses, operating results, cash flows and/or financial condition. We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. These proceedings are costly to defend, may result in changes in our business practices, harm our brand and reputation and adversely affect our businesses and operating results.PBM, retail pharmacy, mail order pharmacy, specialty pharmacy, LTC pharmacy and health care and related benefits are highly regulated industries whose participants frequently are subject to litigation and other adverse legal proceedings. We are currently subject to various litigation and arbitration matters, investigations, regulatory audits, inspections, government inquiries, and regulatory and other legal proceedings, both within and outside the U.S. Litigation related to our provision of professional services in our medical clinics, pharmacies and LTC operations is increasing as we execute our vertical integration strategy and expand our services along the continuum of health care. In addition, disputes over contracts could lead to litigation or pre-litigation settlements that could materially adversely affect our businesses, operating results and/or cash flows. Litigation, and particularly securities, derivative, collective or class action and qui tam litigation, is often expensive and disruptive. Many of the legal proceedings against us seek substantial damages (including non-economic or punitive damages and treble damages), and certain of these proceedings also seek changes in our business practices. While we currently have insurance coverage for some potential liabilities, other potential liabilities may not be covered by insurance, insurers may dispute coverage, and the amount of our insurance may not be enough to cover the damages awarded or costs incurred. In addition, some types of damages, like punitive damages, may not be covered by insurance, and in some jurisdictions the coverage of punitive damages is prohibited. Insurance coverage for all or some forms of liability also may become unavailable or prohibitively expensive in the future.The outcome of litigation and other adverse legal proceedings is always uncertain, and outcomes that are not justifiable by the evidence or existing law or regulation can and do occur, and the costs incurred frequently are substantial regardless of the outcome. In addition, litigation and other adverse legal proceedings outside the U.S. may be subject to greater uncertainty than within the U.S. Litigation and other adverse legal proceedings could materially adversely affect our businesses, operating results and/or cash flows because of brand and reputational harm to us, the cost of defending such proceedings, the cost of settlement or judgments against us, or the changes in our operations that could result from such proceedings. See Item 3 of this 10-K for additional information. We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.52 As one of the largest national retail, mail order, specialty and LTC pharmacy, PBM and health care and related benefits providers, we frequently are subject to regular and special governmental market conduct and other audits, investigations and reviews by, and we receive subpoenas and other requests for information from, various federal and state agencies, regulatory authorities, Attorneys General, committees, subcommittees and members of the U.S. Congress and other state, federal and international governmental authorities. For example, we have received CIDs from, and provided documents and information to, the Civil Division of the DOJ in connection with a current investigation of our patient chart review processes in connection with risk adjustment data submissions under Parts C and D of the Medicare program. CMS and the OIG also are auditing the risk adjustment-related data of certain of our Medicare Advantage plans, and the number of such audits continues to increase. Several such audits, investigations and reviews by governmental authorities currently are pending, some of which may be resolved in 2024, the results of which may be adverse to us.Federal and state governments have made investigating and prosecuting health care and other insurance fraud, waste and abuse a priority. Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of members, billing for unnecessary medical and/or other covered services, improper marketing, including by insurance brokers, and violations of patient privacy rights. The regulations and contractual requirements applicable to us and other industry participants are complex and subject to change, making it necessary for us to invest significant resources in complying with our regulatory and contractual requirements. Ongoing vigorous law enforcement and the highly technical regulatory scheme mean that our compliance efforts in this area will continue to require significant resources. In addition, our medical costs and the medical expenses of our Health Care Benefits ASC customers may be adversely affected if we do not prevent or detect fraudulent activity by providers and/or members. Regular and special governmental audits, investigations and reviews by federal, state and international regulators could result in changes to our business practices, and also could result in significant or material premium refunds, fines, penalties, civil liabilities, criminal liabilities or other sanctions, including suspension or exclusion from participation in government programs and suspension or loss of licensure. Any of these audits, investigations or reviews could have a material adverse effect on our businesses, operating results, cash flows and/or financial condition or result in significant liabilities and negative publicity for us. See “Legal and Regulatory Proceedings” in Note 18 ‘‘Commitments and Contingencies’’ included in Item 8 of this 10-K for additional information.Our litigation and regulatory risk profiles are changing as we offer new products and services and expand in business areas beyond our historical businesses, and we may face increased regulatory risks related to our vertical integration strategy. Historically, we focused primarily on providing products and services within our Health Care Benefits and Pharmacy & Consumer Wellness segments, as well as pharmacy services within our Health Services segment. As a result of our vertical integration strategy and other innovation initiatives, we are expanding our presence in the health care space and plan to offer new products and services, including services provided by Oak Street Health and Signify Health, which present a different litigation and regulatory risk profile than the products and services that we historically have offered and increase our exposure to additional risks. Our vertical integration strategy may also lead to increased regulatory and public scrutiny as a result of consumer protection and quality of care concerns.We face unique regulatory and other challenges in our Medicare and Medicaid businesses.We are seeking to substantially grow the Medicare and Medicaid membership in our Health Care Benefits segment in 2024 and over the next several years. We face unique regulatory and other challenges that may inhibit the growth and profitability of those businesses. • In March 2023, CMS issued its final notice detailing final 2024 Medicare Advantage payment rates. Final 2024 Medicare Advantage rates resulted in an expected average increase in revenue for the Medicare Advantage industry of 3.32%, and the year-to-year percentage change included a (1.24%) decrease for star ratings, a risk model revision and normalization of (2.16%), and a risk score trend of 4.44%. In March 2023, CMS also finalized the 2024 Medicare Advantage reimbursement rates, which result in an expected average decrease in revenue for the Medicare Advantage industry of 1.12%, excluding the CMS estimate of Medicare Advantage risk score trend, though the rates may vary widely depending on the provider group and patient demographics. On January 31, 2024, CMS issued an advance notice detailing proposed 2025 Medicare Advantage payment rates. The 2025 Medicare Advantage rates, if finalized as proposed, will result in an expected average decrease in revenue for the Medicare Advantage industry of 0.16%, excluding the CMS estimate of Medicare Advantage 53 risk score trend. CMS intends to publish the final 2025 rate announcement no later than April 1, 2024. The Company faces challenges from the impact of the increasing cost of medical care (including prescription medications), changes to methodologies for determining payments and CMS local and national coverage decisions that require the Company to pay for services and supplies that are not factored into the Company’s bids. We cannot predict how the rates will be finalized, future Medicare funding levels, the impact of future federal budget actions or ensure that such changes or actions will not have a material adverse effect on our Medicare operating results.• The organic expansion of our Medicare Advantage and Medicare Part D service area is subject to the ability of CMS to process our requests for service area expansions and our ability to build cost competitive provider networks in the expanded service areas that meet applicable network adequacy requirements. CMS’ decisions on our requests for service area expansions also may be affected adversely by compliance issues that arise each year in our Medicare operations. • CMS regularly audits our performance to determine our compliance with CMS’s regulations and our contracts with CMS and to assess the quality of the services we provide to our Medicare members, and state regulators are increasingly conducting audits to assess the quality of services we provide to our Medicaid members. As a result of these audits, we may be subject to significant or material retroactive adjustments to and/or withholding of certain premiums and fees, fines, criminal liability, civil monetary penalties, CMS- or state-imposed sanctions (including suspension or exclusion from participation in government programs) or other restrictions on our Medicare, Medicaid and other businesses, including suspension or loss of licensure.• “Star ratings” from CMS for our Medicare Advantage plans will continue to have a significant effect on our plans’ operating results. Only Medicare Advantage plans with a star rating of 4 or higher (out of 5) are eligible for a quality bonus in their basic premium rates. CMS continues to change its rating system to make achieving and maintaining a four or higher star rating more difficult. If our star ratings fall or remain below four for a significant portion of our Medicare Advantage membership, or do not match the performance of our competitors, or the star rating quality bonuses are reduced or eliminated, our revenues, operating results and cash flows may be significantly adversely affected. In addition, due to uncertainties with CMS cut-points, no Medicare Advantage plan can guarantee their overall star ratings. There can be no assurances that the Company will be successful in maintaining or improving its star ratings in future years. ◦ The Company’s 2023 star ratings were used to determine which of its Medicare Advantage plans have ratings of 4 stars or higher and qualify for bonus payments in 2024. Based on the 2023 star ratings, the Company’s Medicare Advantage plans are not eligible for full level quality bonuses in 2024, which could reduce profit margin. CMS released the Company’s 2024 star ratings in October 2023, which will impact revenues in 2025. The percentage of Aetna Medicare Advantage members in 4+ star plans is expected to return to 87% (based on enrollment and contract affiliation as of December 31, 2023), as compared to the unmitigated 21% based on the 2023 star ratings. The main driver of this increase was a half star improvement in the Aetna National PPO, which increased from 3.5 stars to 4.0 stars. This means that we expect that the Company’s Medicare Advantage plans will again be eligible for full level quality bonuses in 2025. • Payments we receive from CMS for our Medicare Advantage and Medicare Part D businesses also are subject to risk adjustment based on the health status of the individuals we enroll. Elements of that risk adjustment mechanism continue to be challenged by the DOJ, the OIG and CMS itself. For example, CMS made significant changes to the structure of the hierarchical condition category model in version 28, which may impact RAF scores for a larger percentage of Medicare Advantage beneficiaries and could result in changes to beneficiary RAF scores with or without a change in the patient’s health status. Substantial changes in the risk adjustment mechanism, including those that result from the final Part C contract-level Risk Adjustment Data Validation Audits (“RADV Audit Rule”) issued in January 2023 or other changes that may result from enforcement or audit actions, could materially affect the amount of our Medicare reimbursement, require us to raise prices or reduce the benefits we offer to Medicare beneficiaries, impact the services provided by, or the financial performance of, Oak Street Health and Signify Health and potentially limit our (and the industry’s) participation in the Medicare program.• The RADV Audit Rule creates uncertainty for Medicare Advantage plans. The lack of detail provided with respect to how CMS will select contracts and claims to audit, the methodology CMS will use, and how it will extrapolate as part of the RADV Audit Rule may impact future Medicare Advantage bids and result in other implications. The RADV Audit Rule also permits extrapolation of OIG contract level audits for payment years 2018 forward. The RADV Audit Rule is subject to ongoing litigation and the outcome and future impacts are uncertain.• Changes to the ability of PBMs to have pharmacy performance programs in place for clients and report payments via direct and indirect reporting mechanisms, including requiring all pharmacy payments to be included in point-of-sale pricing, could impact the Health Services business. • Medicare Part D has resulted in increased utilization of prescription medications and puts pressure on our pharmacy gross margin rates due to regulatory and competitive pressures. Further, as a result of the ACA and changes to the retiree drug subsidy rules, clients of our PBM business could decide to discontinue providing prescription drug benefits to their 54 Medicare-eligible members. To the extent this phenomenon occurs, the adverse effects of increasing customer migration into Medicare Part D may outweigh the benefits we realize from growth of our Medicare Part D products. • Our Medicare Part D operating results and our ability to expand our Medicare Part D business could be adversely affected if: the cost and complexity of Medicare Part D exceed management’s expectations or prevent effective program implementation or administration; further changes to the regulations regarding how drug costs are reported for Medicare Part D are implemented in a manner that adversely affects the profitability of our Medicare Part D business; changes to the regulations regarding how drug costs are reported for Medicare Part D are implemented in a manner that adversely affects the profitability of our Medicare Part D business; changes to the applicable regulations impact our ability to retain fees from third parties including network pharmacies; the government alters Medicare Part D program requirements or reduces funding because of the higher-than-anticipated cost to taxpayers of Medicare Part D or for other reasons; the government mandated use of point-of-sale manufacturer’s rebates continues; the government enacts price controls on certain pharmaceutical products in Medicare Part D; the government makes changes to how pharmacy pay-for-performance is calculated; the government mandates CMS negotiation with manufacturers for certain drugs; or reinsurance thresholds are reduced below their current levels, which is currently scheduled to begin in 2025. • The IRA contains changes to the Part D program that began in 2023 and will continue to 2032 that could shift more of the claim liability to plans and away from the government.• We have experienced challenges in obtaining complete and accurate encounter data for our Medicaid products due to difficulties with providers and third-party vendors submitting claims in a timely fashion in the proper format, and with state agencies in coordinating such submissions. As states increase their reliance on encounter data, and some states mandate that certain amounts be included or excluded from encounter data, these difficulties could affect the Medicaid premium rates we receive and how Medicaid membership is assigned to us, which could have a material adverse effect on our Medicaid operating results and cash flows and/or our ability to bid for, and continue to participate in, certain Medicaid programs. • If we fail to report and correct errors discovered through our own auditing procedures or during a CMS audit or otherwise fail to comply with the applicable laws and regulations, we could be subject to fines, civil monetary penalties or other sanctions, including fines and penalties under the False Claims Act, which could have a material adverse effect on our ability to participate in Medicare Advantage, Medicare Part D or other government programs, and on our operating results, cash flows and financial condition.• The resumption of Medicaid eligibility redeterminations after being suspended during the COVID-19 pandemic could negatively impact the number of members eligible for the Company’s Medicaid plans.• Certain of our Medicaid contracts require the submission of complete and correct encounter data. The accurate and timely reporting of encounter data is increasingly important to the success of our Medicaid programs because more states are using encounter data to determine compliance with performance standards and, in part, to set premium rates. We have expended and may continue to expend additional effort and incur significant additional costs to collect accurate, or to correct inaccurate or incomplete, encounter data and have been and could be exposed to premium withholding, operating sanctions and financial fines and penalties for noncompliance. • CMS has proposed requiring that health plans offering certain dual eligible programs must also offer Medicaid programs, which could further impact the Company’s ability to obtain or retain membership in its dual eligible programs. In addition, states are increasingly requiring companies to offer Medicaid within a state and conducting competitive bid processes to qualify to offer dual eligible products. Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues, and we expect that percentage to increase.Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues, and we expect that percentage to increase. As our government funded businesses grow, our exposure to changes in federal and state government policy with respect to and/or regulation of the various government funded programs in which we participate also increases. The laws and regulations governing participation in Public Exchange, Medicare Advantage (including dual eligible special needs plans), Medicare Part D, Medicaid, and Managed Medicaid plans are complex, are subject to interpretation and can expose us to penalties for non-compliance. Federal, state and local governments have the right to cancel or not to renew their contracts with us on short notice without cause or if funds are not available. Funding for these programs is dependent on many factors outside our control, including general economic conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and priorities.55The U.S. federal government and our other government customers also may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, operating results and cash flows. When federal funding is delayed, suspended or curtailed, we continue to receive, and we remain liable for and are required to fund, claims from providers for providing services to beneficiaries of federally funded health benefits programs in which we participate. An extended federal government shutdown or a delay by Congress in raising the federal government’s debt ceiling also could lead to a delay, reduction, suspension or cancellation of federal government spending and a significant increase in interest rates that could, in turn, have a material adverse effect on the value of our investment portfolio, our ability to access the capital markets and our businesses, operating results, cash flows and liquidity. Possible changes in industry pricing benchmarks and drug pricing generally can adversely affect our PBM and Pharmacy & Consumer Wellness businesses.It is possible that the pharmaceutical industry, regulators, or federal policymakers may evaluate and/or develop an alternative pricing reference to replace AWP or WAC, which are the pricing references used for many of our PBM and LTC client contracts, drug purchase agreements, retail network contracts, specialty payor agreements and other contracts with third party payors in connection with the reimbursement of drug payments. In addition, many state Medicaid fee-for-service programs have established pharmacy network payments on the basis of Actual Acquisition Cost (“AAC”). The use of an AAC basis in fee for service Medicaid could have an impact on reimbursement practices in Health Care Benefits’ Commercial and other Government products. It is also possible that Congress may enact some limited form of price negotiation for Medicare. In addition, CMS also publishes the National Average Drug Acquisition Cost (“NADAC”) for certain drugs; NADAC pricing is being adopted in an increasing number of states.Future changes to the use of AWP, WAC or to other published pricing benchmarks used to establish drug pricing, including changes in the basis for calculating reimbursement by federal and state health care programs and/or other payors, could impact the reimbursement we receive from Medicare and Medicaid programs, the reimbursement we receive from our PBM clients and other payors and/or our ability to negotiate rebates and/or discounts with drug manufacturers, wholesalers, PBMs and retail pharmacies. A failure or inability to fully offset any increased prices or costs or to modify our operations to mitigate the impact of such increases could have a material adverse effect on our operating results. Additionally, any future changes in drug prices could be significantly different than our projections. We cannot predict the effect of these possible changes on our businesses. We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, which would have an adverse effect on our revenues, MBRs and operating results and could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes. Premium rates for our Insured Health Care Benefits products often must be filed with state insurance regulators and are subject to their approval, which creates risk for us in the current political and regulatory environment. The ACA generally requires a review by HHS in conjunction with state regulators of premium rate increases that exceed a federally specified threshold (or lower state-specific thresholds set by states determined by HHS to have adequate processes). Rate reviews can magnify the adverse impact on our operating margins, MBRs and operating results of increases in health care and other benefit costs, increased utilization of covered services, and ACA assessments, fees and taxes, by restricting our ability to reflect these increases and/or these assessments, fees and taxes in our pricing. Further, our ability to reflect ACA assessments, fees and taxes in our Medicare, Medicaid and CHIP premium rates is limited.Since 2013, HHS has issued determinations to health plans that their premium rate increases were “unreasonable,” and we may experience challenges to appropriate premium rate increases in certain states. Regulators or legislatures in several states have implemented or are considering limits on premium rate increases, either by enforcing existing legal requirements more stringently or proposing different regulatory standards. Regulators or legislatures in several states also have conducted hearings on proposed premium rate increases, which can result, and in some instances have resulted, in substantial delays in implementing proposed rate increases even if they ultimately are approved. Our plans can be excluded from participating in small group Public Exchanges if they are deemed to have a history of “unreasonable” rate increases. Any significant rate increases we may request heighten the risks of adverse publicity, adverse regulatory action and adverse selection and the likelihood that our requested premium rate increases will be denied, reduced or delayed, which could lead to operating margin compression.We anticipate continued regulatory and legislative action to increase regulation of premium rates in our Insured Health Care Benefits products. We may not be able to obtain rates that are actuarially justified or that are sufficient to make our policies 56 profitable in one or more product lines or geographies. If we are unable to obtain adequate premium rates and/or premium rate increases, it could materially and adversely affect our operating margins and MBRs and our ability to earn adequate returns on Insured Health Care Benefits products in one or more states or cause us to withdraw from certain geographies and/or products.Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our operating results.The ACA’s minimum MLR rebate requirements limit the level of margin we can earn in Health Care Benefits’ Commercial Insured business. CMS minimum MLR rebate regulations limit the level of margin we can earn in our Medicare Advantage and Medicaid Insured businesses. Certain portions of our Health Care Benefits Medicaid and FEHB program business also are subject to minimum MLR rebate requirements in addition to but separate from those imposed by the ACA. Minimum MLR rebate requirements leave us exposed to medical costs that are higher than those reflected in our pricing. The process supporting the management and determination of the amount of MLR rebates payable is complex and requires judgment, and the minimum MLR reporting requirements are detailed. CMS has also proposed, but not yet finalized, a definition of “prescription drug price concessions” for commercial MLR calculation purposes, which would make additional PBM information available to plans and the HHS, potentially further complicating the MLR calculation process. Federal and state auditors are challenging our Commercial Health Care Benefits business’ compliance with the ACA’s minimum MLR requirements as well as our FEHB plans’ compliance with OPM’s FEHB program-specific minimum MLR requirements. Our Medicare and Medicaid contracts also are subject to minimum MLR audits. If a Medicare Advantage or Medicare Part D contract pays minimum MLR rebates for three consecutive years, it will become ineligible to enroll new members. If a Medicare Advantage or Medicare Part D contract pays such rebates for five consecutive years, it will be terminated by CMS. Additional challenges to our methodology and/or reports relating to minimum MLR and related rebates by federal and state regulators and private litigants are reasonably possible. The outcome of these audits and additional challenges could adversely affect our operating results.Our operating results may be adversely affected by changes in laws and policies governing employers and by union organizing activity. Congress and certain state legislatures continue to consider and pass legislation that increases our costs of doing business, including increased minimum wages and requiring employers to provide paid sick leave or paid family leave. In addition, our employee-related operating costs may be increased by union organizing activity and it is possible that the National Labor Relations Board may adopt regulatory changes through re-making or case law that could facilitate union organizing. If we are unable to reflect these increased expenses in our pricing or otherwise modify our operations to mitigate the effects of such increases, our operating results will be adversely affected. We face international political, legal and compliance, operational, regulatory, economic and other risks that may be more significant than in our domestic operations.Our international operations present political, legal, compliance, operational, regulatory, economic and other risks that we do not face or that are more significant than in our domestic operations. These risks vary widely by country and include varying regional and geopolitical business conditions and demands, government intervention and censorship, discriminatory regulation, climate change regulation, nationalization or expropriation of assets and pricing constraints. Our international products need to meet country-specific customer and member preferences as well as country-specific legal requirements, including those related to licensing, data privacy, data storage and data protection.Our international operations increase our exposure to, and require us to devote significant management resources to implement controls and systems to comply with, the privacy and data protection laws of non-U.S. jurisdictions, such as the EU’s GDPR, and the anti-bribery, anti-corruption and anti-money laundering laws of the U.S. (including the FCPA) and the United Kingdom (including the UK Bribery Act) and similar laws in other jurisdictions. Implementing our compliance policies, internal controls and other systems may also require the investment of considerable management time and financial and other resources. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business, and significant brand and reputational harm. We must regularly reassess the size, capability and location of our global infrastructure and make appropriate changes, and must have effective change management processes and internal controls in place to address changes in our businesses and operations. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties, and the failure to do so could have a material adverse effect on our brand, reputation, businesses, operating results and/or financial condition.57Our international operations require us to overcome logistical and other challenges based on differing languages, cultures, legal and regulatory schemes and time zones. Our international operations encounter labor laws, standards and customs that can be difficult and make employee relationships less flexible than in our domestic operations and expensive to modify or terminate. In some countries we are required to, or choose to, operate with local business associates, which requires us to manage our relationships with these third parties and may reduce our operational flexibility and ability to quickly respond to business challenges. In some countries we may be exposed to currency exchange controls or other restrictions that prevent us from transferring funds internationally or converting local currencies into U.S. dollars or other currencies. Fluctuations in foreign currency exchange rates may adversely affect our revenues, operating results and cash flows from our international operations. Some of our operations are, and are increasingly likely to be, in emerging markets where these risks are heightened. Any measures we may implement to reduce the effect of volatile currencies and other risks on our international operations may not be effective. Risks Associated with Mergers, Acquisitions, and Divestitures We may be unable to successfully integrate companies we acquire.Upon the closing of any acquisition, including the recent acquisitions of Oak Street Health and Signify Health, we need to successfully integrate the products, services and related assets, as well as internal controls into our business operations. If an acquisition is consummated, the integration of the acquired business, its products, services and related assets into our company also may be complex, expensive, and time-consuming and, if the integration is not fully successful, we may not achieve the anticipated benefits, operating and cost synergies and/or growth opportunities of an acquisition. Potential difficulties that may be encountered in the integration process, including with respect to Oak Street Health and Signify Health, include the following:• Integrating personnel, operations and systems (including internal control environments and compliance policies), while maintaining focus on producing and delivering consistent, high quality products and services; • Coordinating geographically dispersed organizations; • Distracting management’s attention from our ongoing business operations; • Retaining existing customers and attracting new customers; • Managing inefficiencies associated with integrating our operations; and • Reconciling post-acquisition costs and liabilities between buyer and seller.An inability to realize the full extent of the anticipated benefits, operating and cost synergies, innovations and operations efficiencies or growth opportunities of an acquisition, including the recent acquisitions of Oak Street Health and Signify Health, as well as any delays or additional expenses encountered in the integration process, could have a material adverse effect on our businesses and operating results. Furthermore, acquisitions, including the recent acquisitions of Oak Street Health and Signify Health, even if successfully integrated, may fail to further our business strategy as anticipated, expose us to increased competition or challenges with respect to our products, services or service areas, and expose us to additional liabilities associated with an acquired business including risks and liabilities associated with litigation involving the acquired business. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisitions after we have expended resources on them. We expect to continue to pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, as well as strategic divestitures, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things. We expect to continue to pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities as part of our business strategy. In addition to the integration risks noted above, some other risks we may face with respect to acquisitions, including the recent acquisitions of Oak Street Health and Signify Health, and other inorganic growth strategies include:• we may not be able to obtain the required regulatory approval for an acquisition in a timely manner, if at all; • we frequently compete with other firms, some of which may have greater financial and other resources and a greater tolerance for risk, to acquire attractive companies; • the acquired, alliance and/or joint venture businesses may not perform as projected;58• the goodwill or other intangible assets established as a result of our acquisitions may be incorrectly valued or may become impaired; • we may assume unanticipated liabilities, including those that were not disclosed to us or which we underestimated; • the acquired businesses, or the pursuit of other inorganic growth strategies, could disrupt or compete with our existing businesses, distract management, result in the loss of key employees, business partners, suppliers and customers, divert resources, result in tax costs or inefficiencies and make it difficult to maintain our current business standards, controls, information technology systems, policies, procedures and performance; • we may finance future acquisitions and other inorganic growth strategies by issuing common stock for some or all of the purchase price, which would dilute the ownership interests of our stockholders; • we may incur significant debt in connection with acquisitions (whether to finance acquisitions or by assuming debt from the businesses we acquire); • a proposed or pending transaction may have a negative effect on the Company’s credit ratings; • we may not have the expertise to manage and profitably grow the businesses we acquire, and we may need to rely on the retention of key personnel and other suppliers of businesses we acquire, which may be difficult or impossible to accomplish; • we may enter into merger or purchase agreements but, due to reasons within or outside our control, fail to complete the related transactions, which could result in termination fees or other penalties that could be material, cause material disruptions to our businesses and operations and adversely affect our brand, reputation, or stock price; • in order to complete an acquisition, we may be required to divest certain portions of our business, for which we may not be able to obtain favorable pricing; • we may be involved in litigation related to mergers or acquisitions, including for matters that occurred prior to the applicable closing, which may be costly to defend and may result in adverse rulings against us that could be material; • announcements related to an acquisition could have an adverse effect on the market price of the Company’s common stock and other securities; and • the integration into our businesses of the businesses and entities we acquire may affect the way in which existing laws and regulations apply to us, including subjecting us to laws and regulations that did not previously apply to us. Similarly, we may also seek to divest assets that no longer fit into our long-term strategic plan. Such divestitures may take time and, even if such divestitures can be completed, the terms of such divestitures will be subject to market conditions, financing availability and other considerations of potential buyers, and they may have negative short-term financial impacts on us. In addition, joint ventures present risks that are different from acquisitions, including selection of appropriate joint venture parties, initial and ongoing governance of the joint venture, joint venture compliance activities (including compliance with applicable CMS requirements), growing the joint venture’s business in a manner acceptable to all the parties, including other providers in the networks that include joint ventures, maintaining positive relationships among the joint venture parties and the joint venture’s customers, and member and business disruption that may occur upon joint venture termination. Risks Related to Our Operations Failure to meet customer expectations may harm our brand and reputation, our ability to retain and grow our customer base and membership and our operating results and cash flows.Our ability to attract and retain customers and members is dependent upon providing compliant, cost effective, quality customer service operations (such as call center operations, PBM functions, retail pharmacy and LTC services, retail, mail order and specialty pharmacy prescription delivery, claims processing, customer case installation and online access and tools) that meet or exceed our customers’ and members’ expectations, either directly or through vendors. As we seek to reduce general and administrative expenses, we must balance the potential impact of cost-saving measures on our customers and other services and performances. If we misjudge the effects of such measures, customers and other services may be adversely affected. We depend on third parties for certain of our customer service, PBM and prescription delivery operations. If we or our vendors fail to provide compliant service that meets our customers’ and members’ expectations, we may have difficulty retaining or profitably growing our customer base and/or membership, which could adversely affect our operating results. For example, noncompliance with any privacy or security laws or regulations or any security breach involving us or one of our third-party vendors could have a material adverse effect on our businesses, operating results, brand and reputation.We and our vendors have experienced and continue to experience cyberattacks. We can provide no assurance that we or our vendors will be able to detect, prevent or contain the effects of such attacks or other information security (including cybersecurity) risks or threats in the future.59 We and our vendors have experienced diverse cyberattacks and expect to continue to experience cyberattacks going forward. As examples, the Company and its vendors have experienced attempts to gain access to systems, denial of service attacks, attempted malware infections, account takeovers, scanning activity, and phishing emails. Attacks can originate from external sources (including criminals, terrorists and nation states) or internal actors. The Company is dedicating and will continue to dedicate significant resources and incur significant expenses to maintain and update on an ongoing basis the systems and processes that are designed to mitigate the information security risks it faces and protect the security of its computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, disrupt or degrade service, or cause other damage. The impact of known cyberattacks has not been material to the Company’s operations or operating results through December 31, 2023. The Board is regularly informed regarding the Company’s information security policies, practices and status. A compromise of our information security controls or of those businesses with whom we interact, which results in confidential information being accessed, obtained, damaged, or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from customers and clients, financial institutions, payment card associations and other persons, any of which could adversely affect our businesses, operating results and financial condition. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of intrusion, we may be unable to anticipate these techniques or to implement adequate preventative measures. Moreover, a data security breach could require that we expend significant resources related to our information systems and infrastructure, and could distract management and other key personnel from performing their primary operational duties. We also could be adversely affected by any significant disruption in the systems of third parties we interact with, including key payors and vendors. The costs of attempting to protect against the foregoing risks and the costs of responding to an information security incident are significant. Large scale data breaches at other entities increase the challenge we and our vendors face in maintaining the security of our information technology systems and proprietary information and of our customers’, employees’, members’ and other constituents’ sensitive information. Following an information security incident, our and/or our vendors’ remediation efforts may not be successful, and could result in interruptions, delays or cessation of service, and loss of existing or potential customers and members. In addition, breaches of our and/or our vendors’ security measures and the unauthorized access to or dissemination of sensitive personal information, proprietary information or confidential information about us, our customers, our members or other third-parties, could expose our customers’, members’ and other constituents’ private information and our customers, members and other constituents to the risk of financial or medical identity theft, or expose us or other third parties to a risk of loss or misuse of this information, and result in investigations, regulatory enforcement actions, material fines and penalties, loss of customers, litigation or other actions, which could have a material adverse effect on our brand, reputation, businesses, operating results and cash flows.See Item 1C of this 10-K, “Cybersecurity,” for more information on the Company’s cybersecurity risk management and governance.Data governance failures can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ sensitive information is subject to complex regulations at multiple levels. We would be adversely affected if we or our business associates or other vendors fail to adequately protect members’, customers’ or other constituents’ sensitive information. Our information systems are critical to the operation of our businesses. We collect, process, maintain, retain, evaluate, utilize and distribute large amounts of personally identifiable, personal health, and financial information (including payment card information) and other confidential and sensitive data about our customers, employees, members and other constituents in the ordinary course of our businesses. Some of our information systems rely upon third party systems, including cloud service providers, to accomplish these tasks. The use and disclosure of such information is regulated at the federal, state and international levels. In some cases, such laws, rules and regulations also apply to our vendors and/or may hold us liable for any violations by our vendors. These laws, rules and regulations are subject to change (and many are rapidly evolving) and in recent years have given rise to increased enforcement activity, litigation, and other disputes. For example, certain of our vendors have experienced incidents that resulted in the unauthorized disclosure of confidential information, including personal information of our members, patients or employees, which has caused us to incur expenses including those related to responding to regulatory inquiries and/or litigation. Some of these expenses are indemnified but others are not. International laws, rules and regulations governing the use and disclosure of these types of information are generally more stringent than U.S. laws and regulations, and they vary from jurisdiction to jurisdiction. Noncompliance with applicable privacy or security laws or regulations, or any security breach, information security incident, and any other incident involving the theft, misappropriation, loss or other 60 unauthorized disclosure of, or access to, sensitive or confidential customer, member or other constituent information, whether by us, by one of our business associates or vendors or by another third party, could require us to expend significant resources to remediate any damage, could interrupt our operations and could adversely affect our brand and reputation, membership and operating results and also could expose and/or has exposed us to mandatory disclosure requirements, adverse media attention, litigation (including class action litigation), governmental investigations and enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders, adverse actions against our licenses to do business and/or injunctive relief, any of which could adversely affect our businesses, operating results, cash flows or financial condition. Our businesses depend on our customers’, members’ and other constituents’ willingness to entrust us with their health related and other sensitive personal information. Events that adversely affect that trust, including inadequate disclosure to our members or customers of our uses of their information, failing to keep our information technology systems and our customers’, members’ and other constituents’ sensitive information secure from significant attack, theft, damage, loss or unauthorized disclosure or access, whether as a result of our action or inaction (including human error) or that of our business associates, vendors or other third parties, could adversely affect our brand and reputation, membership and operating results and also could expose and/or has exposed us to mandatory disclosure to the media, litigation (including class action litigation), governmental investigations and enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders, adverse actions against our licenses to do business and/or injunctive relief, any of which could adversely affect our businesses, operating results, cash flows or financial condition. There can be no assurance that awe have or will be able to adequately prevent, detect, and/or remediate such data security incidents.The failure or disruption of our information technology systems or the failure of our information technology infrastructure to support our businesses could adversely affect our reputation, businesses, operating results and cash flows. Our information systems are subject to damage or interruption from power outages, facility damage, computer and telecommunications failures, computer viruses, security breaches (including credit card or personally identifiable information breaches), cyberattacks, vandalism, catastrophic events and human error. If our information systems are damaged, fail to work properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience reputational damage, loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions and implement new and innovative services. We use third-party vendors to set-up, service, and/or maintain portions of our information technology systems, and our vendors may suffer the same types of issues, which could adversely affect our ability to access and use such systems and the data contained therein, which could result in similar harm. In addition, our efforts to comply with changes in U.S. and foreign laws and regulations, including privacy and information security laws and standards, may cause us to incur significant expense due to increased investment in technology and the development of new operational processes. Our business success and operating results depend in part on effective information technology systems and on continuing to develop and implement improvements in technology. Pursuing multiple initiatives simultaneously could make this continued development and implementation significantly more challenging. Many aspects of our operations are dependent on our information systems and the information collected, processed, stored and handled by these systems. We rely heavily on our information and technology systems to manage our ordering, pricing, point-of-sale, pharmacy fulfillment, inventory replenishment, claims processing, customer loyalty and subscription programs, finance, human resources and other processes. Throughout our operations, we collect, process, maintain, retain, evaluate, utilize and distribute large amounts of confidential and sensitive data and information, including personally identifiable information and protected health information, that our customers, employees, members and other constituents provide to purchase products or services, enroll in programs or services, register on our websites, interact with our personnel, or otherwise communicate with us. For these operations, we depend in part on the secure transmission of confidential information over public networks.We have many different information and other technology systems supporting our different businesses (including as a result of our acquisitions). Our businesses depend in large part on these systems to adequately price our products and services; accurately establish reserves, process claims and report operating results; and interact with providers, employer plan sponsors, customers, members, consumers and vendors in an efficient and uninterrupted fashion. In addition, recent trends toward greater consumer engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Certain of our technology systems (including software) are older, legacy systems that are less flexible, less efficient and require a significant ongoing commitment of capital and human resources to maintain, protect and enhance them and to integrate them with our other systems. We must re-engineer and reduce the number of these older, legacy systems to meet changing consumer and vendor preferences and needs, improve our productivity and reduce our operating expenses. We 61 also need to develop or acquire new technology systems, contract with new vendors or modify certain of our existing systems to support the consumer-oriented and transformational products and services we are developing, operating and expanding and/or to meet current and developing industry and regulatory standards, including to keep pace with continuing changes in information processing technology, emerging cybersecurity risks and threats, and changes to applicable privacy and security laws, rules and regulations. If we fail to achieve these objectives, our ability to profitably grow our business and/or our operating results may be adversely affected.In addition, information technology and other technology and process improvement projects, including our transformation and enterprise modernization programs, frequently are long-term in nature and may take longer to complete and cost more than we expect and may not deliver the benefits we project once they are complete. If we do not effectively and efficiently secure, manage, integrate and enhance our technology portfolio (including vendor sourced systems), we could, among other things, have problems determining health care and other benefit cost estimates and/or establishing appropriate pricing, meeting the needs of customers, consumers, providers, members and vendors, developing and expanding our consumer-oriented products and services or keeping pace with industry and regulatory standards, and our operating results may be adversely affected. Product liability, product recall, professional liability or personal injury issues could damage our reputation and have a significant adverse effect on our businesses, operating results, cash flows and/or financial condition. The products that we sell could become subject to contamination, product tampering, mislabeling, recall or other damage. In addition, errors in the dispensing, packaging or administration of drugs or other products and consuming drugs in a manner that is not prescribed could lead to serious injury or death. Product liability or personal injury claims may be asserted against us with respect to any of the drugs or other products we sell or services we provide. For example, we are a defendant in hundreds of litigation proceedings relating to opioids and the sale of products containing talc. Our businesses also involve the provision of professional services, including by physicians, pharmacists, physician assistants, nurses and nurse practitioners, which exposes us to professional liability claims. Should a product or other liability issue arise, the coverage available under our insurance programs and the indemnification amounts available to us from third parties may not be adequate to protect us against the financial impact of the related claims. We also may not be able to maintain our existing levels of insurance on acceptable terms in the future. Any of the issues discussed above could damage our brand and reputation and have a significant adverse effect on our businesses, operating results and/or financial condition. We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our businesses, operating results and/or future performance. Our ability to attract and retain qualified and experienced employees is essential to meet our current and future goals and objectives. There is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased compensation and/or benefits costs. If we are unable to retain existing employees or attract additional employees, or we experience an unexpected loss of leadership, we could experience a material adverse effect on our businesses, operating results and/or future performance. In addition, our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on our businesses, operating results and/or future performance. The succession plans we have in place and our employment arrangements with certain key executives do not guarantee the services of these executives will continue to be available to us. Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. New distribution channels create new disintermediation risk. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products.Our products are sold primarily through our sales personnel, who frequently work with independent brokers, consultants and agents who assist in the marketing, production and servicing of business. The independent brokers, consultants and agents generally are not dedicated to us exclusively and may frequently recommend and/or market health care benefits products of our competitors. Our sales could be adversely affected if we are unable to attract, retain or motivate sales personnel and third-party brokers, consultants and agents, or if we do not adequately provide support, training and education to this sales network regarding our complex product portfolio, or if our sales strategy is not appropriately aligned across distribution channels. This risk is heightened as we develop, operate and expand our consumer-oriented products and services and we expand in the health 62 care space and our business model evolves to include a greater focus on consumers and direct-to-consumer sales, such as competing for sales on Insurance Exchanges.New distribution channels for our products and services continue to emerge, including Private Exchanges operated by health care consultants and technology companies. These channels may make it more difficult for us to directly engage consumers and other customers in the selection and management of their health care benefits, in health care utilization and in the effective navigation of the health care system. We also may be challenged by new technologies and marketplace entrants that could interfere with our existing relationships with customers and health plan members in these areas. In addition, there have been several investigations regarding the marketing practices of brokers and agents selling health care and other insurance products and the payments they receive. These investigations have resulted in enforcement actions against companies in our industry and brokers and agents marketing and selling those companies’ products. These investigations and enforcement actions could result in penalties and the imposition of corrective action plans and/or changes to industry practices, which could adversely affect our ability to market our products.Specifically, CMS, U.S. Congressional committees and state departments of insurance have each increased scrutiny of the marketing practices of brokers and agents who market Medicare products and of the Medicare Advantage organizations that use these organizations to market their products. Any of the federal agencies noted above or U.S. Congress may also recommend changes or take additional action with respect to the way in which brokers and agents are compensated for selling our Medicare Advantage and Part D plans. In addition, CMS has recently proposed new limitations on the amounts brokers and agents can earn for marketing Medicare Advantage and Part D plans.Failure of our businesses to effectively collaborate could prevent us from maximizing our operating results.To maximize our overall enterprise value, our various businesses need to collaborate effectively. Our businesses need to be aligned in order to carry out our business strategy, prioritize goals and coordinate the design of new products intended to utilize the offerings of multiple businesses, including implementing our transformation and enterprise modernization programs. In addition, misaligned incentives, information siloes, ineffective product development and failure of our corporate governance policies or procedures, for example significant financial decisions being made at an inappropriate level in our organization, also could prevent us from maximizing our operating results and/or achieving our financial and other projections.We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to new rules and other requirements and potential liability and may disrupt our business operations.We accept payments using a variety of methods, including cash, checks, credit cards, debit cards, gift cards, mobile payments and potentially other technologies in the future that may subject us to new and additional risks related to fraud and theft. Acceptance of these payment methods subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements may change in the future, which could make compliance more difficult or costly. For certain payment options, including credit and debit cards, we pay interchange and other fees, which could increase periodically thereby raising our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and various other forms of electronic payment. If these vendors are unable to provide these services to us, or if their systems are compromised, our operations could be disrupted. The payment methods that we offer also expose us to potential fraud and theft by persons seeking to obtain unauthorized access to, or exploit any weaknesses in, the payment systems we use. If we fail to abide by applicable rules or requirements, or if data relating to our payment systems is compromised due to a breach or misuse, we may be responsible for any costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees. In addition, our reputation and ability to accept certain types of payments could each be harmed resulting in reduced sales and adverse effects on our operating results.Both our and our vendors’ operations are subject to a variety of business continuity hazards and risks, any of which could interrupt our operations or otherwise adversely affect our performance and operating results.We and our vendors are subject to business continuity hazards and other risks, including natural disasters and extreme weather events (which may increase in frequency or intensity as a result of climate change), utility and other mechanical failures, acts of war or terrorism, acts of civil unrest, crime, disruption of communications, data security and preservation, disruption of supply or distribution, safety regulation and labor difficulties. The occurrence of any of these or other events to us or our vendors might disrupt or shut down our operations or otherwise adversely affect our operations. We also may be subject to certain liability claims in the event of an injury or loss of life, or damage to property, resulting from such events. Although we have 63 developed procedures for crisis management and disaster recovery and business continuity plans, and we maintain insurance policies that we believe are customary and adequate for our size and industry, our crisis management and disaster recovery procedures and business continuity plans may not be effective and our insurance policies include limits and exclusions and, as a result, our coverage may be insufficient to protect against all potential hazards and risks incident to our businesses. Should any such hazards or risks occur, or should our insurance coverage be inadequate or unavailable, our businesses, operating results, cash flows and financial condition could be adversely affected.Financial Risks We would be adversely affected if we do not effectively deploy our capital . Downgrades or potential downgrades in our credit ratings, should they occur, could adversely affect our brand and reputation, businesses, operating results, cash flows and financial condition. Our operations generate significant capital, and we may from time to time raise additional capital, subject to market conditions. The manner in which we deploy our capital, including investments in our businesses, our operations (such as information technology and other strategic and capital projects), dividends, acquisitions, share and/or debt repurchases, repayment of debt, reinsurance or other capital uses, impacts our financial strength, claims paying ability and credit ratings issued by nationally-recognized statistical rating organizations. Credit ratings issued by nationally-recognized statistical rating organizations are broadly distributed and generally used throughout our industries. Our ratings reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations or obligations to our insureds. We believe our credit ratings and the financial strength and claims paying ability of our principal insurance and HMO subsidiaries are important factors in marketing our Health Care Benefits products to certain of our customers.Each of the ratings organizations reviews our ratings periodically, and there can be no assurance that our current ratings will be maintained in the future. Downgrades in our ratings could adversely affect our businesses, operating results, cash flows and financial condition.Goodwill and other intangible assets could, in the future, become impaired.As of December 31, 2023 and December 31, 2022, we had $120.5 billion and $102.9 billion, respectively, of goodwill and other intangible assets. Goodwill and indefinite-lived intangible assets are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that the carrying value may not be recoverable. When evaluating goodwill for potential impairment, we compare the fair value of our reporting units to their respective carrying amounts. We estimate the fair value of our reporting units using a combination of a discounted cash flow method and a market multiple method. If the carrying amount of a reporting unit exceeds its estimated fair value, a goodwill impairment loss is recognized in an amount equal to the excess to the extent of the goodwill balance. Indefinite-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its carrying value. The Company estimates the fair value of its indefinite-lived trademarks using the relief from royalty method under the income approach. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized, and the asset is written down to its estimated fair value. Definite-lived intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of such an asset may not be recoverable. If indicators of impairment are present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s estimated future cash flows (discounted).Estimated fair values could change if, for example, there are changes in the business climate, industry-wide changes, changes in the competitive environment, adverse legal or regulatory actions or developments, changes in capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows or market capitalization. Because of the significance of our goodwill and intangible assets, any future impairment of these assets could require material noncash charges to our operating results, which also could have a material adverse effect on our financial condition. Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative investments and other investments, and our operating results and/or our financial condition.The global capital markets, including credit markets, continue to experience volatility and uncertainty. As an insurer, we have a substantial investment portfolio that supports our policy liabilities and surplus and is comprised largely of debt securities of 64 issuers located in the U.S. As a result, the income we earn from our investment portfolio is largely driven by the level of interest rates in the U.S., and to a lesser extent the international financial markets. Volatility, uncertainty and/or disruptions in the global capital markets, particularly the U.S. credit markets, and governments’ monetary policy, particularly U.S. monetary policy, can significantly and adversely affect the value of our investment portfolio, our operating results and/or our financial condition by:• significantly reducing the value and/or liquidity of the debt securities we hold in our investment portfolio and creating realized capital losses that reduce our operating results and/or unrealized capital losses that reduce our shareholders’ equity; • lowering interest rates on high-quality short-term or medium-term debt securities and thereby materially reducing our net investment income and operating results as the proceeds from securities in our investment portfolio that mature or are otherwise disposed of continue to be reinvested in lower yielding securities; • reducing the fair values of our investments if interest rates rise; • causing non-performance of or defaults on their obligations to us by third parties, including customers, issuers of securities in our investment portfolio, mortgage borrowers and/or reinsurance and/or derivatives counterparties; • making it more difficult to value certain of our investment securities, for example if trading becomes less frequent, which could lead to significant period-to-period changes in our estimates of the fair values of those securities and cause period-to-period volatility in our net income and shareholders’ equity;• reducing our ability to issue short-term debt securities at attractive interest rates, thereby increasing our interest expense and decreasing our operating results; and• reducing our ability to issue other securities. Although we seek, within guidelines we deem appropriate, to match the duration of our assets and liabilities and to manage our credit and counterparty exposures, a failure to do so adequately could adversely affect our net income and our financial condition and, in extreme circumstances, our cash flows. Risks Related to Our Relationships with Manufacturers, Providers, Suppliers and Vendors We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs and other products that we purchase and sell.Our Pharmacy & Consumer Wellness segment and our mail order and specialty pharmacy operations generate revenues in significant part by dispensing prescription drugs. Our PBM business generates revenues primarily by contracting with clients to provide prescription drugs and related health care services to plan members. As a result, we are dependent on our relationships with prescription drug manufacturers and suppliers. We acquire a substantial amount of our mail order and specialty pharmacies’ prescription drug supply from a limited number of suppliers. Certain of our agreements with such suppliers are short-term and cancelable by either party without cause. In addition, these agreements may allow the supplier to distribute through channels other than us. Certain of these agreements also allow pricing and other terms to be adjusted periodically for changing market conditions or required service levels. A termination or modification to any of these relationships could adversely affect our prescription drug supply and have a material adverse effect on our businesses, operating results and financial condition. Moreover, many products distributed by our pharmacies are manufactured with ingredients that are susceptible to supply shortages. In some cases, we depend upon a single source of supply. Any such supply shortages or loss of any such single source of supply could adversely affect our operating results and cash flows. Much of the branded and generic drug product that we sell in our pharmacies, and much of the other merchandise we sell, is manufactured in whole or in substantial part outside of the U.S. In most cases, the products or merchandise are imported by others and sold to us. As a result, significant changes in tax or trade policies, tariffs or trade relations between the U.S. and other countries, such as the imposition of unilateral tariffs on imported products, could result in significant increases in our costs, restrict our access to suppliers, depress economic activity, and have a material adverse effect on our businesses, operating results and cash flows. In addition, other countries may change their business and trade policies and such changes, as well as any negative sentiments towards the U.S. in response to increased import tariffs and other changes in U.S. trade regulations, could adversely affect our businesses.Our suppliers are independent entities subject to their own operational and financial risks that are outside our control. If our current suppliers were to stop selling prescription drugs to us or delay delivery, including as a result of supply shortages, supplier production disruptions, supplier quality issues, closing or bankruptcies of our suppliers, or for other reasons, we may be unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all.65Our operating results may be adversely affected if we are unable to contract with providers on competitive terms and develop and maintain attractive networks with high quality providers. We are seeking to enhance our health care provider networks by entering into joint ventures and other collaborative risk-sharing arrangements with providers. Providers’ willingness to enter these arrangements with us depends upon, among other things, our ability to provide them with up to date quality of care data to support these value-based contracts. These arrangements are designed to give providers incentives to engage in population health management and optimize delivery of health care to our members. These arrangements also may allow us to expand into new geographies, target new customer groups, increase membership and reduce medical costs and, if we provide technology or other services to the relevant health system or provider organization, may contribute to our revenue and earnings from alternative sources. If such arrangements do not result in the lower medical costs that we project or if we fail to attract providers to such arrangements, or are less successful at implementing such arrangements than our competitors, our medical costs may not be competitive and may be higher than we project, our attractiveness to customers may be reduced, we may lose or be unable to grow medical membership, and our ability to profitably grow our business and/or our operating results may be adversely affected.While we believe joint ventures, ACOs and other non-traditional health care provider organizational structures present opportunities for us, the implementation of our joint ventures and other non-traditional structure strategies may not achieve the intended results, which could adversely affect our operating results and cash flows. Among other things, joint ventures require us to maintain collaborative relationships with our counterparties, continue to gain access to provider rates that make the joint ventures economically sustainable and devote significant management time to the operation and management of the joint ventures. We may not be able to achieve these objectives in one or more of our joint ventures, which could adversely affect our operating results and cash flows. If our suppliers or service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation and/or regulatory action. This risk is particularly high in our Medicare, Medicaid, dual eligible and dual eligible special needs plan programs. We contract with various third parties to supply us with necessary products, perform certain functions and services and provide us with certain information technology systems. Our arrangements with suppliers and these third parties may expose us to public scrutiny, adversely affect our brand and reputation, expose us to litigation or regulatory action, and otherwise make our operations vulnerable if we fail to adequately oversee, monitor and regulate their performance or if they fail to meet their contractual obligations to us or to comply with applicable laws or regulations, including those related to human capital and climate change. For example, certain of our vendors have been responsible for releases of sensitive information of our members and employees, which has caused us to incur additional expenses and given rise to regulatory actions and litigation against us. These risks are particularly high in our in Medicare Advantage (including dual eligible special needs plans), Medicare Part D, Medicaid, and Managed Medicaid plans, where third parties may perform medical management and other member related services for us. Any failure of our or these third parties’ prevention, detection or control systems related to regulatory compliance, compliance with our internal policies, data security and/or cybersecurity or any incident involving the theft, misappropriation, loss or other unauthorized disclosure of, or access to, members’, customers’ or other constituents’ sensitive information could require us to expend significant resources to remediate any damage, interrupt our operations and adversely affect our brand and reputation and also expose us to whistleblower, class action and other litigation, other proceedings, prohibitions on marketing or active or passive enrollment of members, corrective actions, fines, sanctions and/or penalties, any of which could adversely affect our businesses, operating results, cash flows and/or financial condition. We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members. Some providers that render services to our Health Care Benefits members do not have contracts with us. In those cases, we do not have a pre-established understanding with these nonparticipating providers as to the amount of compensation that is due to them for services rendered to our members. In some states, the amount of compensation due to these nonparticipating providers is defined by law or regulation, but in most instances it is either not defined or it is established by a standard that is not clearly translatable into dollar terms. In such instances providers may believe that they are underpaid for their services and may either litigate or arbitrate their dispute with us or try to recover the difference between what we have paid them and the amount they charged us from our members, which may result in member dissatisfaction. For example, in 2019, certain claimant hospitals were awarded approximately $86 million in an arbitration proceeding relating to Aetna’s out-of-network benefit payment and administration practices. Such disputes may cause us to pay higher medical or other benefit costs than we projected. 66Table of ContentsContinuing consolidation and integration among providers and other suppliers may increase our medical and other covered benefits costs, make it difficult for us to compete in certain geographies and create new competitors.Hospitals, other health care providers and health systems continue to consolidate across the health care industry. While this consolidation could increase efficiency and has the potential to improve the delivery of health care services, it also reduces competition and the number of potential contracting parties in certain geographies. These health systems also are increasingly forming and considering forming health plans to directly offer health insurance in competition with us, a process that has been accelerated by the ACA. In addition, ACOs (including Commercial and Medicaid-only ACOs developed as a result of state Medicaid laws), practice management companies, consolidation among and by integrated health systems and other changes in the organizational structures that physicians, hospitals and other providers adopt continues to change the way these providers interact with us and the competitive landscape in which we operate. These changes may increase our medical and other covered benefits costs, may affect the way we price our products and services and estimate our medical and other covered benefits costs and may require us to change our operations, including by withdrawing from certain geographies where we do not have a significant presence across our businesses or are unable to collaborate or contract with providers on acceptable terms. Each of these changes may adversely affect our businesses and operating results.

FY 2024-12-31 (later)

Item 1A. Risk Factors. You should carefully consider each of the following risks and uncertainties and all of the other information set forth in this 10-K. These risks and uncertainties and other factors may affect forward-looking statements, including those we make in this 10-K or elsewhere, such as in news releases or investor or analyst calls, meetings or presentations, on our websites or through our social media channels. The risks and uncertainties described below are not the only ones we face. There can be no assurance that we have identified all the risks that affect us. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely affect our businesses. Any of these risks or uncertainties could cause our actual results to differ materially from our expectations and the expected results discussed in our forward-looking statements. You should not consider past results to be an indication of future performance.If any of the following risks or uncertainties develops into actual events or if the circumstances described in the risks or uncertainties occur or continue to occur, those events or circumstances could have a material adverse effect on our businesses, 35 operating results, cash flows, financial condition and/or stock price, among other effects on us. You should read the following section in conjunction with the MD&A, included in Item 7 of this 10-K, our consolidated financial statements and the related notes, included in Item 8 of this 10-K, and our “Cautionary Statement Concerning Forward-Looking Statements” in this 10-K.Summary The following is a summary of the principal risks we face that could negatively impact our businesses, operating results, cash flows and/or financial condition: Risks Relating to Our Businesses • We may not be able to accurately forecast health care and other benefit costs. • Adverse economic conditions in the U.S. and abroad can materially and adversely impact our businesses, operating results, cash flows and financial condition. • Each of our segments operates in a highly competitive and evolving business environment. • A change in our Health Care Benefits product mix may adversely affect our profit margins.• Our health care delivery businesses face unique risks• We can provide no assurance that we will be able to compete successfully and profitably on Public Exchanges. • Negative public perception of the industries in which we operate can adversely affect our businesses, operating results, cash flows and prospects. • We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services. • We face risks relating to the availability, pricing and safety profiles of prescription drugs that we purchase and sell. • The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable, and any reserve, including a premium deficiency reserve, may be insufficient. • We are exposed to risks relating to the solvency of other insurers. Risks From Changes in Public Policy and Other Legal and Regulatory Risks • We are subject to potential changes in public policy, laws and regulations, including reform of the U.S. health care system and entitlement programs. • If we fail to comply with applicable laws and regulations, or fail to change our operations in line with any new legal or regulatory requirements, we could be subject to significant adverse regulatory actions. • If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to contractual damages, regulatory actions and/or litigation. • We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. • We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.• Our risk profile is changing as we offer new products and services and expand in business areas beyond our historical businesses, and we may face increased regulatory risks related to our vertical integration strategy.• We face unique regulatory and other challenges in our PBM, Public Exchange, Medicare and Medicaid businesses. • Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues. • We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, MBRs and operating results, which could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes. • Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our operating results. • Our operating results may be adversely affected by changes in laws and policies governing employers and by union organizing activity.36Risks Associated with Mergers, Acquisitions, and Divestitures • We may be unable to successfully integrate companies we acquire.• We may pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, as well as strategic divestitures, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things.Risks Related to Our Operations• Failure to meet customer and investor expectations, including with respect to corporate responsibility and sustainability goals, may harm our brand and reputation, our ability to retain and grow our customer base and membership. • A cyberattack or other information security incident could significantly disrupt our operations. • Data governance failures or the failure or disruption of our information technology or infrastructure can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ personal information is subject to complex regulations.• Pursuing multiple information technology improvement initiatives simultaneously could make continued development and implementation significantly more challenging. • Product liability, product recall, professional liability or personal injury issues could damage our reputation. • We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success. • Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products. • Failure of our businesses to effectively collaborate could prevent us from maximizing our operating results. • We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and disrupt our business operations. • Both our and our vendors’ operations are subject to a variety of business continuity hazards and risks that could interrupt our operations or otherwise adversely affect our performance and operating results. Financial Risks • We would be adversely affected by downgrades or potential downgrades in our credit ratings, should they occur, or if we do not effectively deploy our capital. • Goodwill and other intangible assets could, in the future, become impaired. • Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative instruments and other investments. Risks Related to Our Relationships with Manufacturers, Providers, Suppliers and Vendors • We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs and other products that we purchase and sell. • We need to be able to maintain our ability to contract with providers on competitive terms and develop and maintain attractive networks with high quality providers. • If our suppliers or service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation and/or regulatory action. • We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members. • Continuing consolidation and integration among providers and other suppliers may increase our costs and increase competition.37Risks Relating to Our Businesses We may not be able to accurately forecast health care and other benefit costs, including as a result of pandemics or disease outbreaks, which could adversely affect our Health Care Benefits segment’s operating results. There can be no assurance that future health care and other benefits costs will not exceed our projections.Premiums for our Insured Health Care Benefits products, which comprised 94% of our Health Care Benefits segment revenues for 2024, are priced in advance based on our forecasts of health care and other benefit costs during a fixed premium period, which is generally twelve months. These forecasts are typically developed several months before the fixed premium period begins, are influenced by historical data (and recent historical data in particular), are dependent on our ability to anticipate and detect medical cost trends and changes in our members’ behavior and health care utilization patterns and medical claim submission patterns and require a significant degree of judgment. For example, our revenue on Individual Medicare policies is based on bids submitted in June of the year before the contract year. Cost increases in excess of our projections cannot be recovered in the fixed premium period through higher premiums. As a result, our profits are particularly sensitive to the accuracy of our forecasts of the increases in health care and other benefit costs that we expect to incur and our ability to anticipate and detect medical cost trends. During periods when health care and other benefit costs, utilization and/or medical costs trends experience significant volatility and medical claim submission patterns are changing rapidly, as they did during the COVID-19 pandemic, accurately detecting, forecasting, managing, reserving and pricing for our (and our self-insured customers’) medical cost trends and incurred and future health care and other benefits costs is more challenging. There can be no assurance regarding the accuracy of the health care or other benefit cost projections reflected in our pricing, and whether our health care and other benefit costs will be affected by pandemics, disease outbreaks and other external events over which we have no control. Even relatively small differences between predicted and actual health care and other benefit costs as a percentage of premium revenues can result in significant adverse changes in our Health Care Benefits segment’s operating results.While the public health emergency related to COVID-19 expired in May 2023, COVID-19 still exists and it may, like many other respiratory viruses, wax and wane depending on geography and seasonality. The future impact COVID-19 will have on the Company and its ability to accurately forecast health care and other benefit costs is uncertain, and will depend on geographies impacted, whether new variants emerge and their severity, the availability and costs of testing, vaccination and treatment, and legal and regulatory actions. COVID-19 may also impact provider behavior, utilization trends, membership, and overall economic conditions. These impacts could be adverse and material.A number of factors contribute to rising health care and other benefit costs, including previously uninsured members entering the health care system; Medicare members’ utilization of supplemental benefits; other changes in members’ behavior, health care utilization patterns and utilization management; turnover in our membership, health care provider and member fraud; additional government mandated benefits or other regulatory changes, including changes to or as a result of the ACA and IRA; changes in the health status of our members; the aging of the population and other changing demographic characteristics; advances in medical technology; increases in the number and cost of prescription drugs (including specialty pharmacy drugs and ultra-high cost drugs and therapies); direct-to-consumer marketing by drug manufacturers; the increasing influence of social media on our members’ health care utilization and other behaviors; the shift to a consumer-driven business model; changes in health care practices and general economic conditions (such as inflation and employment levels); increases in labor costs; pandemics, epidemics or disease outbreaks; influenza-related health care costs (which may be substantial and higher than we expected); clusters of high-cost cases; natural disasters and extreme weather events (which may increase in frequency or intensity as a result of climate change); and numerous other factors that are or may be beyond our control. For example, the length and severity of the influenza season can have an impact on health care and other benefit costs. In 2022-2023 influenza season had an earlier than average start, including as compared to the 2023-2024 influenza season; the 2020-2021 influenza season was impacted by efforts taken to reduce the spread of COVID-19; and the 2019-2020 influenza season maintained a high level of severity for a longer period of time than average. In addition, government-imposed limitations on Medicare and Medicaid reimbursements to health plans and providers have caused the private sector to bear a greater share of increasing health care and other benefits costs over time, and future amendments to the ACA that increase the uninsured population may amplify this issue.Our Health Care Benefits segment’s operating results and competitiveness depend in large part on our ability to appropriately manage future health care and other benefit costs through underwriting criteria, product design, provider network configuration, negotiation of favorable provider contracts and medical management programs. Our medical cost management programs may not be successful and may have a smaller impact on health care and benefit costs than we expect. The factors described above may adversely affect our ability to predict and manage health care and other benefit costs, which can adversely affect our competitiveness and operating results.38 Furthermore, if we are not able to accurately and promptly anticipate and detect medical cost trends or accurately estimate the cost of incurred but not yet reported claims or reported claims that have not been paid, our ability to take timely corrective actions to limit future health care costs and reflect our current benefit cost experience in our pricing process may be limited, which would further amplify the extent of any adverse impact on our operating results. These risks are particularly acute during periods when health care and other benefit costs, utilization and/or medical cost trends experience significant volatility and medical claim submission patterns are changing rapidly, as they did during the COVID-19 pandemic. Such risks are further magnified by the ACA and other existing and future legislation and regulations that limit our ability to price for our projected and/or experienced increases in utilization and/or medical cost trends. Adverse economic conditions in the U.S. and abroad can materially and adversely impact our businesses, operating results, cash flows and financial condition. Adverse economic conditions in the U.S. and abroad, including those caused by inflation, high interest rates, declines in consumer confidence, increases in unemployment and supply chain disruptions, all of which we have experienced over the last number of years, can materially and adversely impact our businesses, operating results, cash flows and financial condition, including: • In our Health Care Benefits segment, by causing unanticipated increases and volatility in utilization of covered services, increases in fraudulent claims and disputes, changes in medical claim submission patterns and/or increases in medical unit costs and/or provider behavior as hospitals and other providers attempt to maintain revenue levels in response to economic conditions, each of which would increase our costs and limit our ability to accurately detect, forecast, manage, reserve and price for our (and our self-insured customers’) medical cost trends and incurred and future health care and other benefits costs; causing customers and potential customers of our Health Care Benefits segment, particularly smaller employers and individuals, to forego obtaining or renewing their health and other coverage with us; and also affect our ability to profitably grow and diversify our Health Care Benefits membership.• In our Health Services segment, by causing drug utilization to decline, reducing demand for PBM services and adversely affecting the financial health of our PBM clients. • In our Pharmacy & Consumer Wellness segment, by causing drug utilization to decline, changing consumer purchasing power, preferences and/or spending patterns leading to reduced consumer demand for products sold in our stores, potentially increasing levels of theft at our retail locations and adversely affecting the financial health of our LTC pharmacy customers. • By causing our existing customers to reduce workforces (including due to business failures), which would reduce our revenues, the number of covered lives in our PBM clients and/or the number of members our Health Care Benefits segment serves. Reductions in workforce by our customers can also cause unanticipated increases in the health care and other benefits costs of our Health Care Benefits segment. For example, our business associated with members who have elected to receive benefits under Consolidated Omnibus Budget Reconciliation Act (known as “COBRA”) typically has an MBR that is significantly higher than our overall Commercial MBR.• By affecting the ability of our customers to obtain adequate financing, which could result in an inability of our customers to pay timely, or at all, the amounts owed to us. • By causing both state and federal government payers, as a result of budget deficits or spending reductions, to suspend or seek to reduce their health care expenditures resulting in our customers delaying payments to us or renegotiating their contracts with us.• By causing our clients and customers and potential clients and customers, particularly those with the most employees or members, and state and local governments, to force us to compete more vigorously on factors such as price and service, including service, discount and other performance guarantees, to retain or obtain their business.• By causing members and other consumers to decide to postpone, or not to seek, medical treatment which may lead them to incur more expensive medical treatment in the future and/or decrease our prescription volumes. • By causing an increasing in the prevalence of high deductible health plans and health plan designs favoring co-insurance over co-payments.• By weakening the ability or perceived ability of the issuers and/or guarantors of the debt or other securities we hold in our investment portfolio to perform on their obligations to us, which could result in defaults in those securities and has reduced, and may further reduce, the value of those securities and has created, and may continue to create, net realized capital losses for us that reduce our operating results.• By causing customers, including self-insured customers in our Health Care Benefits segment, medical members, medical providers and the other companies to be unable to perform their obligations to us which could reduce our operating results. 39 • By affecting our ability to obtain necessary financing on acceptable terms, our ability to secure suitable store locations under acceptable terms and our ability to execute sale-leaseback transactions under acceptable terms.• By weakening the ability of our former subsidiaries and/or their purchasers to satisfy their lease obligations that we have guaranteed and causing the Company to be required to satisfy those obligations. • By weakening the financial condition of other insurers, including long-term care insurers and life insurers, which increases the risk that we will receive significant assessments for obligations of insolvent insurers to policyholders and claimants. • By continuing to cause inflation that could cause interest rates to further increase and thereby further increase our interest expense and reduce our operating results, as well as further decrease the value of the debt securities we hold in our investment portfolio, which would further reduce our operating results and/or adversely affect our financial condition.Each of our segments operates in a highly competitive and evolving business environment; and operating income in the industries in which we compete may decline. Each of our segments, Health Care Benefits, Health Services, which includes our PBM business, and Pharmacy & Consumer Wellness, operates in a highly competitive and evolving business environment. Specifically: • As competition increases in the geographies in which we operate, including competition from new entrants, a significant increase in price compression and/or reimbursement pressures could occur, and this could require us to reevaluate our pricing structures to remain competitive.• In our Health Care Benefits segment, we must often bid against our competitors in a highly competitive environment to acquire and retain our government customers’ business. Winning bids for Medicaid and dual eligible programs often are challenged successfully by unsuccessful bidders, and may also be withdrawn or cancelled by the issuing agency. CMS has proposed requiring that health plans offering certain dual eligible programs must also offer Medicaid programs, which has resulted in the Company refraining from bidding in certain jurisdictions and could further impact the Company’s ability to obtain or retain membership in its dual eligible programs. • In our Health Care Benefits segment, our customers have considerable flexibility in moving between us and our competitors. We may lose members to competitors with more favorable pricing, or our customers may purchase different types of products from us that are less profitable, adversely affecting our revenues and operating results. In addition, our Medicare, Medicare Advantage, Medicaid and CHIP products may be subject to termination without cause, periodic re-bid, rate adjustment and program redesign, as customers seek to contain their benefit costs, particularly in an uncertain economy. These actions may adversely affect our membership, revenues and operating results. • We requested increases in our premium rates in our Commercial Health Care Benefits business for 2025 and expect to request future increases in those rates in order to adequately price for projected medical cost trends, required expansions of coverage and rating limits, and significant assessments, fees and taxes imposed by federal and state governments, including as a result of the ACA. Our rates also must be adequate to reflect the risk that our products will be selected by people with a higher risk profile or utilization rate than the pool of participants we anticipated when we established pricing for the applicable products (also known as “adverse selection”), particularly in small group Commercial products. These rate increases may be significant and thus heighten the risks of adverse publicity, adverse regulatory action and adverse selection and the likelihood that our requested premium rate increases will be denied, reduced or delayed, which could lead to operating margin compression.• The competitive success of our Health Services segment is dependent on our ability to establish and maintain contractual relationships with network pharmacies. • The competitive success of our Pharmacy & Consumer Wellness segment and our specialty pharmacy operations is dependent on our ability to establish and maintain contractual relationships with PBMs and other payors on acceptable terms as the payors’ clients evaluate adopting narrow or restricted retail pharmacy networks. • In our PBM business, we maintain contractual relationships with brand name drug manufacturers that provide for purchase discounts and/or rebates on drugs dispensed by pharmacies in our retail network and by our specialty and mail order pharmacies (all or a portion of which may be passed on to clients). Manufacturer’s rebates often depend on a PBM’s ability to meet contractual requirements, including the placement of a manufacturer’s products on the PBM’s formularies. If we lose our relationship with one or more drug manufacturers, or if the discounts or rebates provided by drug manufacturers decline, our operating results, cash flows and/or prospects could be adversely affected. • If laws or regulations are promulgated that limit the number of PBMs available in a particular business or geography, competition in those businesses and geographies could be amplified and could adversely affect our revenues and operating results.40• The PBM industry has been experiencing price compression as a result of competitive pressures and increased client demands for lower prices; increased revenue sharing, including sharing in a larger portion of payments, including rebates and fees, to PBMs and group purchasing organizations received from drug manufacturers; enhanced service offerings and/or higher service levels. Marketplace dynamics and regulatory changes also have adversely affected our ability to offer plan sponsors pricing that includes the use of retail “differential” or “spread,” which could adversely affect our future profitability, and we expect these trends to continue. • Our retail pharmacy, specialty pharmacy and LTC pharmacy operations have been affected by reimbursement pressure caused by competition, including client demands for lower prices, generic drug pricing, earlier than expected generic drug introductions and network reimbursement pressure. If we are unable to increase our prices to reflect, or otherwise mitigate the impact of, increasing costs, our profitability will be adversely affected. If we are unable to limit our price increases, we may lose customers to competitors with more favorable pricing, adversely affecting our revenues and operating results.• A shift in the mix of our pharmacy prescription volume towards programs offering lower reimbursement rates as a result of competition or otherwise could adversely affect our margins, including the ongoing shift in pharmacy mix towards 90-day prescriptions at retail and the ongoing shift in pharmacy mix towards Medicare Part D prescriptions. • PBM client contracts often are for a period of approximately three years. However, PBM clients may require early or periodic re-negotiation of pricing prior to contract expiration. PBM clients are generally well informed, can move between us and our competitors and often seek competing bids prior to expiration of their contracts. We are therefore under pressure to contain price increases despite being faced with increasing drug costs and increasing operating costs. If we are unable to increase our prices to reflect, or otherwise mitigate the impact of, increasing costs, our profitability will be adversely affected. If we are unable to limit our price increases, we may lose customers to competitors with more favorable pricing, adversely affecting our revenues and operating results. • The operating results and margins of our LTC business are further affected by the increased efforts of health care payors to negotiate reduced or capitated pricing arrangements and by the financial health of, and purchases and sales of, our LTC customers. In addition, competitors in each of our businesses may offer services and pricing terms that we may not be willing or able to offer. Competition also may come from new entrants and other sources in the future. Unless we can demonstrate enhanced value to our clients through innovative product and service offerings in the rapidly changing health care industry, we may be unable to remain competitive.Disruptive innovation by existing or new competitors has altered, and is expected to continue to alter, the competitive landscape in the future and require us to accurately identify and assess such alterations and make timely and effective changes to our strategies and business model to compete effectively. For example, decisions to buy our Health Care Benefits and Health Services products and services increasingly are made or influenced by consumers, either through direct purchasing (e.g., Medicare Advantage plans and PDPs) or through Public Exchanges and private health insurance exchanges that allow individual choice. Consumers also are increasingly seeking to access consumer goods and health care products and services locally and through other direct channels such as mobile devices and websites. To compete effectively in the consumer-driven marketplace, we will be required to develop or acquire new capabilities, attract new talent and develop new service and distribution relationships that respond to consumer needs and preferences.Changes in marketplace dynamics or the actions of competitors or manufacturers, including industry consolidation, the emergence of new competitors and strategic alliances, and decisions to exclude us from new narrow or restricted retail pharmacy networks could materially and adversely affect our businesses, operating results, cash flows and/or prospects.Our Health Care Delivery Businesses Face Unique Risks. Our health care delivery businesses, which we expanded with acquisitions to include health risk assessments, value-based care and provider enablement services through our Signify Health business, and additional senior-focused value-based primary care services for Medicare eligible patients through our Oak Street Health business, face unique risks. Our Signify Health business faces risks which include, but are not limited to, the following:• ability to recruit, retain and grow its network of credentialed, high-quality physicians, physician assistants and nurse practitioners to provide clinical services in highly competitive markets for talent; • successful challenges to Signify Health’s treatment of health care providers as independent contractors, which could result in increased costs and subject the business to regulatory sanction;41• dependence on a concentrated number of key health plan customers; • the quality of the information received about plan members of such health plans for whom Signify Health will seek to provide in-home evaluations and other services, and the regulatory restrictions and requirements associated with directly contacting plan members; • ability to perform and ensure the quality of health risk assessments; • ability to achieve and receive shared health care cost savings;• the regulatory and business risks associated with participation in certain government health care programs, including, among others, the MSSP and ACO REACH models, and identification of diagnosis codes related to risk adjustment payments under Part C of the Medicare program; • health reform initiatives and changes in the rules governing government health care programs, including rules related to the use of in-home health risk assessments for the purpose of capturing individual risk use to calculate an individual’s risk adjustment factor or a change to how patient-level risk is determined for CMS programs; • participation in CMS Innovation Center models, such as ACO REACH, which are subject to changes annually, generally in ways meant to reduce available payments to participants, including benchmarks that can be changed after the end of the performance year, and which has an end date without a plan for ongoing participation in a model by those participating; • impacts of fraud or anomalous billing on shared savings in CMS Innovation Center models; • use of “open source” software in its technology, which may make it easier for others to gain access or compromise its proprietary technology; • success in large, national ACOs is dependent on the collective efforts and compliance of a wide range of participating clients, and for those clients to be able to meet new and changing requirements such as changes to interoperability and reporting requirements; and • challenges in rural and post-acute reimbursement due to their significant dependence on fee-for-service revenue. Our Oak Street Health business is subject to additional risks including, but not limited to, the following:• ability to attract new Medicare-eligible patients and credentialed, high-quality physicians and other providers for senior-focused primary care in a highly competitive market for such patients and providers; • satisfying the enrollment requirements under government health care programs for physicians and other providers in a timely manner; • dependence on a significant portion of revenue from Medicare or Medicare Advantage plans, which subjects Oak Street Health to reductions in Medicare reimbursement rates or changes in the rules governing the Medicare program; • dependence for a significant portion of revenue from agreements with a limited number of key payors with whom Oak Street Health contracts to provide services under terms that may permit a payor to amend the compensation arrangements or terminate the agreements without cause; • dependence on reimbursements from third-party payors, which can result in substantial delay, and on patients, through copayments and deductibles, which subjects Oak Street Health to additional reimbursement risk; • under the fixed fee (or capitated) agreements Oak Street Health enters into with health plans, the assumption of the risk that the actual cost of a service it provides to a patient exceeds the reimbursement provided by the health plan; • reductions in the quality ratings of Medicare health plans Oak Street Health serves could result in a shift of patients from, or the termination of, a health plan Oak Street Health serves; • submission of inaccurate, incomplete or erroneous data, including risk adjustment data, to health plans and government payors could result in inaccuracies in the revenue Oak Street Health records or receipt of overpayments, which may subject it to repayment obligations and penalties; • geographic concentration of its primary care centers; • risks associated with its existing legal proceedings and litigations;• laws regulating the corporate practice of medicine and the associated agreements entered into with physician practice groups restrict the manner in which the Oak Street Health business is able to direct the operations and otherwise exercise control of its physician practice groups • participation in CMS Innovation Center models, such as ACO REACH, which are subject to changes annually, generally in ways meant to reduce available payments to participants, including benchmarks that can be changed after the end of the performance year, and which has an end date without a plan for ongoing participation in a model by those participating; 42• changes in the legal treatment of its contractual arrangements with its physician practice groups could impact the ability to consolidate the revenue of these groups; and • ability to maintain and enhance its reputation and brand recognition.The additional risks faced by our health care delivery businesses may also compound, or be heightened by, many of our other risks, including the risks related to adverse economic conditions in the U.S. and abroad, cybersecurity, and compliance with applicable laws and regulations, among others.We can provide no assurance that we will be able to compete successfully on Public Exchanges or that our pricing or other actions will result in the profitability of our Public Exchange products.To compete effectively on Public Exchanges, we have developed or acquired the technology, systems, tools and talent necessary to interact with Public Exchanges and engage Public Exchange consumers through enhanced consumer-focused sales, marketing channels and customer interfaces. We are also creating new customer service programs and product offerings. To participate on the Public Exchanges, we have to respond to pricing and other actions taken by existing competitors and regulators as well as potentially disruptive new entrants, which could reduce our profit margins. Due to the price transparency provided by Public Exchanges, when we market products we face competitive pressures from existing and new competitors who may have lower cost structures. Our competitors may bring their Public Exchange and other consumer products to market more quickly, have greater experience marketing to consumers and/or may be targeting the higher margin portions of our business. We can provide no assurance that we will be able to compete successfully or profitably on Public Exchanges or that we will be able to benefit from any opportunities presented by Public Exchanges. In addition, there can be no assurance that our pricing or other actions will result in the profitability of our Public Exchange products in 2025 or any future year. We have set 2025 premium rates for our Public Exchange products based on our projections, including as to the health status and quantity of membership and utilization of medical and/or other covered services by members. The accuracy of the projections reflected in our pricing may be impacted by (i) adverse selection among individuals who require or utilize more expensive medical and/or other covered services, (ii) other plans’ withdrawals from participation in the Public Exchanges we serve, (iii) a rapid increase or decline in membership, and (iv) legislation, regulations, enforcement activity and/or judicial decisions that cause Public Exchanges to operate in a manner different than what we projected in setting our premium rates, including the potential expiration of premium subsidies and enhanced premium tax credits.A change in our Health Care Benefits product mix may adversely affect our profit margins.Our Insured Health Care Benefits products that involve greater potential risk generally tend to be more profitable than our ASC products, but ASC products continue to rise in popularity. We also serve, and expect to grow our business with, government-sponsored programs, including Medicare and Medicaid, that are subject to competitive bids and have lower profit margins than our Commercial Insured Health Care Benefits products. A continuing shift of enrollees from more profitable products to less profitable products could have a material adverse effect on the Health Care Benefits segment’s operating results.Negative public perception of the industries in which we operate, or of our industries’ or our practices, can adversely affect our businesses, operating results, cash flows and prospects.Our brand and reputation are two of our most important assets, and the industries in which we operate have been and are negatively perceived by the public from time to time. Negative publicity may come as a result of adverse media coverage, litigation against us and other industry participants, the ongoing public debates over drug pricing, PBMs, government involvement in drug pricing and purchasing, changes to the ACA, governmental hearings and/or investigations, actual or perceived shortfalls regarding our industries’ or our own products, including Medicare Advantage plans in general, and/or business practices (including PBM operations, drug pricing and insurance coverage determinations) and social media and other media relations activities. Negative publicity also may come from a failure to meet customer expectations for consistent, high quality and accessible care. This risk may increase as we continue to offer products and services that make greater use of data and as our business model becomes more focused on delivering health care to consumers.Negative public perception and/or publicity of our industries in general, or of us or our key vendors, brokers or product distribution networks in particular, can further increase our costs of doing business and adversely affect our operating results and our stock price by: • adversely affecting our brand and reputation;43• adversely affecting our ability to market and sell our products and/or services and/or retain our existing customers and members; • requiring us to change our products and/or services; • reducing or restricting the revenue we can receive for our products and/or services; and/or • increasing or significantly changing the regulatory and legislative requirements with which we must comply. We must maintain and improve our relationships with our retail and specialty pharmacy customers and increase the demand for our products and services, including proprietary brands.The success of our businesses depends in part on customer loyalty, superior customer service and our ability to persuade customers to frequent our retail stores and online sites and to purchase products in additional categories and our proprietary brands. Failure to timely identify or effectively respond to changing consumer preferences, spending patterns and evolving demographic mixes in the communities we serve, including shifts toward online shopping, or failure to maintain desirable selections of merchandise, store environments or guests experiences could adversely affect our relationship with our customers and clients and the demand for our products and services and could result in excess inventories of products. We offer our retail customers proprietary brand products that are available exclusively at our retail stores and through our online retail sites. The sale of proprietary products subjects us to unique risks including potential product liability risks, mandatory or voluntary product recalls, potential supply chain and distribution chain disruptions for raw materials and finished products, our ability to successfully protect our intellectual property rights and the rights of applicable third parties, and other risks generally encountered by entities that source, market and sell private-label products. We also face similar risks for the other products we sell in our retail operations, including supply chain and distribution chain disruption risk. Any failure to adequately address some or all of these risks could have an adverse effect on our retail business, operating results, cash flows and/or financial condition. Additionally, an increase in the sales of our proprietary brands may adversely affect our sales of products owned by our suppliers and adversely impact certain of our supplier relationships. Our ability to locate qualified, economically stable suppliers who satisfy our requirements, and to acquire sufficient products in a timely and effective manner, is critical to ensuring, among other things, that customer confidence is not diminished. Any failure to develop sourcing relationships with a broad and deep supplier base could adversely affect our operating results and erode customer loyalty. We also could be adversely affected if we fail to identify or effectively respond to changes in marketplace dynamics. For example, specialty pharmacy represents a significant and growing proportion of prescription drug spending in the U.S., a significant portion of which is dispensed outside of traditional retail pharmacies. Because our specialty pharmacy business focuses on complex and high-cost medications, many of which are made available by manufacturers to a limited number of pharmacies (so-called limited distribution drugs) that serve a relatively limited universe of patients, the future growth of our specialty pharmacy business depends largely upon expanding our access to key drugs and penetration in certain treatment categories. Any contraction of our base of patients or reduction in demand for the prescriptions we currently dispense could have an adverse effect on our specialty pharmacy business, operating results and cash flows. We face risks relating to the availability, pricing and safety profiles of prescription drugs that we purchase and sell. The profitability of our Pharmacy & Consumer Wellness and Health Services segments is dependent upon the utilization of prescription drug products. We dispense significant volumes of brand name and generic drugs from our retail, LTC, specialty and mail order pharmacies, and the retail pharmacies in our PBM’s network also dispense significant volumes of brand name and generic drugs. Our revenues, operating results and cash flows may decline if physicians cease writing prescriptions for drugs or the utilization of drugs is reduced, including due to: • increased safety risk profiles or regulatory restrictions; • manufacturing or other supply issues; • a reduction in drug manufacturers’ participation in federal programs; • certain products being withdrawn by their manufacturers or transitioned to over-the-counter products; • future FDA rulings restricting the supply or increasing the cost of products; • the introduction of new and successful prescription drugs or lower-priced generic alternatives to existing brand name products; or • inflation in the price of drugs.44In addition, increased utilization of generic drugs (which normally yield a higher gross profit rate than equivalent brand name drugs) has resulted in pressure to decrease reimbursement payments to retail, mail order, specialty and LTC pharmacies for generic drugs, causing a reduction in our margins on sales of generic drugs. Consolidation within the generic drug manufacturing industry and other external factors may enhance the ability of manufacturers to sustain or increase pricing of generic drugs and diminish our ability to negotiate reduced generic drug acquisition costs. Any inability to offset increased brand name or generic prescription drug acquisition costs or to modify our activities to lessen the financial impact of such increased costs could have a significant adverse effect on our operating results.The reserves we hold for expected claims in our Insured Health Care Benefits products are based on estimates that involve an extensive degree of judgment and are inherently variable. Any reserve, including a premium deficiency reserve, may be insufficient. If actual claims exceed our estimates, our operating results could be materially adversely affected, and our ability to take timely corrective actions to limit future costs may be limited.A large portion of health care claims are not submitted to us until after the end of the quarter in which services are rendered by providers to our members. Our reported health care costs payable for any particular period reflect our estimates of the ultimate cost of such claims as well as claims that have been reported to us but not yet paid. We also must estimate the amount of rebates payable under the MLR rules of the ACA, CMS and the OPM and the amounts payable by us to, and receivable by us from, the U.S. federal government under the ACA’s remaining premium stabilization program.Our estimates of health care costs payable are based on a number of factors, including those derived from historical claim experience, but this estimation process also makes use of extensive judgment. Considerable variability is inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in medical claims submission and processing patterns and/or procedures, turnover and other changes in membership, changes in product mix, changes in the utilization of medical and/or other covered services, including prescription drugs, changes in medical cost trends, changes in our medical management practices and the introduction of new benefits and products. We estimate health care costs payable periodically, and any resulting adjustments, including premium deficiency reserves, are reflected in current-period operating results within health care costs. For example, during the third quarter of 2024, we recorded premium deficiency reserves of approximately $1.1 billion related to our Medicare, individual exchange and Medicaid product lines within the Health Care Benefits segment, primarily related to anticipated losses for the 2024 coverage year. The Company did not have any premium deficiency reserves as of December 31, 2024. The Company did not establish any premium deficiency reserves during 2023 or 2022. A worsening (or improvement) of health care cost trend rates or changes in claim payment patterns from those that we assumed in estimating health care costs payable as of December 31, 2024 would cause these estimates to change in the near term, and such a change could be material.Furthermore, if we are not able to accurately and promptly anticipate and detect medical cost trends or accurately estimate the cost of incurred but not yet reported claims or reported claims that have not been paid, our ability to take timely corrective actions to limit future health care costs and reflect our current benefit cost experience in our pricing process may be limited, which would further exacerbate the extent of any adverse impact on our operating results. These risks are particularly acute during and following periods when utilization of medical and/or other covered services and/or medical cost trends are below recent historical levels and in products where there is significant turnover in our membership each year, and such risks are further magnified by the ACA and other legislation and regulations that limit our ability to price for our projected and/or experienced increases in utilization and/or medical cost trends.We are exposed to risks relating to the solvency of other insurers. We are subject to assessments under guaranty fund laws existing in all states for obligations of insolvent insurance companies (including long-term care insurers), HMOs, ACA co-ops and other payors to policyholders and claimants. For example, in the first quarter of 2017, Aetna recorded a discounted estimated liability expense of $231 million pretax for our estimated share of future assessments for long-term care insurer Penn Treaty Network America Insurance Company and one of its subsidiaries. Guaranty funds are maintained by state insurance commissioners to protect policyholders and claimants in the event that an insurer, HMO, ACA co-op and/or other payor becomes insolvent or is unable to meet its financial obligations. These funds are usually financed by assessments against insurers regulated by a state. Future assessments may have an adverse effect on our operating results and cash flows. Extreme events, or the threat of extreme events, could materially impact our businesses.The occurrence of natural disasters or extreme weather events, such as hurricanes, tropical storms, floods, wildfires, earthquakes, tsunamis, cyclones, typhoons, extended winter storms, droughts and tornadoes; epidemics, pandemics or disease 45 outbreaks and other extreme events and man-made disasters, such as nuclear or biological attacks or other acts of violence, such as active shooter situations, whether as a result of war or terrorism or otherwise, can have a material adverse effect on the U.S. economy in general, our industries and us specifically. In particular, the long-term effects of climate change are expected to be widespread and unpredictable. The physical effects of climate change, such as an increase in the frequency or intensity of extreme weather events described above and rising sea levels, could adversely affect our operations, including by increasing our energy costs, disrupting our supply chain, negatively impacting our workforce, damaging our facilities and threatening the habitability of the locations in which we operate. Climate change also presents transition risks, including risks posed by regulatory and technology changes and the associated costs as the economy and our business transitions from reliance on carbon-based energy.Extreme events or the threat of extreme events could result in significant health care costs, including those associated with behavior health offerings, waiving certain medical requirements or assisting with replacement medications or transfer prescriptions, which could also be affected by the government’s actions and the responsiveness of public health agencies and other insurers. For example, during the COVID-19 pandemic, we waived various member cost sharing and prior authorization requirements and expanded support for our members. In addition, some of our employees and our vendors are concentrated in certain large, metropolitan areas which may be particularly exposed to these events. Such events could adversely affect our businesses, operations, operating results and cash flows, and, in the event of extreme circumstances, our financial condition or viability, particularly if our responses to such events are less adequate than those of our competitors.We may be unable to achieve our corporate responsibility and sustainability goals. We are dedicated to corporate social responsibility and sustainability and we established certain goals as part of our overall strategy. We face pressures from our colleagues, customers, stockholders and other stakeholders to meet our goals. Achievement of our goals is subject to risks and uncertainties, many of which are outside of our control, and it is possible that we may fail to achieve these goals or that our colleagues, customers, stockholders or other stakeholders may not be satisfied with the goals we set or our efforts to achieve them. These risks and uncertainties include, but are not limited to: our ability to set and execute on our operational strategies and achieve our goals within the currently projected costs and the expected timeframes; the availability and cost of technological advancements, renewable energy and other materials necessary to meet our goals and expectations; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to climate-related goals; labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third party contractors; the actions of competitors and competitive pressures; and an acquisition of or merger with another company that has not adopted similar goals or whose progress towards reaching its goals is not as advanced as ours. A failure to meet our goals could adversely affect public perception of our business, employee morale or customer or stockholder support. Further, an increasing percentage of colleagues, customers, stockholders and other stakeholders consider corporate social responsibility and sustainability factors in making employment, consumer health care and investment decisions. If we are unable to meet our goals, we may have difficulty retaining or attracting colleagues, investors, customers, or partners or competing effectively, which would negatively impact our brand and reputation, as well as our business, operating results, and financial condition. In addition, we could face increased regulatory, reputational and legal scrutiny as a result of our corporate social responsibility and sustainability related commitments and disclosures, and we could also face challenges with managing conflicting regulatory requirements and our various stakeholders’ expectations.Risks From Changes in Public Policy and Other Legal and Regulatory Risks We are subject to potential changes in public policy, laws and regulations, including reform of the U.S. health care system and entitlement programs, which could have a material adverse effect on our businesses, operations and/or operating results.The political environment in which we operate remains uncertain. It is reasonably possible that our business operations and operating results could be materially adversely affected by legislative, enforcement, regulatory and public policy changes at the federal or state level, including, but not limited to: changes to the regulatory environment for health care and related benefits, including Medicare, Medicare Advantage, the ACA, and related Public Exchange regulations; efforts to amend the ACA and related regulations, including through litigation aimed at challenging the ability to enforce portions of the ACA, such as the preventative services mandate; changes to laws or regulations governing drug reimbursement, pricing, purchasing and/or importation; changes to or adoption of laws or regulations governing PBMs, including those related to network restrictions, 46 formulary management, affiliate reimbursement, contractual guarantees and reconciliations, reimbursement mandates, required reporting, compensation, purchase discount and/or rebate arrangements with drug manufacturers and/or other PBM services; changes to the laws and regulations governing PBMs’, PDPs’ and/or Managed Medicaid organizations’ interactions with government funded health care programs; changes to or adoption of laws and/or regulations relating to claims processing and billing; changes to immigration policies; changes to patent laws; changes with respect to tax and trade policies, tariffs and other government regulations affecting trade between the U.S. and other countries; and other public policy initiatives.Our businesses, profitability and growth also may be adversely affected by (i) judicial and regulatory decisions that change and/or expand the interpretations of existing statutes and regulations, expand fiduciary obligations, impose medical or bad faith liability, increase our responsibilities under ERISA or the remedies available under ERISA, or reduce the scope of ERISA and Medicare Part D preemption of state law claims or (ii) other legislation and regulations. For example, laws in Arkansas, North Dakota and Oklahoma have attempted to limit PBM practices and have been subject to recent lawsuits. Additional litigation has been filed in several states to challenge ERISA and Medicare Part D preemption.It is not possible to predict the enactment or content of new legislation or regulations or changes to existing laws or regulations or their enforcement, interpretation or application, or the form they will take (for example, through the use of U.S. Presidential Executive Orders or executive orders by governors or key regulators). If we fail to respond adequately to such changes, including by implementing strategic and operational initiatives, or do not respond as effectively as our competitors, our businesses, operations and operating results may be materially adversely affected. Even if we could predict such matters, it may not be possible to eliminate the adverse impact of public policy changes that would fundamentally change the dynamics of one or more industries in which we compete. Examples of such changes include, but are not limited to: the federal or one or more state governments fundamentally restructuring or reducing the funding available for government programs, increasing its involvement in drug reimbursement, pricing, purchasing and/or importation, changing the laws and regulations governing PBMs’, PDPs’ and/or Managed Medicaid organizations’ interactions with government funded health care programs, changing the tax treatment of health or related benefits, including the expiration of enhanced premium tax credits, or significantly altering the ACA. The likelihood of adverse changes remains high due to state and federal budgetary pressures, and our businesses and operating results could be materially and adversely affected by such changes, even if we correctly predict their occurrence. There is also uncertainty surrounding potential changes to the health care regulatory environment in the U.S. For example, potential efforts to reform federal government processes and reduce expenditures as well as pressures on and uncertainty surrounding the U.S. federal government’s budget and potential changes in budgetary priorities could adversely affect the funding for individual programs, including government programs, upon which our business depends. Executive orders covering health care and other subjects including immigration, AI, energy and the federal work force as well as the work force of public and private companies, if implemented through agency action, may also impact the Company. Potential regulatory changes related to tax, trade, economic and monetary policy and heightened diplomatic tensions or political and civil unrest, among other potential changes, could adversely impact the global economy and our operating results.For more information on these matters, see “Government Regulation” included in Item 1 of this 10-K. If we fail to comply with applicable laws and regulations, many of which are highly complex, we could be subject to significant adverse regulatory actions, including monetary penalties, or suffer brand and reputational harm. Our businesses are subject to extensive regulation and oversight by state, federal and international governmental authorities. The laws and regulations governing our operations and interpretations of those laws and regulations, including those related to human capital and climate change, are increasing in number and complexity, change frequently and can be inconsistent or conflict with one another. In general, these laws and regulations are designed to benefit and protect customers, members and providers rather than us or our investors. In addition, the governmental authorities that regulate our businesses have broad latitude to make, interpret and enforce the laws and regulations that govern us and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year. We also must follow various restrictions on certain of our businesses and the payment of dividends by certain of our subsidiaries put in place by certain state regulators. Certain of our Health Services and Pharmacy & Consumer Wellness operations, products and services are subject to: • the clinical quality, patient safety and other risks inherent in the dispensing, packaging and distribution of drugs and other health care products and services, including claims related to purported dispensing and other operational errors (any failure by our Health Services and/or Pharmacy & Consumer Wellness operations to adhere to the laws and regulations applicable to the dispensing of drugs could subject us to civil and criminal penalties);47• federal and state anti-kickback and other laws that govern our relationship with drug manufacturers, customers and consumers; • compliance requirements under ERISA, including fiduciary obligations in connection with the development and implementation of items such as drug formularies and preferred drug listings; and • federal and state legislative proposals and/or regulatory activity that could adversely affect pharmacy benefit industry practices. Our Health Care Benefits products are highly regulated, particularly those that serve Public Exchange, Medicare, Medicaid, dual eligible, dual eligible special needs and small group Commercial customers and members. The laws and regulations governing participation in the Public Exchanges, Medicare Advantage (including dual eligible special needs plans), Medicare Part D, Medicaid, and Managed Medicaid plans are complex, are subject to interpretation and can expose us to penalties for non-compliance.The scope of the practices and activities that are prohibited by federal and state false claims acts is the subject of pending litigation. Claims under federal and state false claims acts can be brought by the government or by private individuals on behalf of the government through a qui tam or “whistleblower” suit, and we are a defendant in a number of such proceedings. If we are convicted of fraud or other criminal conduct in the performance of a government program or if there is an adverse decision against us under the False Claims Act, we may be temporarily or permanently suspended from participating in government health care programs, including Public Exchange, Medicare Advantage, Medicare Part D, Medicaid, dual eligible and dual eligible special needs plan programs, and we also may be required to pay significant fines and/or other monetary penalties. Whistleblower suits have resulted in significant settlements between governmental agencies and health care companies. The significant incentives and protections provided to whistleblowers under applicable law increase the risk of whistleblower suits.If we fail to comply with laws and regulations that apply to government programs, we could be subject to criminal fines, civil penalties, premium refunds, prohibitions on marketing or active or passive enrollment of members, corrective actions, termination of our contracts or other sanctions, which could have a material adverse effect on our ability to participate in Public Exchange, Medicare Advantage, Medicare Part D, Medicaid, dual eligible, and dual eligible special needs plans and other programs, our brand and reputation, and our operating results, cash flows and financial condition. For more information on these matters, see “Government Regulation” included in Item 1 of this 10-K. If our compliance or other systems and processes fail or are deemed inadequate, we may suffer brand and reputational harm and become subject to contractual damages, regulatory actions and/or litigation. In addition to being subject to extensive and complex laws and regulations, many of our contracts with customers include detailed requirements. In order to be eligible to offer certain products or bid on certain contracts, we must demonstrate that we have robust systems and processes in place that are designed to maintain compliance with all applicable legal, regulatory and contractual requirements. These systems and processes frequently are reviewed and audited by our customers and regulators. If our systems and processes designed to maintain compliance with applicable legal and contractual requirements, and to prevent and detect instances of, or the potential for, non-compliance fail or are deemed inadequate, we may suffer brand and reputational harm and be subject to contractual damages, regulatory actions, litigation and other proceedings which may result in damages, fines, suspension or loss of licensure, suspension or exclusion from participation in government programs and/or other penalties, any of which could adversely affect our businesses, operating results, cash flows and/or financial condition. We routinely are subject to litigation and other adverse legal proceedings, including class actions and qui tam actions. Many of these proceedings seek substantial damages which may not be covered by insurance. These proceedings are costly to defend, may result in changes in our business practices, harm our brand and reputation and adversely affect our businesses and operating results.Our businesses are part of highly regulated industries whose participants frequently are subject to litigation and other adverse legal proceedings. We are currently subject to various litigation and arbitration matters, investigations, regulatory audits, inspections, government inquiries, and regulatory and other legal proceedings, both within and outside the U.S. Litigation is increasing as we execute our vertical integration strategy and expand our services along the continuum of health care. In addition, disputes over contracts could lead to litigation or pre-litigation settlements that could materially adversely affect our businesses, operating results and/or cash flows. Litigation, and particularly securities, derivative, collective or class action and qui tam litigation, is often expensive and disruptive. Many of the legal proceedings against us seek substantial damages (including non-economic or punitive damages 48 and treble damages), and certain of these proceedings also seek changes in our business practices. While we currently have insurance coverage for some potential liabilities, other potential liabilities may not be covered by insurance, insurers may dispute coverage, and the amount of our insurance may not be enough to cover the damages awarded or costs incurred. In addition, some types of damages, like punitive damages, may not be covered by insurance, and in some jurisdictions the coverage of punitive damages is prohibited. Insurance coverage for all or some forms of liability also may become unavailable or prohibitively expensive in the future.The outcome of litigation and other adverse legal proceedings is always uncertain, and outcomes that are not justifiable by the evidence or existing law or regulation can and do occur, and the costs incurred frequently are substantial regardless of the outcome. In addition, litigation and other adverse legal proceedings outside the U.S. may be subject to greater uncertainty than within the U.S. Litigation and other adverse legal proceedings could materially adversely affect our businesses, operating results and/or cash flows because of brand and reputational harm to us, the cost of defending such proceedings, the cost of settlement or judgments against us, or the changes in our operations that could result from such proceedings. See Item 3 of this 10-K for additional information. We frequently are subject to regular and special governmental audits, investigations and reviews that could result in changes to our business practices and also could result in material refunds, fines, penalties, civil liabilities, criminal liabilities and other sanctions.As one of the largest national retail, mail order, specialty and LTC pharmacy, PBM and health care and related benefits providers, we frequently are subject to regular and special governmental market conduct and other audits, investigations and reviews by, and we receive subpoenas and other requests for information from, various federal and state agencies, regulatory authorities, Attorneys General, committees, subcommittees and members of the U.S. Congress and other state, federal and international governmental authorities. For example, we have received CIDs from, and provided documents and information to, the Civil Division of the DOJ in connection with a current investigation of our patient chart review processes in connection with risk adjustment data submissions under Parts C and D of the Medicare program. CMS and the OIG also are auditing the risk adjustment-related data of certain of our Medicare Advantage plans. We are also receiving an increasing number of audits related to our PBM network reconciliation processes, and audits related to our use of prior authorization, which could result in reputational risks and changes to policies that may limit our use of prior authorization. The results of any audit may be adverse to us.Federal and state governments have made investigating and prosecuting health care and other insurance fraud, waste and abuse a priority. Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of members, billing for unnecessary medical and/or other covered services, improper marketing, including by insurance brokers, and violations of patient privacy rights. The regulations and contractual requirements applicable to us and other industry participants are complex and subject to change, making it necessary for us to invest significant resources in complying with our regulatory and contractual requirements. Ongoing vigorous law enforcement and the highly technical regulatory scheme mean that our compliance efforts in this area will continue to require significant resources. In addition, our medical costs and the medical expenses of our Health Care Benefits ASC customers may be adversely affected if we do not prevent or detect fraudulent activity by providers and/or members. Regular and special governmental audits, investigations and reviews by federal, state and international regulators could result in changes to our business practices, and also could result in significant or material premium refunds, fines, penalties, civil liabilities, criminal liabilities or other sanctions, including suspension or exclusion from participation in government programs and suspension or loss of licensure. Any of these audits, investigations or reviews could have a material adverse effect on our businesses, operating results, cash flows and/or financial condition or result in significant liabilities and negative publicity for us. See “Legal and Regulatory Proceedings” in Note 18 ‘‘Commitments and Contingencies’’ included in Item 8 of this 10-K for additional information.Our risk profile is changing as we offer new products and services and expand in business areas beyond our historical businesses, and we may face increased regulatory risks related to our vertical integration strategy. Historically, we focused primarily on providing products and services within our Health Care Benefits and Pharmacy & Consumer Wellness segments, as well as pharmacy services within our Health Services segment. As a result of our vertical integration strategy and other innovation initiatives, we are expanding our presence in the health care space and plan to offer new products and services, including services provided by Oak Street Health and Signify Health businesses, which present a 49 different risk profile than the products and services that we historically have offered and increase our exposure to additional risks. Our vertical integration strategy may also lead to increased regulatory and public scrutiny as a result of consumer protection and quality of care concerns.We face unique regulatory and other challenges in our Medicare and Medicaid businesses.We face unique regulatory and other challenges that may inhibit the profitability of our Medicare and Medicaid businesses. • In April 2024, CMS issued its final notice detailing final 2025 Medicare Advantage payment rates. Based on CMS’ notice, Medicare Advantage rates resulted in an expected average increase in revenue for the Medicare Advantage industry of 3.70%, which includes a risk score trend increase of 3.86%. Risk scores vary among Medicare Advantage plans depending on the specific population served, so this increase does not represent an actual guaranteed payment increase. Without including the risk score trend increase, the 2025 rates result in an expected average decrease in revenue for the Medicare Advantage industry of 0.16%, though the rates may vary widely depending on the provider group and patient demographics. On January 10, 2025, CMS issued an advance notice detailing proposed 2026 Medicare Advantage payment rates. The 2026 Medicare Advantage rates, if finalized as proposed, will result in an expected average increase in revenue for the Medicare Advantage industry of 4.33%, which includes a risk score trend increase of 2.10%. Without including the risk score trend increase, the advance 2026 rates will result in an expected average increase in revenue for the Medicare Advantage industry of 2.23%, though the rates may vary widely depending on the provider group and patient demographics. CMS intends to publish the final 2026 rate announcement no later than April 7, 2025. The Company faces challenges from the impact of the increasing cost of medical care (including prescription medications), changes to methodologies for determining payments and CMS local and national coverage decisions that require the Company to pay for services and supplies that are not factored into the Company’s bids. We cannot predict how the rates will be finalized, future Medicare funding levels, the impact of future federal budget actions or ensure that such changes or actions will not have a material adverse effect on our Medicare operating results.• The organic expansion of our Medicare Advantage and Medicare Part D service area is subject to the ability of CMS to process our requests for service area expansions and our ability to build cost competitive provider networks in the expanded service areas that meet applicable network adequacy requirements. CMS’ decisions on our requests for service area expansions also may be affected adversely by compliance issues that arise each year in our Medicare operations. • CMS regularly audits our performance to determine our compliance with CMS’s regulations and our contracts with CMS and to assess the quality of the services we provide to our Medicare members, and state regulators are increasingly conducting audits to assess the quality of services we provide to our Medicaid members. As a result of these audits, we may be subject to significant or material retroactive adjustments to and/or withholding of certain premiums and fees, fines, criminal liability, civil monetary penalties, CMS- or state-imposed sanctions (including suspension or exclusion from participation in government programs) or other restrictions on our Medicare, Medicaid and other businesses, including suspension or loss of licensure.• “Star ratings” from CMS for our Medicare Advantage plans will continue to have a significant effect on our plans’ operating results. Only Medicare Advantage plans with a star rating of 4 or higher (out of 5) are eligible for a quality bonus in their basic premium rates. Based on the 2024 ratings, 88% of the Company’s Medicare Advantage members are in 2025 Medicare Advantage plans that are rated 4 stars or higher. CMS also gives PDPs star ratings that affect each PDP’s enrollment. The Company’s PDP plans were rated 3.5 stars for 2025. Medicare Advantage and PDP plans that are rated less than 3 stars for three consecutive years are subject to contract termination by CMS. CMS continues to change its rating system to make achieving and maintaining a four or higher star rating more difficult. If our star ratings fall or remain below four for a significant portion of our Medicare Advantage membership, or do not match the performance of our competitors, or the star rating quality bonuses are reduced or eliminated, our revenues, operating results and cash flows may be significantly adversely affected. In addition, due to uncertainties with CMS cut-points, no Medicare Advantage plan can guarantee their overall star ratings. There can be no assurances that the Company will be successful in maintaining or improving its star ratings in future years. • Payments we receive from CMS for our Medicare Advantage and Medicare Part D businesses also are subject to risk adjustment based on the health status of the individuals we enroll. Elements of that risk adjustment mechanism continue to be challenged by the DOJ, the OIG and CMS itself. For example, CMS made significant changes to the structure of the hierarchical condition category model in version 28, which may impact RAF scores for a larger percentage of Medicare Advantage beneficiaries and could result in changes to beneficiary RAF scores with or without a change in the patient’s health status. CMS continuously evaluates how and where risk adjustment is captured, which from time-to-time has included the capture of diagnosis codes in home visits. A legislative or regulatory change to the ability of Medicare Advantage plans to use home visits as a means to evaluate and diagnosis their members’ health conditions, or substantial changes in the risk adjustment mechanism, including those that result from the final Part C contract-level Risk Adjustment 50 Data Validation Audits (“RADV Audit Rule”) issued in January 2023 or other changes that may result from enforcement or audit actions, could: materially affect the amount of our Medicare reimbursement, require us to raise prices or reduce the benefits we offer to Medicare beneficiaries, impact the services provided by, or the financial performance of, Oak Street Health and Signify Health and potentially limit our (and the industry’s) participation in the Medicare program.• The RADV Audit Rule creates uncertainty for Medicare Advantage plans. The lack of detail provided with respect to how CMS will select contracts and claims to audit, the methodology CMS will use, and how it will extrapolate as part of the RADV Audit Rule may impact future Medicare Advantage bids and result in other implications. The RADV Audit Rule also permits extrapolation of OIG contract level audits for payment years 2018 forward. The RADV Audit Rule is subject to ongoing litigation and the outcome and future impacts are uncertain.• Medicare Part D has resulted in increased utilization of prescription medications and puts pressure on our pharmacy gross margin rates due to regulatory and competitive pressures. Further, as a result of the ACA and changes to the retiree drug subsidy rules, clients of our PBM business could decide to discontinue providing prescription drug benefits to their Medicare-eligible members. To the extent this phenomenon occurs, the adverse effects of increasing customer migration into Medicare Part D may outweigh the benefits we realize from growth of our Medicare Part D products. • Our Medicare Part D operating results and our ability to expand our Medicare Part D business could be adversely affected if: the cost and complexity of Medicare Part D exceed management’s expectations or prevent effective program implementation or administration; further changes to the regulations regarding how drug costs are reported for Medicare Part D (including changes related to the IRA) are implemented in a manner that adversely affects the profitability of our Medicare Part D business; changes to the regulations regarding how drug costs are reported for Medicare Part D are implemented in a manner that adversely affects the profitability of our Medicare Part D business; changes to the applicable regulations impact our ability to retain fees from third parties including network pharmacies; the government alters Medicare Part D program requirements or reduces funding because of the higher-than-anticipated cost to taxpayers of Medicare Part D or for other reasons; or reinsurance thresholds are reduced. • The IRA contains significant changes to the Part D program that began in 2023 and will continue to 2032 that shifts more of the claim liability to plans and away from the government, including a complete redesign of the Part D standard benefit effective in 2025.• We have experienced challenges in obtaining complete and accurate encounter data for our Medicaid products due to difficulties with providers and third-party vendors submitting claims in a timely fashion in the proper format, and with state agencies in coordinating such submissions. As states increase their reliance on encounter data, and some states mandate that certain amounts be included or excluded from encounter data, these difficulties could affect the Medicaid premium rates we receive and how Medicaid membership is assigned to us, which could have a material adverse effect on our Medicaid operating results and cash flows and/or our ability to bid for, and continue to participate in, certain Medicaid programs. • If we fail to report and correct errors discovered through our own auditing procedures or during a CMS audit or otherwise fail to comply with the applicable laws and regulations, we could be subject to fines, civil monetary penalties or other sanctions, including fines and penalties under the False Claims Act, which could have a material adverse effect on our ability to participate in Medicare Advantage, Medicare Part D or other government programs, and on our operating results, cash flows and financial condition.• The resumption of Medicaid eligibility redeterminations after being suspended during the COVID-19 pandemic has negatively impacted the number of members eligible for the Company’s Medicaid plans, which could impact our operating results and cash flows from the Medicaid business.• Certain of our Medicaid contracts require the submission of complete and correct encounter data. The accurate and timely reporting of encounter data is increasingly important to the success of our Medicaid programs because more states are using encounter data to determine compliance with performance standards and, in part, to set premium rates. We have expended and may continue to expend additional effort and incur significant additional costs to collect accurate, or to correct inaccurate or incomplete, encounter data and have been and could be exposed to premium withholding, operating sanctions and financial fines and penalties for noncompliance. • CMS has proposed requiring that health plans offering certain dual eligible programs must also offer Medicaid programs, which could further impact the Company’s ability to obtain or retain membership in its dual eligible programs. In addition, states are increasingly requiring companies to offer Medicaid within a state and conducting competitive bid processes to qualify to offer dual eligible products. Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues, and we expect that percentage to increase.51Programs funded in whole or in part by the U.S. federal government account for a significant portion of our revenues, and we expect that percentage to increase. As our government funded businesses grow, our exposure to changes in federal and state government policy with respect to and/or regulation of the various government funded programs in which we participate also increases. The laws and regulations governing participation in Public Exchange, Medicare Advantage (including dual eligible special needs plans), Medicare Part D, Medicaid, and Managed Medicaid plans are complex, are subject to interpretation and can expose us to penalties for non-compliance. Federal, state and local governments have the right to cancel or not to renew their contracts with us on short notice without cause or if funds are not available. Funding for these programs is dependent on many factors outside our control, including general economic conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and priorities.The U.S. federal government and our other government customers also may reduce funding for health care or other programs, cancel or decline to renew contracts with us, or make changes that adversely affect the number of persons eligible for certain programs, the services provided to enrollees in such programs, our premiums and our administrative and health care and other benefit costs, any of which could have a material adverse effect on our businesses, operating results and cash flows. When federal funding is delayed, suspended or curtailed, we continue to receive, and we remain liable for and are required to fund, claims from providers for providing services to beneficiaries of federally funded health benefits programs in which we participate. An extended federal government shutdown or a delay by Congress in raising the federal government’s debt ceiling also could lead to a delay, reduction, suspension or cancellation of federal government spending and a significant increase in interest rates that could, in turn, have a material adverse effect on the value of our investment portfolio, our ability to access the capital markets and our businesses, operating results, cash flows and liquidity. Possible changes in industry pricing benchmarks and drug pricing generally can adversely affect our PBM and Pharmacy & Consumer Wellness businesses.It is possible that the pharmaceutical industry, regulators, or federal policymakers may evaluate and/or develop an alternative pricing reference to replace AWP or WAC, which are the pricing references used for many of our PBM and LTC client contracts, drug purchase agreements, retail network contracts, specialty payor agreements and other contracts with third party payors in connection with the reimbursement of drug payments. In addition, many state Medicaid fee-for-service programs have established pharmacy network payments on the basis of Actual Acquisition Cost (“AAC”). The use of an AAC basis in fee for service Medicaid could have an impact on reimbursement practices in Health Care Benefits’ Commercial and other Government products. It is also possible that Congress may enact some limited form of price negotiation for Medicare. In addition, CMS also publishes the National Average Drug Acquisition Cost (“NADAC”) for certain drugs; NADAC pricing, which has exhibited recent volatility, is being adopted in an increasing number of states.Future changes to the use of AWP, WAC or to other published pricing benchmarks used to establish drug pricing, including changes in the basis for calculating reimbursement by federal and state health care programs and/or other payors, could impact the reimbursement we receive from Medicare and Medicaid programs, the reimbursement we receive from our PBM clients and other payors and/or our ability to negotiate rebates and/or discounts with drug manufacturers, wholesalers, PBMs and retail pharmacies. A failure or inability to fully offset any increased prices or costs or to modify our operations to mitigate the impact of such increases could have a material adverse effect on our operating results. Additionally, any future changes in drug prices could be significantly different than our projections. We cannot predict the effect of these possible changes on our businesses. We may not be able to obtain adequate premium rate increases in our Insured Health Care Benefits products, which would have an adverse effect on our revenues, MBRs and operating results and could magnify the adverse impact of increases in health care and other benefit costs and of ACA assessments, fees and taxes. Premium rates for our Insured Health Care Benefits products often must be filed with state insurance regulators and are subject to their approval, which creates risk for us in the current political and regulatory environment. The ACA generally requires a review by HHS in conjunction with state regulators of premium rate increases that exceed a federally specified threshold (or lower state-specific thresholds set by states determined by HHS to have adequate processes). Rate reviews can magnify the adverse impact on our operating margins, MBRs and operating results of increases in health care and other benefit costs, increased utilization of covered services, and ACA assessments, fees and taxes, by restricting our ability to reflect these increases and/or these assessments, fees and taxes in our pricing. Further, our ability to reflect ACA assessments, fees and taxes in our Medicare, Medicaid and CHIP premium rates is limited.52Since 2013, HHS has issued determinations to health plans that their premium rate increases were “unreasonable,” and we may experience challenges to appropriate premium rate increases in certain states. Regulators or legislatures in several states have implemented or are considering limits on premium rate increases, either by enforcing existing legal requirements more stringently or proposing different regulatory standards. Regulators or legislatures in several states also have conducted hearings on proposed premium rate increases, which can result, and in some instances have resulted, in substantial delays in implementing proposed rate increases even if they ultimately are approved. Our plans can be excluded from participating in small group Public Exchanges if they are deemed to have a history of “unreasonable” rate increases. Any significant rate increases we may request heighten the risks of adverse publicity, adverse regulatory action and adverse selection and the likelihood that our requested premium rate increases will be denied, reduced or delayed, which could lead to operating margin compression.We anticipate continued regulatory and legislative action to increase regulation of premium rates in our Insured Health Care Benefits products. We may not be able to obtain rates that are actuarially justified or that are sufficient to make our policies profitable in one or more product lines or geographies. If we are unable to obtain adequate premium rates and/or premium rate increases, it could materially and adversely affect our operating margins and MBRs and our ability to earn adequate returns on Insured Health Care Benefits products in one or more states or cause us to withdraw from certain geographies and/or products.Minimum MLR rebate requirements limit the level of margin we can earn in our Insured Health Care Benefits products while leaving us exposed to higher than expected medical costs. Challenges to our minimum MLR rebate methodology and/or reports could adversely affect our operating results.The ACA’s minimum MLR rebate requirements limit the level of margin we can earn in Health Care Benefits’ Commercial Insured business. CMS and state minimum MLR rebate regulations limit the level of margin we can earn in our Medicare Advantage and Medicaid Insured businesses. Certain portions of our Health Care Benefits Medicaid and FEHB program business also are subject to minimum MLR rebate requirements in addition to but separate from those imposed by the ACA. Minimum MLR rebate requirements leave us exposed to medical costs that are higher than those reflected in our pricing. The process supporting the management and determination of the amount of MLR rebates payable is complex and requires judgment, and the minimum MLR reporting requirements are detailed. CMS has also proposed, but not yet finalized, a definition of “prescription drug price concessions” for commercial MLR calculation purposes, which would make additional PBM information available to plans and the HHS, potentially further complicating the MLR calculation process. Federal and state auditors are challenging our Commercial Health Care Benefits business’ compliance with the ACA’s minimum MLR requirements as well as our FEHB plans’ compliance with OPM’s FEHB program-specific minimum MLR requirements. Our Medicare and Medicaid contracts also are subject to minimum MLR audits. If a Medicare Advantage or Medicare Part D contract pays minimum MLR rebates for three consecutive years, it will become ineligible to enroll new members. If a Medicare Advantage or Medicare Part D contract pays such rebates for five consecutive years, it will be terminated by CMS. Additional challenges to our methodology and/or reports relating to minimum MLR and related rebates by federal and state regulators and private litigants are reasonably possible. The outcome of these audits and additional challenges could adversely affect our operating results.Our operating results may be adversely affected by changes in laws and policies governing employers and by union organizing activity. Congress and certain state legislatures continue to consider and pass legislation that increases our costs of doing business, including increased minimum wages and requiring employers to provide paid sick leave or paid family leave. In addition, our employee-related operating costs may be increased by union organizing activity and it is possible that the National Labor Relations Board may adopt regulatory changes through re-making or case law that could facilitate union organizing. If we are unable to reflect these increased expenses in our pricing or otherwise modify our operations to mitigate the effects of such increases, our operating results will be adversely affected. We face international political, legal and compliance, operational, regulatory, economic and other risks that may be more significant than in our domestic operations.We are in the process of winding down our international insurance operations in 2025. However, our remaining international operations present political, legal, compliance, operational, regulatory, economic and other risks that we do not face or that are more significant than in our domestic operations. These risks vary widely by country and include varying regional and geopolitical business conditions and demands, government intervention and censorship, discriminatory regulation, climate change regulation, nationalization or expropriation of assets and pricing constraints. Our international operations need to meet country-specific legal requirements, including those related to licensing, data privacy, data storage and data protection. 53Our international operations increase our exposure to, and require us to devote significant management resources to implement controls and systems to comply with, the privacy and data protection laws of non-U.S. jurisdictions, such as the EU’s GDPR, and the anti-bribery, anti-corruption and anti-money laundering laws of the U.S. (including the FCPA) and the United Kingdom (including the UK Bribery Act) and similar laws in other jurisdictions. Implementing our compliance policies, internal controls and other systems may also require the investment of considerable management time and financial and other resources. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business, and significant brand and reputational harm. We must regularly reassess the size, capability and location of our global infrastructure and make appropriate changes, and must have effective change management processes and internal controls in place to address changes in our businesses and operations. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties, and the failure to do so could have a material adverse effect on our brand, reputation, businesses, operating results and/or financial condition.Our international operations require us to overcome logistical and other challenges based on differing languages, cultures, legal and regulatory schemes and time zones. Our international operations encounter labor laws, standards and customs that can be difficult and make employee relationships less flexible than in our domestic operations and expensive to modify or terminate. In some countries we are required to, or choose to, operate with local business associates, which requires us to manage our relationships with these third parties and may reduce our operational flexibility and ability to quickly respond to business challenges. In some countries we may be exposed to currency exchange controls or other restrictions that prevent us from transferring funds internationally or converting local currencies into U.S. dollars or other currencies. Fluctuations in foreign currency exchange rates may adversely affect our revenues, operating results and cash flows from our international operations. Some of our operations are, and are increasingly likely to be, in emerging markets where these risks are heightened. Any measures we may implement to reduce the effect of volatile currencies and other risks on our international operations may not be effective. Risks Associated with Mergers, Acquisitions, and Divestitures We may be unable to successfully integrate companies we acquire.Upon the closing of any acquisition, we need to successfully integrate the products, services and related assets, as well as internal controls into our business operations. If an acquisition is consummated, the integration of the acquired business, its products, services and related assets into our company also may be complex, expensive, and time-consuming and, if the integration is not fully successful, we may not achieve the anticipated benefits, operating and cost synergies and/or growth opportunities of an acquisition. Potential difficulties that may be encountered in the integration process include the following:• Integrating personnel, operations and systems (including internal control environments and compliance policies), while maintaining focus on producing and delivering consistent, high quality products and services; • Coordinating geographically dispersed organizations; • Distracting management’s attention from our ongoing business operations; • Retaining existing customers and attracting new customers; • Managing inefficiencies associated with integrating our operations; and • Reconciling post-acquisition costs and liabilities between buyer and seller.An inability to realize the full extent of the anticipated benefits, operating and cost synergies, innovations and operations efficiencies or growth opportunities of an acquisition, as well as any delays or additional expenses encountered in the integration process, could have a material adverse effect on our businesses and operating results. Furthermore, acquisitions, even if successfully integrated, may fail to further our business strategy as anticipated, expose us to increased competition or challenges with respect to our products, services or service areas, and expose us to additional liabilities associated with an acquired business including risks and liabilities associated with litigation involving the acquired business. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisitions after we have expended resources on them. We may pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, as well as strategic divestitures, which may be unsuccessful, cause us to assume unanticipated liabilities, disrupt our existing businesses, be dilutive or lead us to assume significant debt, among other things. 54 We may pursue acquisitions, joint ventures, strategic alliances and other inorganic growth opportunities, as well as strategic divestitures, as part of our business strategy. In addition to the integration risks noted above, some other risks we may face with respect to acquisitions and other inorganic growth strategies include:• we may not be able to obtain the required regulatory approval for an acquisition in a timely manner, if at all; • we frequently compete with other firms, some of which may have greater financial and other resources and a greater tolerance for risk, to acquire attractive companies; • the acquired, alliance and/or joint venture businesses may not perform as projected;• the goodwill or other intangible assets established as a result of our acquisitions may be incorrectly valued or may become impaired; • we may assume unanticipated liabilities, including those that were not disclosed to us or which we underestimated; • the acquired businesses, or the pursuit of other inorganic growth strategies, could disrupt or compete with our existing businesses, distract management, result in the loss of key employees, business partners, suppliers and customers, divert resources, result in tax costs or inefficiencies and make it difficult to maintain our current business standards, controls, information technology systems, policies, procedures and performance; • we may finance future acquisitions and other inorganic growth strategies by issuing common stock for some or all of the purchase price, which would dilute the ownership interests of our stockholders; • we may incur significant debt in connection with acquisitions (whether to finance acquisitions or by assuming debt from the businesses we acquire); • a proposed or pending transaction may have a negative effect on the Company’s credit ratings; • we may not have the expertise to manage and profitably grow the businesses we acquire, and we may need to rely on the retention of key personnel and other suppliers of businesses we acquire, which may be difficult or impossible to accomplish; • we may enter into merger or purchase agreements but, due to reasons within or outside our control, fail to complete the related transactions, which could result in termination fees or other penalties that could be material, cause material disruptions to our businesses and operations and adversely affect our brand, reputation, or stock price; • in order to complete an acquisition, we may be required to divest certain portions of our business, for which we may not be able to obtain favorable pricing; • we may be involved in litigation related to mergers or acquisitions, including for matters that occurred prior to the applicable closing, which may be costly to defend and may result in adverse rulings against us that could be material; • announcements related to an acquisition could have an adverse effect on the market price of the Company’s common stock and other securities; and • the integration into our businesses of the businesses and entities we acquire may affect the way in which existing laws and regulations apply to us, including subjecting us to laws and regulations that did not previously apply to us. Similarly, we may also seek to divest assets that no longer fit into our long-term strategic plan. Such divestitures may take time and, even if such divestitures can be completed, the terms of such divestitures will be subject to market conditions, financing availability and other considerations of potential buyers, and they may have negative short-term financial impacts on us. In addition, joint ventures present risks that are different from acquisitions, including selection of appropriate joint venture parties, initial and ongoing governance of the joint venture, joint venture compliance activities (including compliance with applicable CMS requirements), growing the joint venture’s business in a manner acceptable to all the parties, including other providers in the networks that include joint ventures, maintaining positive relationships among the joint venture parties and the joint venture’s customers, and member and business disruption that may occur upon joint venture termination. Risks Related to Our Operations Failure to meet customer expectations may harm our brand and reputation, our ability to retain and grow our customer base and membership and our operating results and cash flows.Our ability to attract and retain customers and members is dependent upon providing compliant, cost effective, quality customer service operations (such as call center operations, PBM functions, retail pharmacy and LTC services, retail, mail order and specialty pharmacy prescription delivery, claims processing, customer case installation and online access and tools) that meet or exceed our customers’ and members’ expectations, either directly or through vendors. As we seek to reduce general and administrative expenses, we must balance the potential impact of cost-saving measures on our customers and other services and performances. If we misjudge the effects of such measures, customers and other services may be adversely affected. We depend 55 on third parties for certain of our customer service, PBM and prescription delivery operations. If we or our vendors fail to provide compliant service that meets our customers’ and members’ expectations, we may have difficulty retaining or profitably growing our customer base and/or membership, which could adversely affect our operating results. For example, noncompliance with any privacy or security laws or regulations or any security breach involving us or one of our third-party vendors could have a material adverse effect on our businesses, operating results, brand and reputation.We and our vendors have experienced and continue to experience cyberattacks. We can provide no assurance that we or our vendors will be able to detect, prevent or contain the effects of such attacks or other information security (including cybersecurity) risks or threats in the future.We and our vendors have experienced diverse cyberattacks and expect to continue to experience cyberattacks going forward. As examples, the Company and its vendors have experienced attempts to gain access to systems, denial of service attacks, attempted malware infections, account takeovers, scanning activity, and phishing emails. We have also seen an increase in ransomware attacks in our industry. Attacks can originate from external sources (including criminals, terrorists and nation states) or internal actors. The Company is dedicating and will continue to dedicate significant resources and incur significant expenses to maintain and update on an ongoing basis the systems and processes that are designed to mitigate the information security risks it faces and protect the security of its computer systems, software, networks and other technology assets against attempts by unauthorized parties to obtain access to confidential information, disrupt or degrade service, or cause other damage. The impact of known cyberattacks has not been material to the Company’s operations or operating results through December 31, 2024. The Board is regularly informed regarding the Company’s information security policies, practices and status. A compromise of our information security controls or of those third parties with whom we interact, which results in business disruption or confidential information being accessed, obtained, damaged, or used by unauthorized or improper persons, could harm our reputation and expose us to regulatory actions and claims from customers and clients, financial institutions, payment card associations and other persons, any of which could adversely affect our businesses, operating results and financial condition. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of intrusion, we may be unable to anticipate these techniques or to implement adequate preventative measures. Moreover, a cyberattack could require that we expend significant resources related to our information systems and infrastructure, and could distract management and other key personnel from performing their primary operational duties. We also could be adversely affected by any significant disruption in the systems of third parties we interact with, including key payors and vendors. The costs of attempting to protect against the foregoing risks and the costs of responding to a cyberattack or other information security incident are significant. Large scale data breaches at other entities increase the challenge we and our vendors face in maintaining the security of our information technology systems and proprietary information and of our customers’, employees’, members’ and other constituents’ personal information. Following an information security incident, our and/or our vendors’ remediation efforts may not be successful, and could result in interruptions, delays or cessation of service, and loss of existing or potential customers and members. In addition, breaches of our and/or our vendors’ security measures and the unauthorized access to or dissemination of personal information, proprietary information or confidential information about us, our customers, our members or other third-parties, could expose our customers’, members’ and other constituents’ information and our customers, members and other constituents to the risk of financial or medical identity theft, or expose us or other third parties to a risk of loss or misuse of this information, and result in investigations, regulatory enforcement actions, material fines and penalties, loss of customers, litigation or other actions, which could have a material adverse effect on our brand, reputation, businesses, operating results and cash flows.See Item 1C of this 10-K, “Cybersecurity,” for more information on the Company’s cybersecurity risk management and governance.Data governance failures can adversely affect our reputation, businesses and prospects. Our use and disclosure of members’, customers’ and other constituents’ personal information is subject to complex regulations at multiple levels. Our information systems are critical to the operation of our businesses. We collect, process, maintain, retain, evaluate, utilize and distribute large amounts of personally identifiable, protected health, and financial information (including payment card information) and other confidential and sensitive data about our customers, employees, members and other constituents in the ordinary course of our businesses. Some of our information systems rely upon third party systems, including cloud service providers, to accomplish these tasks. The use and disclosure of such information is regulated at the federal, state and international levels. In some cases, such laws, rules and regulations also apply to our vendors and/or may hold us liable for any violations by our vendors. These laws, rules and regulations are subject to change (and many are rapidly evolving) and in recent 56 years have given rise to increased enforcement activity, litigation, and other disputes. For example, certain of our vendors have experienced incidents that resulted in the unauthorized disclosure of confidential information, including personal information of our members, patients or employees, which has caused us to incur expenses including those related to responding to regulatory inquiries and/or litigation. Some of these expenses are indemnified but others are not. International laws, rules and regulations governing the use and disclosure of these types of information are generally more stringent than U.S. laws and regulations, and they vary from jurisdiction to jurisdiction. Noncompliance with applicable privacy or security laws or regulations, or any security breach, information security incident, and any other incident involving the theft, misappropriation, compromise, loss or other unauthorized disclosure of, or access to, customer, member or other constituent information, whether by us, by one of our business associates or vendors or by another third party, could require us to expend significant resources to remediate any damage, could interrupt our operations and could adversely affect our brand and reputation, membership and operating results and also could expose and/or has exposed us to mandatory disclosure requirements, adverse media attention, litigation (including class action litigation), governmental investigations and enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders, adverse actions against our licenses to do business and/or injunctive relief, any of which could adversely affect our businesses, operating results, cash flows or financial condition. Our businesses depend on our customers’, members’ and other constituents’ willingness to entrust us with their health related and other personal information. Events that adversely affect that trust, including inadequate disclosure to our members or customers of our uses of their information, failing to keep our information technology systems and our customers’, members’ and other constituents’ information secure from significant attack, theft, damage, loss or unauthorized disclosure or access, whether as a result of our action or inaction (including human error) or that of our business associates, vendors or other third parties, could adversely affect our brand and reputation, membership and operating results and also could expose and/or has exposed us to mandatory disclosure to the media, litigation (including class action litigation), governmental investigations and enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders, adverse actions against our licenses to do business and/or injunctive relief, any of which could adversely affect our businesses, operating results, cash flows or financial condition. There can be no assurance that awe have or will be able to adequately prevent, detect, and/or remediate such data security incidents.The failure or disruption of our information technology systems or the failure of our information technology infrastructure to support our businesses could adversely affect our reputation, businesses, operating results and cash flows. Our information systems are subject to damage or interruption from power outages, facility damage, computer and telecommunications failures, computer viruses, security breaches (including credit card or personally identifiable information breaches), cyberattacks, vandalism, catastrophic events and human error. If our information systems are damaged, fail to work properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience reputational damage, loss of critical information, customer disruption and interruptions or delays in our ability to perform essential functions and implement new and innovative services. We use third-party vendors to set-up, service, and/or maintain portions of our information technology systems, and our vendors may suffer the same types of issues, which could adversely affect our ability to access and use such systems and the data contained therein, which could result in similar harm. In addition, our efforts to comply with changes in U.S. and foreign laws and regulations, including privacy and information security laws and standards, may cause us to incur significant expense due to increased investment in technology and the development of new operational processes. Our business success and operating results depend in part on effective information technology systems and on continuing to develop and implement improvements in technology. Pursuing multiple initiatives simultaneously could make this continued development and implementation significantly more challenging. Many aspects of our operations are dependent on our information systems and the information collected, processed, stored and handled by these systems. We rely heavily on our information and technology systems to manage our ordering, pricing, point-of-sale, pharmacy fulfillment, inventory replenishment, claims processing, customer loyalty and subscription programs, finance, human resources and other processes. Throughout our operations, we collect, process, maintain, retain, evaluate, utilize and distribute large amounts of confidential and sensitive data and information, including personally identifiable information and protected health information, that our customers, employees, members and other constituents provide to purchase products or services, enroll in programs or services, register on our websites, interact with our personnel, or otherwise communicate with us. For these operations, we depend in part on the secure transmission of confidential information over public networks.We have many different information and other technology systems supporting our different businesses, including technology acquired as part of acquisitions, such as Canopy. Our businesses depend in large part on these systems to adequately price our 57 products and services; accurately establish reserves, process claims and report operating results; and interact with providers, employer plan sponsors, customers, members, consumers and vendors in an efficient and uninterrupted fashion. In addition, recent trends toward greater consumer engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Certain of our technology systems (including software) are older, legacy systems that are less flexible, less efficient and require a significant ongoing commitment of capital and human resources to maintain, protect and enhance them and to integrate them with our other systems. We must re-engineer and reduce the number of these older, legacy systems to meet changing consumer and vendor preferences and needs, improve our productivity and reduce our operating expenses, and acquired systems may need significant investment in order to meet the ongoing needs of the larger Company. We also need to develop or acquire new technology systems, contract with new vendors or modify certain of our existing systems to support the consumer-oriented and transformational products and services we are developing, operating and expanding and/or to meet current and developing industry and regulatory standards, including to keep pace with continuing changes in information processing technology, emerging cybersecurity risks and threats, and changes to applicable privacy and security laws, rules and regulations. If we fail to achieve these objectives, our ability to profitably grow our business and/or our operating results may be adversely affected.In addition, information technology and other technology and process improvement projects, including our transformation and enterprise modernization programs, frequently are long-term in nature and may take longer to complete and cost more than we expect and may not deliver the benefits we project once they are complete. If we do not effectively and efficiently secure, manage, integrate and enhance our technology portfolio (including vendor sourced systems), we could, among other things, have problems determining health care and other benefit cost estimates and/or establishing appropriate pricing, meeting the needs of customers, consumers, providers, members and vendors, developing and expanding our consumer-oriented products and services or keeping pace with industry and regulatory standards, and our operating results may be adversely affected. Product liability, product recall, professional liability or personal injury issues could damage our reputation and have a significant adverse effect on our businesses, operating results, cash flows and/or financial condition. The products that we sell could become subject to contamination, product tampering, mislabeling, recall or other damage. In addition, errors in the dispensing, packaging or administration of drugs or other products and consuming drugs in a manner that is not prescribed could lead to serious injury or death. Product liability or personal injury claims may be asserted against us with respect to any of the drugs or other products we sell or services we provide. For example, we are a defendant in hundreds of litigation proceedings relating to opioids and the sale of products containing talc. Our businesses also involve the provision of professional services, including by physicians, pharmacists, physician assistants, nurses and nurse practitioners, which exposes us to professional liability claims. Should a product or other liability issue arise, the coverage available under our insurance programs and the indemnification amounts available to us from third parties may not be adequate to protect us against the financial impact of the related claims. We also may not be able to maintain our existing levels of insurance on acceptable terms in the future. Any of the issues discussed above could damage our brand and reputation and have a significant adverse effect on our businesses, operating results and/or financial condition. We face significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to our success, and our failure to do so could adversely affect our businesses, operating results and/or future performance. Our ability to attract and retain qualified and experienced employees is essential to meet our current and future goals and objectives. There is no guarantee we will be able to attract and retain such employees or that competition among potential employers will not result in increased compensation and/or benefits costs. If we are unable to retain existing employees or attract additional employees, or we experience an unexpected loss of leadership, we could experience a material adverse effect on our businesses, operating results and/or future performance. In addition, our failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on our businesses, operating results and/or future performance. The succession plans we have in place and our employment arrangements with certain key executives do not guarantee the services of these executives will continue to be available to us. Sales of our products and services are dependent on our ability to attract and motivate internal sales personnel and independent third-party brokers, consultants and agents. New distribution channels create new disintermediation risk. We may be subject to penalties or other regulatory actions as a result of the marketing practices of brokers and agents selling our products.58 Our products are sold primarily through our sales personnel, who frequently work with independent brokers, consultants and agents who assist in the marketing, production and servicing of business. The independent brokers, consultants and agents generally are not exclusively dedicated to us and may frequently recommend and/or market health care benefits products of our competitors. Our sales could be adversely affected if we are unable to attract, retain or motivate sales personnel and third-party brokers, consultants and agents, or if we do not adequately provide support, training and education to this sales network regarding our complex product portfolio, or if our sales strategy is not appropriately aligned across distribution channels. This risk is heightened as we develop, operate and expand our consumer-oriented products and services and we expand in the health care space and our business model evolves to include a greater focus on consumers and direct-to-consumer sales, such as competing for sales on Insurance Exchanges.New distribution channels for our products and services continue to emerge, including Private Exchanges operated by health care consultants and technology companies. These channels may make it more difficult for us to directly engage consumers and other customers in the selection and management of their health care benefits, in health care utilization and in the effective navigation of the health care system. We also may be challenged by new technologies and marketplace entrants that could interfere with our existing relationships with customers and health plan members in these areas. In addition, there have been several investigations regarding the marketing practices of brokers and agents selling health care and other insurance products and the payments they receive. These investigations have resulted in enforcement actions against companies in our industry and brokers and agents marketing and selling those companies’ products. These investigations and enforcement actions could result in penalties and the imposition of corrective action plans and/or changes to industry practices, which could adversely affect our ability to market our products.Specifically, CMS, U.S. Congressional committees and state departments of insurance have each increased scrutiny of the marketing practices of brokers and agents who market Medicare products and of the Medicare Advantage organizations that use these organizations to market their products. CMS, other federal agencies or U.S. Congress may also recommend changes or take additional action with respect to the way in which brokers and agents are compensated for selling our Medicare Advantage and Part D plans. For example, CMS finalized new requirements imposing limitations on the amounts and types of payments that brokers can earn for marketing and enrollment services with respect to Medicare Advantage and Part D plans. While these new requirements are currently subject to an injunction, if the injunction is lifted or CMS attempts to impose restrictions on broker and agent compensation in the future, we will need to comply with the new restrictions. In addition, the IRA contains changes to the Part D program that began in 2023 and will continue through 2032 that will shift more of the claim liability to plans and away from the government.Failure of our businesses to effectively collaborate could prevent us from maximizing our operating results.To maximize our overall enterprise value, our various businesses need to collaborate effectively. Our businesses need to be aligned to carry out our business strategy, prioritize goals and coordinate the design of new products intended to utilize the offerings of multiple businesses, including implementing our transformation and enterprise modernization programs. In addition, misaligned incentives, information siloes, ineffective product development and failure of our corporate governance policies or procedures, for example significant financial decisions being made at an inappropriate level in our organization, also could prevent us from maximizing our operating results and/or achieving our financial and other projections.We are subject to payment-related risks that could increase our operating costs, expose us to fraud or theft, subject us to new rules and other requirements and potential liability and may disrupt our business operations.We accept payments using a variety of methods, including cash, checks, credit cards, debit cards, gift cards, mobile payments and potentially other technologies in the future that may subject us to new and additional risks related to fraud and theft. Acceptance of these payment methods subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules and regulatory requirements governing these payment methods. These requirements may change in the future, which could make compliance more difficult or costly. For certain payment options, including credit and debit cards, we pay interchange and other fees, which could increase periodically thereby raising our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and various other forms of electronic payment we currently use or adopt in the future. If these vendors are unable to provide these services to us, or if their systems are compromised, our operations could be disrupted. The payment methods that we offer also expose us to potential fraud and theft by persons seeking to obtain unauthorized access to, or exploit any weaknesses in, the payment systems we use. If we fail to abide by applicable rules or requirements, or if data relating to our payment systems is compromised due to a breach or misuse, we may be responsible for any costs incurred by payment card issuing banks and other third parties or subject to fines and 59 higher transaction fees. In addition, our reputation and ability to accept certain types of payments could each be harmed resulting in reduced sales and adverse effects on our operating results.Both our and our vendors’ operations are subject to a variety of business continuity hazards and risks, any of which could interrupt our operations or otherwise adversely affect our performance and operating results.We and our vendors are subject to business continuity hazards and other risks, including natural disasters and extreme weather events (which may increase in frequency or intensity as a result of climate change), utility and other mechanical failures, acts of war or terrorism, acts of civil unrest, crime, disruption of communications, data security and preservation, disruption of supply or distribution, safety regulation and labor difficulties. The occurrence of any of these or other events to us or our vendors might disrupt or shut down our operations or otherwise adversely affect our operations. We also may be subject to certain liability claims in the event of an injury or loss of life, or damage to property, resulting from such events. Although we have developed procedures for crisis management and disaster recovery and business continuity plans, and we maintain insurance policies that we believe are customary and adequate for our size and industry, our crisis management and disaster recovery procedures and business continuity plans may not be effective and our insurance policies include limits and exclusions and, as a result, our coverage may be insufficient to protect against all potential hazards and risks incident to our businesses. Should any such hazards or risks occur, or should our insurance coverage be inadequate or unavailable, our businesses, operating results, cash flows and financial condition could be adversely affected.Financial Risks We would be adversely affected if we do not effectively deploy our capital . Downgrades or potential downgrades in our credit ratings, should they occur, could adversely affect our brand and reputation, businesses, operating results, cash flows and financial condition. Our operations generate significant capital, and we may from time to time raise additional capital, subject to market conditions. The manner in which we deploy our capital, including investments in our businesses, our operations (such as information technology and other strategic and capital projects), dividends, acquisitions, share and/or debt repurchases, repayment of debt, reinsurance or other capital uses, impacts our financial strength, claims paying ability and credit ratings issued by nationally-recognized statistical rating organizations. Credit ratings issued by nationally-recognized statistical rating organizations are broadly distributed and generally used throughout our industries. Our ratings reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations or obligations to our insureds. We believe our credit ratings and the financial strength and claims paying ability of our principal insurance and HMO subsidiaries are important factors in marketing our Health Care Benefits products to certain of our customers.The Company’s long-term debt ratings are currently investment grade, though each of the ratings organizations reviews our ratings periodically and there can be no assurance that our current ratings will be maintained in the future. In August 2024, Moody’s Investor Service, Inc. (“Moody’s”) and Standard & Poor’s Financial Services LLC (“S&P”) changed their outlook on the Company’s long-term debt from “Stable” to “Negative.” In October 2024, Moody’s placed the Company’s long-term debt ratings and the Company’s commercial paper program on review for downgrade. Subsequently, in December 2024, Moody’s downgraded the Company’s long-term debt rating to “Baa3” and the Company’s commercial paper rating to “P3” and changed their outlook on the Company to “Stable”. In December 2024, Fitch Ratings Inc. (“Fitch”) initiated ratings coverage on the Company and assigned a first-time “BBB” rating to the Company’s long-term debt and a “F2” rating to the Company’s commercial paper program with the outlook on the Company of “Negative”. Downgrades in our ratings could adversely affect our businesses, operating results, cash flows and financial condition.Goodwill and other intangible assets could, in the future, become impaired.As of December 31, 2024 and December 31, 2023, we had $118.6 billion and $120.5 billion, respectively, of goodwill and other intangible assets. Goodwill and indefinite-lived intangible assets are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that the carrying value may not be recoverable. When evaluating goodwill for potential impairment, we compare the fair value of our reporting units to their respective carrying amounts. We estimate the fair value of our reporting units using a combination of a discounted cash flow method and a market multiple method. If the carrying amount of a reporting unit exceeds its estimated fair value, a goodwill impairment loss is recognized in an amount equal to the excess to the extent of the goodwill balance. Indefinite-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its carrying value. The Company estimates the fair value of its indefinite-lived trademarks using the relief from royalty method under the income approach. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized, and the asset is written down to its estimated fair value. Definite-lived 60 intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of such an asset may not be recoverable. If indicators of impairment are present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s estimated future cash flows (discounted).Estimated fair values could change if, for example, there are changes in the business climate, industry-wide changes, changes in the competitive environment, adverse legal or regulatory actions or developments, changes in capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows or market capitalization. Because of the significance of our goodwill and intangible assets, any future impairment of these assets could require material noncash charges to our operating results, which also could have a material adverse effect on our financial condition. Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our investments in debt and equity securities, mortgage loans, alternative investments and other investments, and our operating results and/or our financial condition.The U.S. and global capital markets, including credit markets, continue to experience volatility and uncertainty. As an insurer, we have a substantial investment portfolio that supports our policy liabilities and surplus and is comprised largely of debt securities of issuers located in the U.S. As a result, the income we earn from our investment portfolio is largely driven by the level of interest rates in the U.S., and to a lesser extent the international financial markets. Volatility, uncertainty and/or disruptions in the global capital markets, particularly the U.S. credit markets, and governments’ monetary policy, particularly U.S. monetary policy, can significantly and adversely affect the value of our investment portfolio, our operating results and/or our financial condition by:• significantly reducing the value and/or liquidity of the debt securities we hold in our investment portfolio and creating realized capital losses that reduce our operating results and/or unrealized capital losses that reduce our shareholders’ equity; • lowering interest rates on high-quality short-term or medium-term debt securities and thereby materially reducing our net investment income and operating results as the proceeds from securities in our investment portfolio that mature or are otherwise disposed of continue to be reinvested in lower yielding securities; • reducing the fair values of our investments if interest rates rise; • causing non-performance of or defaults on their obligations to us by third parties, including customers, issuers of securities in our investment portfolio, mortgage borrowers and/or reinsurance and/or derivatives counterparties; • making it more difficult to value certain of our investment securities, for example if trading becomes less frequent, which could lead to significant period-to-period changes in our estimates of the fair values of those securities and cause period-to-period volatility in our net income and shareholders’ equity;• reducing our ability to issue debt securities at attractive interest rates, thereby increasing our interest expense and decreasing our operating results; and• reducing our ability to issue other securities. Although we seek, within guidelines we deem appropriate, to match the duration of our assets and liabilities and to manage our credit and counterparty exposures, a failure to do so adequately could adversely affect our net income and our financial condition and, in extreme circumstances, our cash flows. Risks Related to Our Relationships with Manufacturers, Providers, Suppliers and Vendors We face risks relating to the market availability, pricing, suppliers and safety profiles of prescription drugs and other products that we purchase and sell.Our Pharmacy & Consumer Wellness segment and our mail order and specialty pharmacy operations generate revenues in significant part by dispensing prescription drugs. Our PBM business generates revenues primarily by contracting with clients to provide prescription drugs and related health care services to plan members. As a result, we are dependent on our relationships with prescription drug manufacturers and suppliers. We acquire a substantial amount of our mail order and specialty pharmacies’ prescription drug supply from a limited number of suppliers. Certain of our agreements with such suppliers are short-term and cancellable without cause. In addition, these agreements may allow the supplier to distribute through channels other than us. Certain of these agreements also allow pricing and other terms to be adjusted periodically for changing market conditions or required service levels. A termination or modification to any of these relationships could adversely affect our 61 prescription drug supply and have a material adverse effect on our businesses, operating results and financial condition. Moreover, many products distributed by our pharmacies are manufactured with ingredients that are susceptible to supply shortages. In some cases, we depend upon a single source of supply. Any such supply shortages or loss of any such single source of supply could adversely affect our operating results and cash flows. Much of the branded and generic drug product that we sell in our pharmacies, and much of the other merchandise we sell, is manufactured in whole or in substantial part outside of the U.S. In most cases, the products or merchandise are imported by others and sold to us. As a result, significant changes in tax or trade policies, tariffs or trade relations between the U.S. and other countries, such as the imposition of unilateral tariffs on imported products, could result in significant increases in our costs, restrict our access to suppliers, depress economic activity, and have a material adverse effect on our businesses, operating results and cash flows. The current administration has imposed and may further impose, or significantly increase, tariffs on imports to the United States, which could exacerbate many of these issues. In addition, other countries may change their business and trade policies and such changes, as well as any negative sentiments towards the U.S. in response to increased import tariffs and other changes in U.S. trade regulations, including those that are imposed or threatened by the new administration, could adversely affect our businesses.Our suppliers are independent entities subject to their own operational and financial risks that are outside our control. If our current suppliers were to stop selling prescription drugs to us or delay delivery, including as a result of supply shortages, supplier production disruptions, supplier quality issues, closing or bankruptcies of our suppliers, or for other reasons, we may be unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all.Our operating results may be adversely affected if we are unable to contract with providers on competitive terms and develop and maintain attractive networks with high quality providers. We are seeking to enhance our health care provider networks by entering into joint ventures and other collaborative risk-sharing arrangements with providers. Providers’ willingness to enter these arrangements with us depends upon, among other things, our ability to provide them with up to date quality of care data to support these value-based contracts. These arrangements are designed to give providers incentives to engage in population health management and optimize delivery of health care to our members. These arrangements also may allow us to expand into new geographies, target new customer groups, increase membership and reduce medical costs and, if we provide technology or other services to the relevant health system or provider organization, may contribute to our revenue and earnings from alternative sources. If such arrangements do not result in the lower medical costs that we project or if we fail to attract providers to such arrangements, or are less successful at implementing such arrangements than our competitors, our medical costs may not be competitive and may be higher than we project, our attractiveness to customers may be reduced, we may lose or be unable to grow medical membership, and our ability to profitably grow our business and/or our operating results may be adversely affected.While we believe joint ventures, ACOs and other non-traditional health care provider organizational structures present opportunities for us, the implementation of our joint ventures and other non-traditional structure strategies may not achieve the intended results, which could adversely affect our operating results and cash flows. For example, joint ventures require us to, among other things, maintain collaborative relationships with our counterparties, continue to gain access to provider rates that make the joint ventures economically sustainable and devote significant management time to the operation and management of the joint ventures. We may not be able to achieve these objectives in one or more of our joint ventures, which could adversely affect our operating results and cash flows. If our suppliers or service providers fail to meet their contractual obligations to us or to comply with applicable laws or regulations, we may be exposed to brand and reputational harm, litigation and/or regulatory action. We contract with various third parties to supply us with necessary products, perform certain functions and services and provide us with certain information technology systems. Our arrangements with suppliers and these third parties may expose us to public scrutiny, adversely affect our brand and reputation, expose us to litigation or regulatory action, and otherwise make our operations vulnerable if we fail to adequately oversee, monitor and regulate their performance or if they fail to meet their contractual obligations to us or to comply with applicable laws or regulations, including those related to human capital and climate change. For example, certain of our vendors have been responsible for releases of sensitive information of our members and employees, which has caused us to incur additional expenses and given rise to regulatory actions and litigation against us and has adversely impacted our brand. These risks are particularly high in our in Medicare Advantage (including dual eligible special needs plans), Medicare Part D, Medicaid, and Managed Medicaid plans, where third parties may perform medical management and other member related 62Table of Contentsservices for us. Any failure of these third parties’ prevention, detection or control systems related to regulatory compliance, compliance with our internal policies, data security and/or cybersecurity or any incident involving the theft, misappropriation, loss or other unauthorized disclosure of, or access to, members’, customers’ or other constituents’ sensitive information could require us to expend significant resources to remediate any damage, interrupt our operations and adversely affect our brand and reputation and also expose us to whistleblower, class action and other litigation, other proceedings, prohibitions on marketing or active or passive enrollment of members, corrective actions, fines, sanctions and/or penalties, any of which could adversely affect our businesses, operating results, cash flows and/or financial condition. We may experience increased medical and other benefit costs, litigation risk and customer and member dissatisfaction when providers that do not have contracts with us render services to our Health Care Benefits members. Some providers that render services to our Health Care Benefits members do not have contracts with us. In those cases, we do not have a pre-established understanding with these nonparticipating providers as to the amount of compensation that is due to them for services rendered to our members. In some states, the amount of compensation due to these nonparticipating providers is defined by law or regulation, but in most instances it is either not defined or it is established by a standard that is not clearly translatable into dollar terms. In such instances, providers may believe that they are underpaid for their services and may either litigate or arbitrate their dispute with us or try to recover the difference between what we have paid them and the amount they charged us from our members, which may result in member dissatisfaction. For example, in 2019, certain claimant hospitals were awarded approximately $86 million in an arbitration proceeding relating to Aetna’s out-of-network benefit payment and administration practices. Such disputes may cause us to pay higher medical or other benefit costs than we projected.Continuing consolidation and integration among providers and other suppliers may increase our medical and other covered benefits costs, make it difficult for us to compete in certain geographies and create new competitors.Hospitals, other health care providers and health systems continue to consolidate across the health care industry. While this consolidation could increase efficiency and has the potential to improve the delivery of health care services, it also reduces competition and the number of potential contracting parties in certain geographies and sectors of the health care industry. Health systems also are increasingly forming and considering forming health plans to directly offer health insurance in competition with us, a process that has been accelerated by the ACA. In addition, ACOs (including Commercial and Medicaid-only ACOs developed as a result of state Medicaid laws), practice management companies, consolidation among and by integrated health systems and other changes in the organizational structures that physicians, hospitals and other providers adopt continues to change the way these providers interact with us and the competitive landscape in which we operate. These changes may increase our medical and other covered benefits costs, may affect the way we price our products and services and estimate our medical and other covered benefits costs and may require us to change our operations, including by withdrawing from certain geographies where we do not have a significant presence across our businesses or are unable to collaborate or contract with providers on acceptable terms. Each of these changes may adversely affect our businesses and operating results.

Item 7 · Management's Discussion & Analysis

+284 paragraphs −302 paragraphs ~284 changed

FY 2023-12-31 (earlier)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (“MD&A”) The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K (this “10-K”), “Risk Factors” included in Item 1A of this 10-K and the “Cautionary Statement Concerning Forward-Looking Statements” in this 10-K. Overview of BusinessCVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is a leading health solutions company building a world of health around every consumer it serves and connecting care so that it works for people wherever they are. As of December 31, 2023, the Company had more than 9,000 retail locations, more than 1,000 walk-in medical clinics, 204 primary care medical clinics, a leading pharmacy benefits manager with approximately 108 million plan members and expanding specialty pharmacy solutions, and a dedicated senior pharmacy care business serving more than one million patients per year. The Company also serves an estimated more than 35 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. During the year ended December 31, 2023, the Company completed the acquisition of two key health care delivery assets to enhance its ability to execute on its care delivery strategy by advancing its primary care, home-based care and provider enablement capabilities. On March 29, 2023, the Company acquired Signify Health, Inc. (“Signify Health”), a leader in health risk assessments, value-based care and provider enablement services. On May 2, 2023, the Company also acquired Oak Street Health, Inc. (“Oak Street Health”), a leading multi-payor operator of value-based primary care centers serving Medicare eligible patients. Both Signify Health and Oak Street Health are included within the Health Services segment. In connection with its new operating model adopted in the first quarter of 2023, the Company realigned the composition of its segments to reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. The Company’s CODM is the Chief Executive Officer. As a result of this realignment, the Company formed a new Health Services segment, which in addition to providing a full range of pharmacy benefit management (“PBM”) solutions, also delivers health care services in the Company’s medical clinics, virtually, and in the home, as well as provider enablement solutions. In addition, the Company created a new Pharmacy & Consumer Wellness segment, which includes its retail and long-term care pharmacy operations and related pharmacy services, as well as its retail front store operations. This segment will also provide pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. Prior period segment financial information has been recast to conform with the current period presentation. See Note 19 ‘‘Segment Reporting’’ included in Item 8 of this 10-K for segment financial information.The Company has four reportable segments: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other, which are described below. Overview of the Health Care Benefits SegmentThe 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 12 states as of December 31, 2023. The Company entered Public Exchanges in five additional states effective January 2024. 75Overview of the Health Services SegmentThe Health Services segment provides a full range of 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, a leader in health risk assessments, value-based care and provider enablement services, and Oak Street Health, a leading multi-payor operator of value-based primary care centers serving Medicare eligible patients. The Company also announced the launch of Cordavis TM , a wholly owned subsidiary that will work 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, CMS, plans offered on 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.Overview of the Pharmacy & Consumer Wellness SegmentThe 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 December 31, 2023, 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.Overview of the 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.COVID-19 The coronavirus disease 2019 (“COVID-19”) continues to impact the economies of the U.S. and other countries around the world. The impact of COVID-19 on the Company’s businesses, operating results, cash flows and financial condition in the years ended December 31, 2023, 2022 and 2021, as well as information regarding certain expected impacts of COVID-19 on the Company, is discussed throughout this Annual Report on Form 10-K. 76Results of OperationsThe following information summarizes the Company’s results of operations for 2023 compared to 2022. Financial information for the years ended December 31, 2022 and 2021 has been revised to reflect the impact of the following items, as applicable: • The realignment of the Company’s segments to correspond with changes made to its operating model as described in Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this Form 10-K, including the discontinuance of the former Maintenance Choice ® segment reporting practice as described within the “Segment Analysis” section of this Item 7. • The impact of the adoption of a new accounting standard related to the accounting for long-duration insurance contracts (the “long-duration insurance accounting standard”), which the Company adopted on January 1, 2023 using a modified retrospective transition method as of January 1, 2021, as described in Note 1 “Significant Accounting Policies” included in Item 8 of this Form 10-K. • The exclusion of the impact of net realized capital gains or losses from adjusted operating income, as described within the “Segment Analysis” section of this Item 7. For discussion of the Company’s results of operations for 2022 compared to 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations with Retrospective Adjustments” for the year ended December 31, 2022, which was revised to reflect the items noted above and is included in Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 25, 2023.Summary of Consolidated Financial Results ChangeYear Ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 $ % $ %Revenues:Products $ 245,138 $ 226,616 $ 203,738 $ 18,522 8.2 % $ 22,878 11.2 % Premiums 99,192 85,330 76,132 13,862 16.2 % 9,198 12.1 % Services 12,293 9,683 11,042 2,610 27.0 % (1,359) (12.3) % Net investment income 1,153 838 1,199 315 37.6 % (361) (30.1) % Total revenues 357,776 322,467 292,111 35,309 10.9 % 30,356 10.4 %Operating costs:Cost of products sold 217,098 196,892 175,803 20,206 10.3 % 21,089 12.0 % Health care costs 86,247 71,073 64,188 15,174 21.3 % 6,885 10.7 % Restructuring charges 507 — — 507 100.0 % — — % Opioid litigation charges — 5,803 — (5,803) (100.0) % 5,803 100.0 % Loss on assets held for sale 349 2,533 — (2,184) (86.2) % 2,533 100.0 % Store impairments — — 1,358 — — % (1,358) (100.0) % Goodwill impairment — — 431 — — % (431) (100.0) % Operating expenses 39,832 38,212 37,021 1,620 4.2 % 1,191 3.2 % Total operating costs 344,033 314,513 278,801 29,520 9.4 % 35,712 12.8 % Operating income 13,743 7,954 13,310 5,789 72.8 % (5,356) (40.2) % Interest expense 2,658 2,287 2,503 371 16.2 % (216) (8.6) % Loss on early extinguishment of debt — — 452 — — % (452) (100.0) % Other income (88) (169) (182) 81 47.9 % 13 7.1 % Income before income tax provision 11,173 5,836 10,537 5,337 91.4 % (4,701) (44.6) % Income tax provision 2,805 1,509 2,548 1,296 85.9 % (1,039) (40.8) % Net income 8,368 4,327 7,989 4,041 93.4 % (3,662) (45.8) % Net (income) loss attributable to noncontrolling interests (24) (16) 12 (8) (50.0) % (28) (233.3) % Net income attributable to CVS Health $ 8,344 $ 4,311 $ 8,001 $ 4,033 93.6 % $ (3,690) (46.1) % 77 Commentary - 2023 compared to 2022Revenues• Total revenues increased $35.3 billion, or 10.9%, in 2023 compared to 2022. The increase in total revenues was driven by growth across all segments.• Please see “Segment Analysis” later in this MD&A for additional information about the revenues of the Company’s segments. Operating expenses• Operating expenses increased $1.6 billion, or 4.2%, in 2023 compared to 2022. The increase in operating expenses was primarily due to increased operating expenses to support growth in the business, operating expenses associated with Oak Street Health and Signify Health, including the amortization of acquired intangible assets, incremental investments in business operations, acquisition-related transaction and integration costs recorded in 2023 and the absence of a $250 million pre-tax gain on the sale of bswift LLC (“bswift”) and a $225 million pre-tax gain on the sale of PayFlex Holdings, Inc. (“PayFlex”) recorded in 2022. These increases were partially offset by gains from anti-trust legal settlements and the favorable impact of business initiatives in 2023. • Operating expenses as a percentage of total revenues decreased to 11.1% in 2023 compared to 11.8% in 2022. The decrease in operating expenses as a percentage of total revenues was primarily due to the increases in total revenues described above.• Please see “Segment Analysis” later in this MD&A for additional information about the operating expenses of the Company’s segments.Operating income• Operating income increased $5.8 billion, or 72.8%, in 2023 compared to 2022. The increase in operating income was primarily driven by the absence of $5.8 billion of opioid litigation charges recorded in 2022 and increases in the Pharmacy & Consumer Wellness segment, primarily driven by the absence of a $2.5 billion loss on assets held for sale recorded in 2022 related to the write-down of the Company’s Omnicare ® long-term care business (“LTC business”) which was partially offset by continued pharmacy reimbursement pressure and decreased COVID-19 vaccinations and diagnostic testing compared to 2022, as well as an increase in the Health Services segment. These increases in operating income were partially offset by declines in the Health Care Benefits segment, including the absence of the $250 million pre-tax gain on the sale of bswift and the $225 million pre-tax gain on the sale of PayFlex recorded in 2022, as well as the restructuring charges and acquisition-related transaction and integration costs recorded in 2023.• Please see “Segment Analysis” later in this MD&A for additional information about the operating results of the Company’s segments. Interest expense• Interest expense increased $371 million, or 16.2%, in 2023 compared to 2022, due to higher debt in the year ended December 31, 2023 to fund the acquisitions of Signify Health and Oak Street Health. See “Liquidity and Capital Resources” later in this report for additional information.Income tax provision• The Company’s effective income tax rate decreased to 25.1% in 2023 compared to 25.9% in the prior year. The decrease was primarily due to the absence of certain nondeductible legal charges and basis differences on the sale of bswift and PayFlex in 2022. These decreases were partially offset by the absence of the impact of certain discrete tax items concluded in 2022. 78 OutlookThe Company believes you should consider the following key business and regulatory trends and uncertainties: Key Business Trends and Uncertainties• Membership enrollment in Medicare Advantage plans exceeded expectations. • Utilization, particularly in Medicare Advantage programs, persisted at elevated levels into the end of 2023. At this time, the level of continued utilization is difficult to accurately predict. • The Company expects growth in its new Cordavis, Oak Street Health and Signify Health businesses. • Competitive pressures in the PBM industry have caused the Company to continue to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread.” The Company expects these trends to continue. • Competitive pressures in the retail pharmacy industry are increasing, resulting in aggressive generic pricing programs, the growth of discount cards and increased utilization of digital commerce. • Future costs are influenced by a number of factors including competitive demand for products and services, legislative and regulatory considerations, and labor and other market dynamics, including inflation. We evaluate and adjust our approach in each of the markets we serve, considering all relevant factors. • The Company expects benefits from enterprise-wide cost savings initiatives and investments in efficiencies, which aim to reduce the Company’s operating cost structure in a way that improves the consumer experience and is sustainable.Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms.• Legislation and/or regulations seeking to regulate PBM activities in a comprehensive manner have been proposed or enacted in a majority of states and on the federal level. This legislative and regulatory activity could adversely affect the Company’s ability to conduct business on commercially reasonable terms and the Company’s ability to standardize its PBM products and services across state lines.For additional information regarding these and other trends and uncertainties, see Item 1A, “Risk Factors” and Part I, Item 1 “Business - Government Regulation.”79Segment Analysis The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 19 ‘‘Segment Reporting’’ included in Item 8 of this 10-K.The Company has three operating segments, Health Care Benefits, Health Services and Pharmacy & Consumer Wellness, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the CODM evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income. Adjusted operating income is defined as operating income as measured by accounting principles generally accepted in the United States of America (“GAAP”) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance. Effective for the first quarter of 2023, adjusted operating income also excludes the impact of net realized capital gains or losses. See the reconciliations of operating income (GAAP measure) to adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP. Segment financial information for the years ended December 31, 2022 and 2021 has been revised to conform with the current period presentation for the following items: • The realignment of the Company’s segments to correspond with changes made to its operating model as described in Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K, including the discontinuance of the former Maintenance Choice segment reporting practice as described in Note (2) of the table included on the next page. • The impact of the adoption of the long-duration insurance accounting standard, which the Company adopted on January 1, 2023 using a modified retrospective transition method as of January 1, 2021, as described in Note 1 “Significant Accounting Policies” included in Item 8 of this 10-K. • The exclusion of the impact of net realized capital gains or losses from adjusted operating income, as described above. The impact of these items on segment financial information for the years ended December 31, 2022 and 2021 is reflected in the “Adjustments” lines of the table included on the next page. 80The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals: In millions Health Care Benefits Health Services (1) Pharmacy & Consumer Wellness Corporate/ Other Intersegment Eliminations (2) Consolidated Totals2023 Total revenues $ 105,646 $ 186,843 $ 116,763 $ 451 $ (51,927) $ 357,776 Adjusted operating income (loss) 5,577 7,312 5,963 (1,318) — 17,534 2022Total revenues, as previously reported $ 91,409 $ 169,236 $ 106,594 $ 530 $ (45,302) $ 322,467 Adjustments (59) 340 2,002 — (2,283) — Total revenues, as adjusted $ 91,350 $ 169,576 $ 108,596 $ 530 $ (47,585) $ 322,467 Adjusted operating income (loss), as previously reported $ 5,984 $ 7,356 $ 6,705 $ (1,785) $ (728) $ 17,532 Adjustments 354 (575) (174) 172 728 505 Adjusted operating income (loss), as adjusted $ 6,338 $ 6,781 $ 6,531 $ (1,613) $ — $ 18,037 2021 Total revenues, as previously reported $ 82,186 $ 153,022 $ 100,105 $ 721 $ (43,923) $ 292,111 Adjustments (67) 870 1,515 — (2,318) — Total revenues, as adjusted $ 82,119 $ 153,892 $ 101,620 $ 721 $ (46,241) $ 292,111 Adjusted operating income (loss), as previously reported $ 5,012 $ 6,859 $ 7,623 $ (1,471) $ (711) $ 17,312 Adjustments 98 (367) (363) (164) 711 (85) Adjusted operating income (loss), as adjusted $ 5,110 $ 6,492 $ 7,260 $ (1,635) $ — $ 17,227_____________________________________________(1) Total revenues of the Health Services segment include approximately $13.7 billion, $12.6 billion and $11.6 billion of retail co-payments for 2023, 2022 and 2021, respectively. See Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K for additional information about retail co-payments. (2) Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment. Prior to January 1, 2023, intersegment adjusted operating income eliminations occurred when members of the Health Services segment's clients enrolled in Maintenance Choice ® elected to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurred, both the Health Services and Pharmacy & Consumer Wellness segments recorded the adjusted operating income on a stand-alone basis. Effective January 1, 2023, the adjusted operating income associated with such transactions is reported only in the Pharmacy & Consumer Wellness segment, therefore no adjusted operating income elimination is required. Segment financial information has been recast to reflect this change. 81 The following are reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income, as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating income (loss):Year Ended December 31, 2023 In millions Health Care Benefits Health Services Pharmacy & Consumer Wellness Corporate/ Other Consolidated Totals Operating income (loss) (GAAP measure) $ 3,949 $ 6,842 $ 5,349 $ (2,397) $ 13,743 Amortization of intangible assets (1) 1,177 465 260 3 1,905 Net realized capital losses (2) 402 — 5 90 497 Acquisition-related transaction and integration costs (3) — — — 487 487 Restructuring charges (4) — — — 507 507 Office real estate optimization charges (5) 49 5 — (8) 46Loss on assets held for sale (6)— — 349 — 349 Adjusted operating income (loss) $ 5,577 $ 7,312 $ 5,963 $ (1,318) $ 17,534 Year Ended December 31, 2022 In millions Health Care Benefits Health Services Pharmacy & Consumer Wellness Corporate/ Other Consolidated Totals Operating income (loss) (GAAP measure) $ 5,270 $ 6,612 $ 3,560 $ (7,488) $ 7,954 Amortization of intangible assets (1) 1,180 167 435 3 1,785 Net realized capital losses (2) 225 — 44 51 320 Office real estate optimization charges (5) 97 2 — 18 117Loss on assets held for sale (6) 41 — 2,492 — 2,533 Opioid litigation charges (7)— — — 5,803 5,803Gain on divestiture of subsidiaries (8) (475) — — — (475) Adjusted operating income (loss) $ 6,338 $ 6,781 $ 6,531 $ (1,613) $ 18,037Year Ended December 31, 2021 In millions Health Care Benefits Health Services Pharmacy & Consumer Wellness Corporate/ Other Consolidated Totals Operating income (loss) (GAAP measure) $ 3,662 $ 6,293 $ 4,984 $ (1,629) $ 13,310 Amortization of intangible assets (1) 1,527 199 504 3 2,233 Net realized capital gains (2) (18) — (17) (141) (176) Acquisition-related integration costs (3) — — — 132 132 Store impairments (9) — — 1,358 — 1,358 Goodwill impairment (10) — — 431 — 431 Acquisition purchase price adjustment outside of measurement period (11) (61) — — — (61) Adjusted operating income (loss) $ 5,110 $ 6,492 $ 7,260 $ (1,635) $ 17,227_____________________________________________(1) The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the Company’s GAAP consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is 82 not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. (2) The Company’s net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in the consolidated statements of operations in net investment income within each segment. These capital gains and losses are the result of investment decisions, market conditions and other economic developments that are unrelated to the performance of the Company’s business, and the amount and timing of these capital gains and losses do not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Accordingly, the Company believes excluding net realized capital gains and losses enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. (3) In 2023, the acquisition-related transaction and integration costs relate to the acquisitions of Signify Health and Oak Street Health. In 2021, the acquisition-related integration costs relate to the acquisition (“the Aetna Acquisition”) of Aetna Inc. (“Aetna”). The acquisition-related transaction and integration costs are reflected in the Company’s GAAP consolidated statements of operations in operating expenses within the Corporate/Other segment. (4) In 2023, the restructuring charges are primarily comprised of severance and employee-related costs, asset impairment charges and a stock-based compensation charge. During the second quarter of 2023, the Company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives. The restructuring charges are reflected within the Corporate/Other segment. (5) In 2023 and 2022, the office real estate optimization charges primarily relate to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the planned reduction of corporate office real estate space in response to the Company’s new flexible work arrangement. The office real estate optimization charges are reflected in the Company’s GAAP consolidated statements of operations in operating expenses within the Health Care Benefits, Corporate/Other and Health Services segments. (6) In 2023 and 2022, the loss on assets held for sale relates to the LTC reporting unit within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. The carrying value of the LTC business was determined to be greater than its estimated fair value less costs to sell and, accordingly, the Company recorded a loss on assets held for sale during 2022. During the first quarter of 2023, a loss on assets held for sale was recorded to write down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflected its estimated fair value less costs to sell. As of September 30, 2023, the Company determined the LTC business no longer met the criteria for held-for-sale accounting and, accordingly, the net assets associated with the LTC business were reclassified to held and used at their respective fair values. During 2022, the loss on assets held for sale also relates to the Company’s international health care business domiciled in Thailand (“Thailand business”), which was included in the Commercial Business reporting unit in the Health Care Benefits segment. The sale of the Thailand business closed in the second quarter of 2022, and the ultimate loss on the sale was not material. (7) In 2022, the opioid litigation charges relate to agreements to resolve substantially all opioid claims against the Company by certain states and governmental entities. The opioid litigation charges are reflected within the Corporate/Other segment. (8) In 2022, the gain on divestiture of subsidiaries represents the pre-tax gain on the sale of bswift, which the Company sold in November 2022, and the pre-tax gain on the sale of PayFlex, which the Company sold in June 2022. The gains on divestitures are reflected as a reduction of operating expenses in the Company’s GAAP consolidated statement of operations within the Health Care Benefits segment. (9) In 2021, the store impairment charge relates to the write down of operating lease right-of-use assets and property and equipment in connection with the planned closure of approximately 900 retail stores between 2022 and 2024. The store impairment charge is reflected within the Pharmacy & Consumer Wellness segment. (10) In 2021, the goodwill impairment charge relates to an impairment of the remaining goodwill of the LTC reporting unit within the Pharmacy & Consumer Wellness segment. (11) In 2021, the Company received $61 million related to a purchase price working capital adjustment for an acquisition completed during the first quarter of 2020. The resolution of this matter occurred subsequent to the acquisition accounting measurement period and is reflected in the Company’s GAAP consolidated statement of operations as a reduction of operating expenses within the Health Care Benefits segment. 83Health Care Benefits Segment The following table summarizes the Health Care Benefits segment’s performance for the respective periods: ChangeYear Ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions, except percentages and basis points (“bps”) 2023 2022 2021 $ % $ %Revenues:Premiums $ 99,144 $ 85,274 $ 76,064 $ 13,870 16.3 % $ 9,210 12.1 % Services 5,737 5,600 5,469 137 2.4 % 131 2.4 % Net investment income 765 476 586 289 60.7 % (110) (18.8) % Total revenues 105,646 91,350 82,119 14,296 15.6 % 9,231 11.2 % Health care costs 85,504 71,473 64,531 14,031 19.6 % 6,942 10.8 %MBR (Health care costs as a % of premium revenues)86.2 % 83.8 % 84.8% 240 bps (100) bps Loss on assets held for sale $ — $ 41 $ — $ (41) (100.0) % $ 41 100.0 % Operating expenses 16,193 14,566 13,926 1,627 11.2 % 640 4.6 % Operating expenses as a % of total revenues 15.3 % 15.9 % 17.0 % Operating income $ 3,949 $ 5,270 $ 3,662 $ (1,321) (25.1) % $ 1,608 43.9 % Operating income as a % of total revenues 3.7 % 5.8 % 4.5 %Adjusted operating income (1)$ 5,577 $ 6,338 $ 5,110 $ (761) (12.0) % $ 1,228 24.0 % Adjusted operating income as a % of total revenues 5.3 % 6.9 % 6.2 %Premium revenues (by business):Government $ 70,094 $ 63,141 $ 55,739 $ 6,953 11.0 % $ 7,402 13.3 % Commercial 29,050 22,133 20,325 6,917 31.3 % 1,808 8.9 %_____________________________________________(1) See “Segment Analysis” above in this MD&A for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Health Care Benefits segment, which represents the Company’s principal measure of segment performance. Commentary - 2023 compared to 2022Revenues• Total revenues increased $14.3 billion, or 15.6%, in 2023 compared to 2022 driven by growth across all product lines.Medical Benefit Ratio • Medical benefit ratio is calculated as health care costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company’s Insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company’s Insured Health Care Benefits products.• The MBR increased from 83.8% to 86.2% in 2023 compared to the prior year primarily driven by increased utilization in Medicare Advantage, including outpatient and supplemental benefits, when compared with pandemic influenced utilization levels in the prior year, as well as Commercial and Medicaid trends returning to normalized levels, consistent with pricing expectations. Loss on assets held for sale • During 2022, the Company recorded a $41 million loss on assets held for sale on its Thailand business, which is included in the Commercial Business reporting unit within the Health Care Benefits segment. See Note 2 ‘‘Acquisitions, Divestitures and Asset Sales’’ included in Item 8 of this 10-K for additional information.Operating expenses • Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.84 • Operating expenses increased $1.6 billion, or 11.2%, in 2023 compared to 2022. The increase in operating expenses was primarily driven by increased operating expenses to support the growth across all product lines described above, incremental investments in the business, including investments in service capabilities and member experience, as well as the absence of a $250 million pre-tax gain on the sale of bswift and a $225 million pre-tax gain on the sale of PayFlex recorded in the prior year. • Operating expenses as a percentage of total revenues decreased to 15.3% in 2023 compared to 15.9% in 2022. The decrease in operating expenses as a percentage of total revenues was primarily driven by the increases in total revenues described above.Adjusted operating income• Adjusted operating income decreased $761 million, or 12.0%, in 2023 compared to 2022. The decrease in adjusted operating income was primarily driven by increased utilization in Medicare Advantage when compared with pandemic influenced utilization levels in the prior year, as well as incremental investments in the business, including investments in service capabilities and member experience. These decreases were partially offset by higher net investment income in 2023 compared to 2022. The following table summarizes the Health Care Benefits segment’s medical membership as of December 31, 2023 and 2022: 2023 2022In thousands Insured ASC Total Insured ASC Total Medical membership:Commercial 4,252 14,087 18,339 3,136 13,896 17,032 Medicare Advantage 3,460 — 3,460 3,270 — 3,270 Medicare Supplement 1,343 — 1,343 1,363 — 1,363 Medicaid 2,073 444 2,517 2,234 497 2,731 Total medical membership 11,128 14,531 25,659 10,003 14,393 24,396Supplemental membership information:Medicare Prescription Drug Plan (standalone) 6,081 6,128Medical Membership • Medical membership represents the number of members covered by the Company’s Insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on segment total revenues and operating results.• Medical membership as of December 31, 2023 of 25.7 million increased 1.3 million members compared with December 31, 2022, reflecting increases in the Commercial and Medicare product lines, including an increase of 1.3 million members related to the individual exchange business within the Commercial product line. These increases were partially offset by a decline in the Medicaid product line, primarily attributable to the resumption of Medicaid redeterminations following the expiration of the PHE.Medicare UpdateOn March 31, 2023, CMS issued its final notice detailing final 2024 Medicare Advantage payment rates. Final 2024 Medicare Advantage rates resulted in an expected average decrease in revenue for the Medicare Advantage industry of 1.12%, excluding the CMS estimate of Medicare Advantage risk score trend. On January 31, 2024, CMS issued an advance notice detailing proposed 2025 Medicare Advantage payment rates. The 2025 Medicare Advantage rates, if finalized as proposed, will result in an expected average decrease in revenue for the Medicare Advantage industry of 0.16%, excluding the CMS estimate of Medicare Advantage risk score trend. CMS intends to publish the final 2025 rate announcement no later than April 1, 2024. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 ties a portion of each Medicare Advantage plan’s reimbursement to the plan’s “star ratings.” Plans must have a star rating of four or higher (out of five) to qualify for bonus payments. CMS released the Company’s 2024 star ratings in October 2023. The Company’s 2024 star ratings will be used to determine which of the Company’s Medicare Advantage plans have ratings of four stars or higher and qualify for bonus payments in 2025. 85 On October 13, 2023, CMS released its 2024 star ratings for Medicare Advantage and PDPs. Based on the 2024 star ratings, which will impact total revenues in 2025, the percentage of Aetna Medicare Advantage members in 4+ star plans is expected to return to 87% based on the Company’s membership as of December 2023, as compared to the unmitigated 21% in the prior year. The main driver of this increase was a half star improvement in the Aetna National preferred provider organization (“PPO”) plan, which increased from 3.5 stars to 4.0 stars. As previously discussed, the decline in membership in 4+ star plans for payment year 2024 resulted in a mitigated 2024 headwind of approximately $800 million to $1.0 billion, which was primarily driven by the decrease of the Aetna National PPO plan from 4.5 stars to 3.5 stars. Based on the increase in membership in 4+ star plans for payment year 2025, the Company now expects to be eligible for bonus payments in 2025 that will recover the majority of the 2024 revenue decrease described above. The Company expects to prudently reinvest a portion of this net improvement into its business. 86Health Services Segment The following table summarizes the Health Services segment’s performance for the respective periods: ChangeYear Ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions, except percentages 2023 2022 2021 $ % $ %Revenues:Products $ 180,608 $ 167,019 $ 150,799 $ 13,589 8.1 % $ 16,220 10.8 % Services 6,236 2,557 3,093 3,679 143.9 % (536) (17.3) % Net investment income (loss) (1) — — (1) (100.0) % — — % Total revenues 186,843 169,576 153,892 17,267 10.2 % 15,684 10.2 % Cost of products sold 175,424 160,738 145,355 14,686 9.1 % 15,383 10.6 % Health care costs 1,607 — — 1,607 100.0 % — — % Operating expenses 2,970 2,226 2,244 744 33.4 % (18) (0.8) % Operating expenses as a % of total revenues 1.6 % 1.3 % 1.5 % Operating income $ 6,842 $ 6,612 $ 6,293 $ 230 3.5 % 319 5.1 % Operating income as a % of total revenues 3.7 % 3.9 % 4.1 % Adjusted operating income (1) $ 7,312 $ 6,781 $ 6,492 $ 531 7.8 % 289 4.5 % Adjusted operating income as a % of total revenues 3.9 % 4.0 % 4.2 %Revenues (by distribution channel):Pharmacy network (2) $ 112,718 $ 102,968 $ 96,834 $ 9,750 9.5 % 6,134 6.3 % Mail & specialty (3) 67,992 63,825 53,812 4,167 6.5 % 10,013 18.6 % Other 6,134 2,783 3,246 3,351 120.4 % (463) (14.3) % Net investment income (loss) (1) — — (1) (100.0) % — — % Pharmacy claims processed (4) 2,344.3 2,335.1 2,242.6 9.2 0.4 % 92.5 4.1 % Generic dispensing rate (4) 87.6 % 87.4 % 86.8 %_____________________________________________(1) See “Segment Analysis” above in this MD&A for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Health Services segment, which represents the Company’s principal measure of segment performance. (2) Pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network revenues also include activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order. Maintenance Choice activity was previously reflected in mail & specialty revenues. Segment financial information has been revised to reflect these changes. (3) Mail & specialty revenues relate to specialty mail claims inclusive of Specialty Connect ® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. Effective January 1, 2023, mail & specialty revenues exclude Maintenance Choice activity, which is now reported within pharmacy network revenues. Segment financial information has been revised to reflect these changes. (4) Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. Commentary - 2023 compared to 2022Revenues• Total revenues increased $17.3 billion, or 10.2%, in 2023 compared to 2022. The increase was primarily driven by pharmacy drug mix, growth in specialty pharmacy, brand inflation and the acquisitions of Oak Street Health and Signify Health. These increases were partially offset by continued pharmacy client price improvements.Operating expenses • Operating expenses in the Health Services segment include selling, general and administrative expenses; and depreciation and amortization expense.87 • Operating expenses increased $744 million, or 33.4%, in 2023 compared to 2022. The increase was primarily driven by operating expenses associated with Oak Street Health and Signify Health, including the amortization of acquired intangible assets. • Operating expenses as a percentage of total revenues increased to 1.6% in 2023 compared to 1.3% in 2022. The increase in operating expenses as a percentage of total revenues was primarily due to the increases in operating expenses associated with Oak Street Health and Signify Health.Adjusted operating income• Adjusted operating income increased $531 million, or 7.8%, in 2023 compared to 2022. The increase in adjusted operating income was primarily driven by improved purchasing economics, including increased contributions from the products and services of the Company’s group purchasing organization, as well as growth in specialty pharmacy, including increased contributions from specialty generics. These increases were partially offset by continued pharmacy client price improvements.• As you review the Health Services segment’s performance in this area, you should consider the following important information about the business: • The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on adjusted operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider. Pharmacy claims processed • Pharmacy claims processed represents the number of prescription claims processed through the Company’s pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company’s mail and specialty pharmacies. Management uses this metric to understand variances between actual claims processed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of pharmacy claim volume on segment total revenues and operating results.• The Company’s pharmacy claims processed increased slightly on a 30-day equivalent basis in 2023 compared to 2022 primarily driven by net new business and increased utilization. These increases were largely offset by the impact of a Medicaid customer contract change that occurred during the second quarter of 2023 and a decrease in COVID-19 vaccinations.Generic dispensing rate • Generic dispensing rate is calculated by dividing the Health Services segment’s generic claims processed by its total claims processed. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.• The Health Services segment’s generic dispensing rate increased to 87.6% in 2023 compared to 87.4% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in COVID-19 vaccinations in 2023 compared to 2022, largely offset by an increase in glucagon-like peptide 1 (“GLP-1”) pharmacy claims in 2023 compared to 2022. Excluding the impact of COVID-19 vaccinations, the segment’s generic dispensing rate was 87.9% and 88.3% in 2023 and 2022, respectively. 88Pharmacy & Consumer Wellness Segment The following table summarizes the Pharmacy & Consumer Wellness segment’s performance for the respective periods: ChangeYear Ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions, except percentages 2023 2022 2021 $ % $ %Revenues:Products $ 113,976 $ 104,878 $ 96,852 $ 9,098 8.7 % $ 8,026 8.3 % Services 2,792 3,762 4,751 (970) (25.8) % (989) (20.8) % Net investment income (loss) (5) (44) 17 39 88.6 % (61) (358.8) % Total revenues 116,763 108,596 101,620 8,167 7.5 % 6,976 6.9 % Cost of products sold 91,447 82,063 75,082 9,384 11.4 % 6,981 9.3 % Loss on assets held for sale 349 2,492 — (2,143) (86.0) % 2,492 100.0 % Store impairments — — 1,358 — — % (1,358) (100.0) % Goodwill impairment — — 431 — — % (431) (100.0) % Operating expenses 19,618 20,481 19,765 (863) (4.2) % 716 3.6 % Operating expenses as a % of total revenues 16.8 % 18.9 % 19.4 % Operating income $ 5,349 $ 3,560 $ 4,984 $ 1,789 50.3 % $ (1,424) (28.6) % Operating income as a % of total revenues 4.6 % 3.3 % 4.9 %Adjusted operating income (1)$ 5,963 $ 6,531 $ 7,260 $ (568) (8.7) % $ (729) (10.0) % Adjusted operating income as a % of total revenues 5.1 % 6.0 % 7.1 %Revenues (by major goods/service lines):Pharmacy $ 92,111 $ 83,480 $ 77,886 $ 8,631 10.3 % $ 5,594 7.2 % Front Store 22,458 22,780 21,315 (322) (1.4) % 1,465 6.9 % Other 2,199 2,380 2,402 (181) (7.6) % (22) (0.9) % Net investment income (loss) (5) (44) 17 39 88.6 % (61) (358.8) %Prescriptions filled (2)1,649.1 1,625.4 1,589.7 23.7 1.5 % 35.7 2.2 % Same store sales increase: (3) Total 10.7 % 9.1 % 9.0 % Pharmacy 13.6 % 9.5 % 9.3 % Front Store 0.3 % 7.8 % 8.1 %Prescription volume (2)3.9 % 4.0 % 9.3 %Generic dispensing rate (2)88.4 % 87.4 % 85.7 %_____________________________________________ (1) See “Segment Analysis” above in this MD&A for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Pharmacy & Consumer Wellness segment, which represents the Company’s principal measure of segment performance. (2) Includes an adjustment to convert 90‑day prescriptions to the equivalent of three 30‑day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.(3) Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company’s retail pharmacy stores that have been operating for greater than one year, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues and prescriptions from LTC and infusion services operations. Effective January 1, 2023, same store sales also include digital sales initiated online or through mobile applications and fulfilled through the Company’s distribution centers. Segment financial information has been revised to reflect these changes. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores. Commentary - 2023 compared to 2022Revenues• Total revenues increased $8.2 billion, or 7.5%, in 2023 compared to 2022. The increase was primarily driven by pharmacy drug mix, increased prescription volume, brand inflation and increased contributions from vaccinations. These increases 89 were partially offset by the impact of recent generic introductions, continued pharmacy reimbursement pressure, a decrease in store count and decreased contributions from COVID-19 OTC test kits and diagnostic testing. • Pharmacy same store sales increased 13.6% in 2023 compared to 2022. The increase was primarily driven by pharmacy drug mix, the 3.9% increase in pharmacy same store prescription volume on a 30-day equivalent basis and brand inflation. These increases were partially offset by the impact of recent generic introductions and continued pharmacy reimbursement pressure. • Front store same store sales increased slightly in 2023 compared to 2022 primarily driven by increased beauty and personal care product sales, largely offset by decreased sales of COVID-19 OTC test kits and general merchandise. • Other revenues decreased 7.6% in 2023 compared to 2022. The decrease was primarily due to decreased COVID-19 diagnostic testing in 2023 compared to the prior year. Loss on assets held for sale • During 2023 and 2022, the Company recorded losses on assets held for sale of $349 million and $2.5 billion, respectively, related to the write-down of its LTC business. See Note 2 ‘‘Acquisitions, Divestitures and Asset Sales’’ included in Item 8 of this 10-K for additional information.Operating expenses • Operating expenses in the Pharmacy & Consumer Wellness segment include payroll, employee benefits and occupancy costs associated with the segment’s stores and pharmacy fulfillment operations; selling expenses; advertising expenses; depreciation and amortization expense and certain administrative expenses.• Operating expenses decreased $863 million, or 4.2%, in 2023 compared to 2022. The decrease was primarily due to the decrease in store count, lower expenses associated with COVID-19 vaccination administration compared to the prior year, gains from anti-trust legal settlements recorded in 2023 and a decrease in intangible asset amortization expense. • Operating expenses as a percentage of total revenues decreased to 16.8% in 2023 compared to 18.9% in 2022. The decrease in operating expenses as a percentage of total revenues was primarily driven by the increases in total revenues and decreases in operating expenses described above.Adjusted operating income• Adjusted operating income decreased $568 million, or 8.7%, in 2023 compared to 2022. The decrease in adjusted operating income was primarily driven by continued pharmacy reimbursement pressure and decreased COVID-19 vaccinations and diagnostic testing. These decreases were partially offset by increased prescription volume, improved generic drug purchasing and lower operating expenses in 2023.• As you review the Pharmacy & Consumer Wellness segment’s performance in this area, you should consider the following important information about the business: • The segment’s adjusted operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Pharmacy & Consumer Wellness segment. If the pharmacy reimbursement pressure accelerates, the segment may not be able to grow revenues, and its adjusted operating income could be adversely affected.• The increased use of generic drugs has positively impacted the segment’s adjusted operating income but has resulted in third-party payors augmenting their efforts to reduce reimbursement payments to retail pharmacies for prescriptions. This trend, which the Company expects to continue, reduces the benefit the segment realizes from brand-to-generic drug conversions.Prescriptions filled • Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment’s retail and long-term care pharmacies and infusion services operations. Management uses this metric to understand variances between actual prescriptions dispensed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on segment total revenues and operating results.• Prescriptions filled increased 1.5% on a 30-day equivalent basis in 2023 compared to 2022 primarily driven by increased utilization, partially offset by a decrease in COVID-19 vaccinations and the decrease in store count. Excluding the impact of COVID-19 vaccinations, prescriptions filled increased 2.5% on a 30-day equivalent basis in 2023 compared to 2022. 90Generic dispensing rate • Generic dispensing rate is calculated by dividing the Pharmacy & Consumer Wellness segment’s generic drug prescriptions filled by its total prescriptions filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.• The Pharmacy & Consumer Wellness segment’s generic dispensing rate increased to 88.4% in 2023 compared to 87.4% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by a decrease in COVID-19 vaccinations in 2023 compared to 2022, largely offset by an increase in GLP-1 pharmacy claims in 2023 compared to 2022. Excluding the impact of COVID-19 vaccinations, the segment’s total generic dispensing rate was 89.0% in both 2023 and 2022. 91Corporate/Other Segment The following table summarizes the Corporate/Other segment’s performance for the respective periods: ChangeYear Ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions, except percentages 2023 2022 2021 $ % $ %Revenues:Premiums $ 48 $ 56 $ 68 $ (8) (14.3) % $ (12) (17.6) % Services 9 68 57 (59) (86.8) % 11 19.3 % Net investment income 394 406 596 (12) (3.0) % (190) (31.9) % Total revenues 451 530 721 (79) (14.9) % (191) (26.5) % Cost of products sold 1 42 37 (41) (97.6) % 5 13.5 % Health care costs 210 249 271 (39) (15.7) % (22) (8.1) % Restructuring charges 507 — — 507 100.0 % — — % Opioid litigation charges — 5,803 — (5,803) (100.0) % 5,803 100.0 % Operating expenses 2,130 1,924 2,042 206 10.7 % (118) (5.8) % Operating loss (2,397) (7,488) (1,629) 5,091 68.0 % (5,859) (359.7) %Adjusted operating loss (1)(1,318) (1,613) (1,635) 295 18.3 % 22 1.3 %_____________________________________________ (1) See “Segment Analysis” above in this MD&A for a reconciliation of Corporate/Other segment operating loss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.Commentary - 2023 compared to 2022Revenues • Revenues primarily relate to products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products.• Total revenues decreased $79 million, or 14.9%, in 2023 compared to 2022. The decrease was primarily driven by a decrease in services revenues as well as a decline in net investment income, which decreased due to increased realized capital losses in 2023 compared to 2022, partially offset by favorable average investment yields in 2023 compared to 2022.Restructuring charges• During 2023, the Company recorded $507 million in pre-tax restructuring charges, comprised of $344 million of severance and employee-related costs associated with corporate workforce optimization, $152 million of asset impairment charges and an $11 million stock-based compensation charge associated with the impacted employees. See Note 3 ‘‘Restructuring Program’’ included in Item 8 of this 10-K for additional information. Opioid litigation charges • During 2022, the Company recorded $5.8 billion of opioid litigation charges. See Note 18 ‘‘Commitments and Contingencies’’ included in Item 8 of this 10-K for additional information.Adjusted operating loss• Adjusted operating loss decreased $295 million, or 18.3%, in 2023 compared to 2022 primarily driven by decreased operating expenses associated with the termination of certain transformation initiatives. 92Liquidity and Capital Resources Cash FlowsThe Company maintains a level of liquidity sufficient to allow it to meet its cash needs in the short-term. Over the long term, the Company manages its cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. The Company continuously assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. The Company believes its operating cash flows, commercial paper program, credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives. As of December 31, 2023, the Company had approximately $8.2 billion in cash and cash equivalents, approximately $735 million of which was held by the parent company or nonrestricted subsidiaries. The net change in cash, cash equivalents and restricted cash for the years ended December 31, 2023, 2022 and 2021 was as follows:ChangeYear Ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 $ % $ % Net cash provided by operating activities $ 13,426 $ 16,177 $ 18,265 $ (2,751) (17.0) % $ (2,088) (11.4) % Net cash used in investing activities (20,889) (5,047) (5,261) (15,842) (313.9) % 214 4.1 % Net cash provided by (used in) financing activities 2,683 (10,516) (11,356) 13,199 125.5 % 840 7.4 % Net increase (decrease) in cash, cash equivalents and restricted cash $ (4,780) $ 614 $ 1,648 $ (5,394) (878.5) % $ (1,034) (62.7) % Commentary - 2023 compared to 2022 • Net cash provided by operating activities decreased by $2.8 billion in 2023 compared to 2022 primarily due to the timing of payments and receipts, partially offset by lower inventory purchases. • Net cash used in investing activities increased by $15.8 billion in 2023 compared to 2022 primarily due to the acquisitions of Oak Street Health in May 2023 and Signify Health in March 2023. In addition, cash used in investing activities reflected the following activity: • Gross capital expenditures remained relatively consistent at approximately $3.0 billion and $2.7 billion in 2023 and 2022, respectively. During 2023, approximately 74% of the Company’s total capital expenditures were for technology, digital and other strategic initiatives and 26% were for store, fulfillment and support facilities expansion and improvements. • Net cash provided by financing activities was $2.7 billion in 2023 compared to net cash used in financing activities of $10.5 billion in 2022. The change in cash provided by (used in) financing activities primarily related to proceeds from the issuance of approximately $10.9 billion of long-term senior notes in 2023 and reflects lower repayments of long-term debt and lower share repurchases in 2023 compared to the prior year. Included in net cash used in investing activities for the years ended December 31, 2023, 2022 and 2021 was the following store development activity: (1) 2023 2022 2021 Total stores (beginning of year) 9,674 9,939 9,962New and acquired stores (2)39 41 58Closed stores (2)(318) (306) (81) Total stores (end of year) 9,395 9,674 9,939Relocated stores (2)5 4 17_____________________________________________ (1) Includes retail drugstores and pharmacies within retail chains, primarily in Target Corporation (“Target”) stores. (2) Relocated stores are not included in new and acquired stores or closed stores totals.93Short-term Borrowings Commercial Paper and Back-up Credit FacilitiesThe Company had $200 million of commercial paper outstanding at a weighted average interest rate of 4.31% as of December 31, 2023. The Company did not have any commercial paper outstanding as of December 31, 2022. In connection with its commercial paper program, the Company maintains a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2025, a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2026, and a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2027. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. As of December 31, 2023 and 2022, there were no borrowings outstanding under any of the Company’s back-up credit facilities.Term Loan AgreementOn May 1, 2023, the Company entered into a 364-day $5.0 billion term loan agreement. The term loan agreement allows for borrowings at various rates that are dependent, in part, on the Company’s debt ratings. On May 2, 2023, the Company borrowed $5.0 billion at an interest rate of approximately 6.2% under the term loan agreement to fund a portion of the Oak Street Health acquisition purchase price. On June 2, 2023, the Company repaid the outstanding balance under the term loan agreement.Federal Home Loan Bank of Boston (“FHLBB”)A subsidiary of the Company is a member of the FHLBB. As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of December 31, 2023 was approximately $1.0 billion. At both December 31, 2023 and 2022, there were no outstanding advances from the FHLBB.Long-term Borrowings2023 NotesOn June 2, 2023, the Company issued $1.0 billion aggregate principal amount of 5.0% senior notes due January 2029, $750 million aggregate principal amount of 5.25% senior notes due January 2031, $1.25 billion aggregate principal amount of 5.3% senior notes due June 2033, $1.25 billion aggregate principal amount of 5.875% senior notes due June 2053 and $750 million aggregate principal amount of 6.0% senior notes due June 2063 for total proceeds of approximately $4.9 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used, along with cash on hand, to repay the outstanding balance under the term loan agreement described above.On February 21, 2023, the Company issued $1.5 billion aggregate principal amount of 5.0% senior notes due February 2026, $1.5 billion aggregate principal amount of 5.125% senior notes due February 2030, $1.75 billion aggregate principal amount of 5.25% senior notes due February 2033 and $1.25 billion aggregate principal amount of 5.625% senior notes due February 2053 for total proceeds of approximately $6.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used to fund general corporate purposes, including a portion of the Signify Health acquisition purchase price. Oak Street Health Convertible Notes Prior to the Oak Street Health acquisition, Oak Street Health held 0% convertible senior notes with an aggregate principal amount of $920 million (the “Convertible Notes”), which were assumed by the Company in connection with the Oak Street Health acquisition. The Oak Street Health acquisition constituted a fundamental change in the Convertible Notes giving the holders the right to require the Company to repurchase the Convertible Notes. The repurchase price was an amount in cash equal to 100% of the principal amount of the Convertible Notes. On May 31, 2023, the Company issued a notice of repurchase to the holders of the Convertible Notes. In connection with this notice, $917 million of the Convertible Notes were submitted for repurchase and settled on July 21, 2023. Substantially all of the remaining $3 million of the Convertible Notes were submitted for repurchase and settled on October 20, 2023.Exercise of Par Call Redemptions In May 2022, the Company exercised the par call redemption on its outstanding 3.5% senior notes due July 2022 to redeem for cash on hand the entire $1.5 billion aggregate principal amount. In August 2022, the Company exercised the par call redemption on its outstanding 2.75% senior notes due November 2022 (issued by Aetna) to redeem for cash on hand the entire $1.0 billion aggregate principal amount. 94 In September 2022, the Company exercised the par call redemptions on its outstanding 2.75% senior notes due December 2022 and 4.75% senior notes due December 2022 (including notes issued by Omnicare, Inc.) to redeem for cash on hand the entire aggregate principal amount of $1.25 billion and $399 million, respectively. Early Extinguishments of Debt In December 2021, the Company redeemed for cash the remaining $2.3 billion of its outstanding 3.7% senior notes due 2023. In connection with the early redemption of such senior notes, the Company paid a make-whole premium of $80 million in excess of the aggregate principal amount of the senior notes that were redeemed, wrote-off $8 million of unamortized deferred financing costs and incurred $1 million in fees, for a total loss on early extinguishment of debt of $89 million . In August 2021, the Company purchased approximately $2.0 billion of its outstanding 4.3% senior notes due 2028 through a cash tender offer. In connection with the purchase of such senior notes, the Company paid a premium of $332 million in excess of the aggregate principal amount of the senior notes that were purchased, wrote-off $26 million of unamortized deferred financing costs and incurred $5 million in fees, for a total loss on early extinguishment of debt of $363 million.See Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K for additional information about debt issuances and debt repayments. Derivative Financial Instruments The Company uses derivative financial instruments in order to manage interest rate and foreign exchange risk and credit exposure. The Company’s use of these derivatives is generally limited to hedging risk and has principally consisted of using interest rate swaps, treasury rate locks, forward contracts, futures contracts, warrants, put options and credit default swaps. Debt CovenantsThe Company’s back-up revolving credit facilities and unsecured senior notes (see Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K) contain customary restrictive financial and operating covenants. These covenants do not include an acceleration of the Company’s debt maturities in the event of a downgrade in the Company’s credit ratings. The Company does not believe the restrictions contained in these covenants materially affect its financial or operating flexibility. As of December 31, 2023, the Company was in compliance with all of its debt covenants.Debt RatingsAs of December 31, 2023, the Company’s long-term debt was rated “Baa2” by Moody’s Investors Service, Inc. (“Moody’s”) and “BBB” by Standard & Poor’s Financial Services LLC (“S&P”), and its commercial paper program was rated “P-2” by Moody’s and “A-2” by S&P. The outlook on the Company’s long-term debt is “Stable” by both Moody’s and S&P. In assessing the Company’s credit strength, the Company believes that both Moody’s and S&P considered, among other things, the Company’s capital structure and financial policies as well as its consolidated balance sheet, its historical acquisition activity and other financial information. Although the Company currently believes its long-term debt ratings will remain investment grade, it cannot guarantee the future actions of Moody’s and/or S&P. The Company’s debt ratings have a direct impact on its future borrowing costs, access to capital markets and new store operating lease costs.Share Repurchase Programs The following share repurchase programs have been authorized by CVS Health Corporation’s Board of Directors (the “Board”): The following share repurchase programs have been authorized by the Board: In billions Authorization DateAuthorized Remaining as of December 31, 2023November 17, 2022 (“2022 Repurchase Program”) $ 10.0 $ 10.0December 9, 2021 (“2021 Repurchase Program”) 10.0 4.5Each of the share Repurchase Programs was effective immediately and permit the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. Both the 2022 and 2021 Repurchase Programs can be modified or terminated by the Board at any time.95 During the years ended December 31, 2023 and 2022, the Company repurchased an aggregate of 22.8 million shares of common stock for approximately $2.0 billion and an aggregate of 34.1 million shares of common stock for approximately $3.5 billion, respectively, both pursuant to the 2021 Repurchase Program. This activity includes the share repurchases under the ASR transactions described below. During the year ended December 31, 2021, the Company did not repurchase any shares of common stock. Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $3.0 billion fixed dollar ASR with Morgan Stanley & Co. LLC (“Morgan Stanley”). Upon payment of the $3.0 billion purchase price on January 4, 2024, the Company received a number of shares of CVS Health Corporation’s common stock equal to 85% of the $3.0 billion notional amount of the ASR or approximately 31.4 million shares at a price of $81.19 per share, which were placed into treasury stock in January 2024. At the conclusion of the ASR, the Company may receive additional shares representing the remaining 15% of the $3.0 billion notional amount. The ultimate number of shares the Company may receive will depend on the daily volume-weighted average price of the Company’s stock over an averaging period, less a discount. It is also possible, depending on such weighted average price, that the Company will have an obligation to Morgan Stanley which, at the Company’s option, could be settled in additional cash or by issuing shares. Under the terms of the ASR, the maximum number of shares that could be delivered to the Company is 73.9 million. Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $2.0 billion fixed dollar ASR with Citibank, N.A. Upon payment of the $2.0 billion purchase price on January 4, 2023, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $2.0 billion notional amount of the ASR or approximately 17.4 million shares at a price of $92.19 per share, which were placed into treasury stock in January 2023. The ASR was accounted for as an initial treasury stock transaction for $1.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2023, the Company received approximately 5.4 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $2.0 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in February 2023. Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC. Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in February 2022.At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. DividendsDuring 2023, 2022 and 2021 the quarterly cash dividend was $0.605, $0.55 and $0.50 per share, respectively. In December 2023, the Board authorized an increase of approximately 10% in the quarterly cash dividend to $0.665 per share effective in 2024. CVS Health Corporation has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board. 96Future Cash RequirementsThe following table summarizes certain estimated future cash requirements under the Company’s various contractual obligations at December 31, 2023, in total and disaggregated into current and long-term obligations. The table below does not include future payments of claims to health care providers or pharmacies because certain terms of these payments are not determinable at December 31, 2023 (for example, the timing and volume of future services provided under fee-for-service arrangements and future membership levels for capitated arrangements).In millions Total Current Long-Term Operating lease liabilities (1)$ 22,853 $ 2,716 $ 20,137Finance lease liabilities (1)2,108 143 1,965Contractual lease obligations with Target (2)2,086 — 2,086Commercial paper (3)200 200 —Long-term debt (3)60,569 2,705 57,864Interest payments on long-term debt (3)36,208 2,596 33,612 Opioid litigation settlement agreements (4) 5,128 415 4,713Other long-term liabilities on the consolidated balance sheets (5) Future policy benefits (6)5,018 393 4,625Unpaid claims (6)1,119 285 834Policyholders’ funds (6) (7)1,681 1,268 413 Total $ 136,970 $ 10,721 $ 126,249_____________________________________________ (1) Refer to Note 7 ‘‘Leases’’ included in Item 8 of this 10-K for additional information regarding the maturity of lease liabilities under operating and finance leases. (2) The Company leases pharmacy and clinic space from Target. See Note 7 ‘‘Leases’’ included in Item 8 of this 10-K for additional information regarding the lease arrangements with Target. Amounts related to such operating and finance leases are reflected within the operating lease liabilities and finance lease liabilities in the table above. Pharmacy lease amounts due in excess of the remaining estimated economic life of the buildings are reflected in the table above assuming equivalent stores continue to operate through the term of the arrangements.(3) Refer to Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K for additional information regarding the maturities of debt principal and commercial paper borrowings. Interest payments on long-term debt are calculated using outstanding balances and interest rates in effect on December 31, 2023. (4) Refer to Note 18 ‘‘Commitments and Contingencies’’ included in Item 8 of this 10-K for additional information regarding the opioid litigation settlement agreements.(5) Payments of other long-term liabilities exclude Separate Accounts liabilities of approximately $3.3 billion because these liabilities are supported by assets that are legally segregated and are not subject to claims that arise out of the Company’s business.(6) Total payments of future policy benefits, unpaid claims and policyholders’ funds include $614 million, $1.1 billion and $152 million, respectively, of reserves for contracts subject to reinsurance. The Company expects the assuming reinsurance carrier to fund these obligations and has reflected these amounts as reinsurance recoverable assets on the consolidated balance sheets. (7) Customer funds associated with group life and health contracts of approximately $58 million have been excluded from the table above because such funds may be used primarily at the customer’s discretion to offset future premiums and/or for refunds, and the timing of the related cash flows cannot be determined. Additionally, net unrealized capital losses on debt securities supporting experience-rated products of $18 million, before tax, have been excluded from the table above.Restrictions on Certain PaymentsIn addition to general state law restrictions on payments of dividends and other distributions to stockholders applicable to all corporations, health maintenance organizations (“HMOs”) and insurance companies are subject to further regulations that, among other things, may require those companies to maintain certain levels of equity (referred to as surplus) and restrict the amount of dividends and other distributions that may be paid to their equity holders. These regulations are not directly applicable to CVS Health Corporation as a holding company, since CVS Health Corporation is not an HMO or an insurance company. In addition, in connection with the Aetna Acquisition, the Company made certain undertakings that require prior regulatory approval of dividends by certain of its HMOs and insurance companies. The additional regulations and undertakings applicable to the Company’s HMO and insurance company subsidiaries are not expected to affect the Company’s ability to service the Company’s debt, meet other financing obligations or pay dividends, or the ability of any of the Company’s subsidiaries to service their debt or other financing obligations. Under applicable regulatory requirements and undertakings, at December 31, 2023, the maximum amount of dividends that may be paid by the Company’s insurance and HMO subsidiaries without prior approval by regulatory authorities was $3.1 billion in the aggregate.The Company maintains capital levels in its operating subsidiaries at or above targeted and/or required capital levels and dividends amounts in excess of these levels to meet liquidity requirements, including the payment of interest on debt and97stockholder dividends. In addition, at the Company’s discretion, it uses these funds for other purposes such as funding share and debt repurchase programs, investments in new businesses and other purposes considered advisable.At December 31, 2023 and 2022, the Company held investments of $307 million and $331 million, respectively, that are not accounted for as Separate Accounts assets but are legally segregated and are not subject to claims that arise out of the Company’s business. See Note 4 ‘‘Investments’’ included in Item 8 of this 10-K for additional information on investments related to the 2012 conversion of an existing group annuity contract from a participating to a non-participating contract.Solvency RegulationThe National Association of Insurance Commissioners (the “NAIC”) utilizes risk-based capital (“RBC”) standards for insurance companies that are designed to identify weakly-capitalized companies by comparing each company’s adjusted surplus to its required surplus (the “RBC Ratio”). The RBC Ratio is designed to reflect the risk profile of insurance companies. Within certain ratio ranges, regulators have increasing authority to take action as the RBC Ratio decreases. There are four levels of regulatory action, ranging from requiring an insurer to submit a comprehensive financial plan for increasing its RBC to the state insurance commissioner to requiring the state insurance commissioner to place the insurer under regulatory control. At December 31, 2023, all of the Company’s insurance and HMO subsidiaries were either above the RBC level that would require regulatory action or otherwise subject to an agreement to avoid any regulatory action. The RBC framework described above for insurers has been extended by the NAIC to health organizations, including HMOs. Although not all states had adopted these rules at December 31, 2023, at that date each of the Company’s active HMOs had a surplus that exceeded either the applicable state net worth requirements or, where adopted, the levels that would require regulatory action under the NAIC’s RBC rules, or were otherwise subject to an agreement to avoid any regulatory action. External rating agencies use their own capital models and/or RBC standards when they determine a company’s rating. 98Critical Accounting Policies The Company prepares the consolidated financial statements in conformity with generally accepted accounting principles, which require management to make certain estimates and apply judgment. Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, the Company reviews its accounting policies and how they are applied and disclosed in the consolidated financial statements. While the Company believes the historical experience, current trends and other factors considered by management support the preparation of the consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from estimates, and such differences could be material. Significant accounting policies are discussed in Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K. Management believes the following accounting policies include a higher degree of judgment and/or complexity and, thus, are considered to be critical accounting policies. The Company has discussed the development and selection of these critical accounting policies with the Audit Committee of the Board (the “Audit Committee”), and the Audit Committee has reviewed the disclosures relating to them. Revenue Recognition Health Care Benefits Segment Health Care Benefits revenue is principally derived from insurance premiums and fees billed to customers. Revenue related to the Company’s Government business is collected monthly from the U.S. federal government and various government agencies based on fixed payment rates and member eligibility. Some of the Company’s Government contracts allow for premiums to be adjusted to reflect actual experience or the relative health status of Insured members. Such adjustments are reasonably estimable at the outset of the contract, and adjustments to those estimates are made based on actual experience of the customer emerging under the contract and the terms of the underlying contract. Health Services Segment The Health Services segment sells prescription drugs directly through its specialty and mail order pharmacy offerings and indirectly through the Company’s retail pharmacy network. The Company’s pharmacy benefit arrangements are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. PBM services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the fulfillment of prescription drugs. The Company recognizes revenue using the gross method at the contract price negotiated with its clients when the Company has concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescriptions fulfilled indirectly through its retail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related PBM services. Revenues include (i) the portion of the price the client pays directly to the Company, net of any discounts earned on brand name drugs or other discounts and refunds paid back to the client, (ii) the price paid to the Company by client plan members for mail order prescriptions and the price paid to retail network pharmacies by client plan members for retail prescriptions, and (iii) claims based administrative fees for retail pharmacy network contracts. Sales taxes are not included in revenues. The Company recognizes revenue when control of the prescription drugs is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those prescription drugs. The Company has established the following revenue recognition policies for the Health Services segment: • Revenues generated from prescription drugs sold by third party pharmacies in the Company’s retail pharmacy network and associated administrative fees are recognized at the Company’s point-of-sale, which is when the claim is adjudicated by the Company’s online claims processing system and the Company has transferred control of the prescription drug and completed all of its performance obligations. • Revenues generated from prescription drugs sold by specialty and mail order pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the Company has performed substantially99all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments. For contracts under which the Company acts as an agent or does not control the prescription drugs prior to transfer to the client plan member, revenue is recognized using the net method. Drug Discounts The Company records revenue net of manufacturers’ rebates earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The Company estimates these rebates at period-end based on actual and estimated claims data and its estimates of the manufacturers’ rebates earned by its clients. The estimates are based on the best available data at period-end and recent history for the various factors that can affect the amount of rebates due to the client. The Company adjusts its rebates payable to clients to the actual amounts paid when these rebates are paid or as significant events occur. Any cumulative effect of these adjustments is recorded against revenues at the time it is identified. Adjustments generally result from contract changes with clients or manufacturers that have retroactive rebate adjustments, differences between the estimated and actual product mix subject to rebates, or whether the brand name drug was included in the applicable formulary. The effect of adjustments between estimated and actual manufacturers’ rebate amounts has not been material to the Company’s operating results or financial condition. Impairments of Debt Securities The Company regularly reviews its debt securities to determine whether a decline in fair value below the cost basis or carrying value has occurred. If a debt security is in an unrealized loss position and the Company has the intent to sell the security, or it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis, the amortized cost basis of the security is written down to its fair value and the difference is recognized in net income. If a debt security is in an unrealized loss position and the Company does not have the intent to sell and it is more likely than not that the Company will not have to sell such security before recovery of its amortized cost basis, the Company bifurcates the impairment into credit-related and non-credit related (yield-related) components. The amount of the credit-related component is recorded as an allowance for credit losses and recognized in net income, and the amount of the non-credit related component is included in other comprehensive income (loss). The Company analyzes all facts and circumstances believed to be relevant for each investment when performing this analysis, in accordance with applicable accounting guidance. In evaluating whether a credit related loss exists, the Company considers a variety of factors including: the extent to which the fair value is less than the amortized cost basis; adverse conditions specifically related to the issuer of a security, an industry or geographic area; the payment structure of the security; the failure of the issuer of the security to make scheduled interest or principle payments; and any changes to the rating of the security by a rating agency. Among the factors considered in evaluating whether a decline in fair value below the cost basis or carrying value has occurred are whether the decline results from a change in the quality of the debt security itself, whether the decline results from a downward movement in the market as a whole, and the prospects for realizing the carrying value of the debt security based on the investment’s current and short-term prospects for recovery. For unrealized losses determined to be the result of market conditions (for example, increasing interest rates and volatility due to conditions in the overall market) or industry-related events, the Company determines whether it intends to sell the debt security or if it is more likely than not that the Company will be required to sell the debt security prior to the anticipated recovery of the debt security’s amortized cost basis. If either case is true, the Company recognizes a non-credit related impairment, and the cost basis or carrying amount of the debt security is written down to fair value.During the years ended December 31, 2023, 2022 and 2021, the Company recorded yield-related impairment losses on debt securities of $152 million, $143 million and $42 million, respectively. During the years ended December 31, 2023 and 2022 the Company recorded credit-related losses on debt securities of $3 million and $13 million, respectively. During the year ended December 31, 2021, the Company did not record any credit-related impairment losses on debt securities.The risks inherent in assessing the impairment of a debt security include the risk that market factors may differ from projections and the risk that facts and circumstances factored into the Company’s assessment may change with the passage of time. Unexpected changes to market factors and circumstances that were not present in past reporting periods are among the factors that may result in a current period decision to sell debt securities that were not impaired in prior reporting periods.100Inventory Inventories are valued at the lower of cost or net realizable value using the weighted average cost method.The value of ending inventory is reduced for estimated inventory losses that have occurred during the interim period between physical inventory counts. Physical inventory counts are taken on a regular basis in each retail store and pharmacy, and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in the consolidated financial statements are properly stated. The Company’s accounting for inventory contains uncertainty since management must use judgment to estimate the inventory losses that have occurred during the interim period between physical inventory counts. When estimating these losses, a number of factors are considered which include historical physical inventory results on a location-by-location basis and current physical inventory loss trends.The total reserve for estimated inventory losses covered by this critical accounting policy was $607 million and $559 million as of December 31, 2023 and 2022, respectively. Although management believes there is sufficient current and historical information available to record reasonable estimates for estimated inventory losses, it is possible that actual results could differ. In order to help investors assess the aggregate risk, if any, associated with the inventory-related uncertainties discussed above, a ten percent (10%) pre-tax change in estimated inventory losses, which is a reasonably likely change, would increase or decrease the total reserve for estimated inventory losses by approximately $61 million as of December 31, 2023.Although management believes that the estimates discussed above are reasonable and the related calculations conform to generally accepted accounting principles, actual results could differ from such estimates, and such differences could be material. Recoverability of Long-Lived Assets Recoverability of Definite-Lived Assets The Company evaluates the recoverability of long-lived assets, excluding goodwill and indefinite-lived intangible assets, which are tested for impairment using separate tests described below, whenever events or changes in circumstances indicate that the carrying value of such an asset may not be recoverable. The Company groups and evaluates these long-lived assets for impairment at the lowest level at which individual cash flows can be identified. If indicators of impairment are present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s estimated future cash flows (discounted). If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted). The long-lived asset impairment loss calculation contains uncertainty since management must use judgment to estimate each asset group’s future sales, profitability and cash flows. When preparing these estimates, the Company considers historical results and current operating trends and consolidated sales, profitability and cash flow results and forecasts. These estimates can be affected by a number of factors including general economic and regulatory conditions, efforts of third party organizations to reduce their prescription drug costs and/or increased member co-payments, the continued efforts of competitors to gain market share and consumer spending patterns.During the fourth quarter of 2022, the Company undertook an initiative to evaluate its corporate office real estate space in response to its new flexible work arrangement. As part of this initiative, the Company evaluated its current real estate space and changes in employee work arrangement requirements to ensure it had the appropriate space to support the business. As a result of this assessment, the Company determined that it would vacate and abandon certain leased corporate office spaces. Accordingly, in the three months ended December 31, 2022, the Company recorded office real estate optimization charges of $117 million, primarily consisting of $71 million related to operating lease right-of-use assets and $44 million related to property and equipment. During the year ended December 31, 2023, the Company recorded an incremental $46 million of office real estate optimization charges associated with this initiative, primarily consisting of $20 million related to operating lease right-of-use assets and $18 million related to property and equipment. The office real estate optimization charges were recorded within the Health Care Benefits, Corporate/Other and Health Services segments. During the fourth quarter of 2021, the Company completed a strategic review of its retail business and announced the creation of new formats for its stores to continue to drive higher engagement with customers. As part of this review, the Company evaluated changes in population, consumer buying patterns and future health needs to ensure it has the right kinds of stores in 101 the right locations for consumers and for the business. In connection with this initiative, on November 17, 2021, the Board authorized the closing of approximately 900 retail stores, approximately 300 stores each year, between 2022 and 2024. As a result, management determined that there were indicators of impairment with respect to the impacted stores’ asset groups, including the associated operating lease right-of-use assets and property and equipment. A long-lived asset impairment test was performed during the fourth quarter of 2021 and the results of the impairment test indicated that the fair value of certain retail store asset groups was lower than their respective carrying values. Accordingly, in the three months ended December 31, 2021, the Company recorded a store impairment charge of approximately $1.4 billion, consisting of a write down of approximately $1.1 billion related to operating lease right-of-use assets and $261 million related to property and equipment, within the Pharmacy & Consumer Wellness segment.Recoverability of GoodwillGoodwill represents the excess of amounts paid for acquisitions over the fair value of the net identifiable assets acquired. Goodwill is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment on a reporting unit basis. The impairment test is performed by comparing the reporting unit’s fair value with its net book value (or carrying amount), including goodwill. The fair value of the reporting units is estimated using a combination of a discounted cash flow method and a market multiple method. If the net book value (carrying amount) of the reporting unit exceeds its fair value, the reporting unit’s goodwill is considered to be impaired, and an impairment is recognized in an amount equal to the excess. The determination of the fair value of the reporting units requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include the selection of appropriate peer group companies; control premiums and valuation multiples appropriate for acquisitions in the industries in which the Company competes; discount rates; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, income taxes, capital expenditures and future working capital requirements. When determining these assumptions and preparing these estimates, the Company considers each reporting unit’s historical results and current operating trends; consolidated revenues, profitability and cash flow results and forecasts; and industry trends. The Company’s estimates can be affected by a number of factors, including general economic and regulatory conditions; the risk-free interest rate environment; the Company’s market capitalization; efforts of customers and payers to reduce costs, including their prescription drug costs, and/or increase member co-payments; the continued efforts of competitors to gain market share, consumer spending patterns and the Company’s ability to achieve its revenue growth projections and execute on its cost reduction initiatives. Effective for the 2023 annual goodwill impairment test, the Company elected to change its annual goodwill impairment test date from August 31 st to October 31 st to better align with its annual budgeting processes, as its previous election predated large acquisitions such as Caremark Rx, Inc. and Aetna.2023 Goodwill Impairment TestPrior to the Company’s 2023 goodwill impairment test, the most recent goodwill impairment test was performed as of January 1, 2023, in connection with the segment realignment previously described in Note 1 ‘‘Significant Accounting Policies’’. During the fourth quarter of 2023, the Company performed its required annual impairment test of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill as of the testing date. The fair values of the reporting units with goodwill exceeded their carrying values by significant margins, with the exception of the Health Care Delivery reporting unit, which exceeded its carrying value by approximately 9%. In connection with its new operating model adopted in the first quarter of 2023, the Company formed a new Health Care Delivery reporting unit within the Health Services segment. The Health Care Delivery reporting unit is primarily comprised of the Signify Health and Oak Street Health care delivery assets, which were acquired on March 29, 2023 and May 2, 2023, respectively. These transactions were accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values at the date of acquisition. Given the close proximity of the acquisition dates to the 2023 annual impairment test of goodwill, as expected, the fair value of these two businesses and, therefore, of the Health Care Delivery reporting unit, remained relatively in line with the carrying value of the reporting unit. This fair value estimate is sensitive to significant assumptions including the revenue growth rate, operating income and the discount rate.2022 Goodwill Impairment Test During the third quarter of 2022, the Company performed its required annual impairment test of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill as of the testing date. The fair values of the reporting units with goodwill exceeded their carrying values by significant margins.102 2021 Goodwill Impairment Test During the third quarter of 2021, the Company performed its required annual impairment tests of goodwill. The results of the impairment tests indicated an impairment of the goodwill associated with the LTC reporting unit, as the reporting unit’s carrying value exceeded its fair value as of the testing date. The results of the impairment tests of the remaining reporting units indicated that there was no impairment of goodwill as of the testing date. The fair values of the reporting units with goodwill exceeded their carrying values by significant margins, with the exception of the Commercial Business reporting unit, which exceeded its carrying value by approximately 3%. As discussed in Note 6 ‘‘Goodwill and Other Intangibles’’ included in Item 8 of this 10-K, during 2021, the LTC reporting unit continued to face challenges that impacted the Company’s ability to grow the LTC reporting unit’s business at the rate estimated when its 2020 goodwill impairment test was performed. These challenges included lower net facility admissions, net long-term care facility customer losses and the prolonged adverse impact of the COVID-19 pandemic and the emerging new variants, which resulted in more significant declines in occupancy rates experienced by the Company’s long-term care facility customers than previously anticipated. During the third quarter of 2021, LTC management updated their 2021 annual forecast and submitted their long-term plan which showed deterioration in the financial results for the remainder of 2021 and beyond. The Company utilized these updated projections in performing its annual impairment test, which indicated that the fair value of the LTC reporting unit was lower than its carrying value, resulting in a $431 million goodwill impairment charge in the third quarter of 2021. The fair value of the LTC reporting unit was determined using a combination of a discounted cash flow method and a market multiple method. Subsequent to the impairment charge recorded in the third quarter of 2021, there was no remaining goodwill balance in the LTC reporting unit.Recoverability of Indefinite-Lived Intangible Assets Indefinite-lived intangible assets are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that their carrying value may not be recoverable. Indefinite-lived intangible assets are tested by comparing the estimated fair value of the asset to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized, and the asset is written down to its estimated fair value.The indefinite-lived intangible asset impairment loss calculation contains uncertainty since management must use judgment to estimate fair value based on the assumption that, in lieu of ownership of an intangible asset, the Company would be willing to pay a royalty in order to utilize the benefits of the asset. Fair value is estimated by discounting the hypothetical royalty payments to their present value over the estimated economic life of the asset. These estimates can be affected by a number of factors including general economic conditions, availability of market information and the profitability of the Company. There were no impairment losses recognized on indefinite-lived intangible assets in any of the years ended December 31, 2023, 2022 or 2021.Health Care Benefits’ IBNR Liabilities The Health Care Benefits segment’s health care costs payable include estimates of the ultimate cost of (i) services rendered to the segment’s Insured members but not yet reported to the Company and (ii) claims which have been reported to the Company but not yet paid (collectively, “IBNR”). Health care costs payable also include an estimate of the cost of services that will continue to be rendered after the financial statement date if the Company is obligated to pay for such services in accordance with contractual or regulatory requirements. IBNR estimates are developed using actuarial principles and assumptions that consider numerous factors. See Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K for additional information on the Company’s reserving methodology.During 2023 and 2022, the segment observed an increase in completion factors relative to those assumed at the prior year end. After considering the claims paid in 2023 and 2022 with dates of service prior to the fourth quarter of the previous year, the segment observed assumed incurred claim weighted average completion factors that were 4 and 3 basis points higher, respectively, than previously estimated, resulting in a decrease of $55 million and $32 million in 2023 and 2022, respectively, in health care costs payable that related to the prior year. The segment has considered the pattern of changes in its completion factors when determining the completion factors used in its estimates of IBNR as of December 31, 2023. However, based on historical claim experience, it is reasonably possible that the estimated weighted average completion factors may vary by plus or minus 9 basis points from the assumed rates, which could impact health care costs payable by approximately plus or minus $166 million pretax. Also, during 2023 and 2022, the Health Care Benefits segment observed that health care costs for claims with claim incurred dates of three months or less before the financial statement date were lower than previously estimated. Specifically, after considering the claims paid in 2023 and 2022 with claim incurred dates for the fourth quarter of the previous year, the segment 103 observed health care costs that were 4.5% and 4.8% lower, respectively, for each fourth quarter than previously estimated, resulting in a reduction of $620 million and $622 million in 2023 and 2022, respectively, in health care costs payable that related to prior year. Management considers historical health care cost trend rates together with its knowledge of recent events that may impact current trends when developing estimates of current health care cost trend rates. When establishing reserves as of December 31, 2023, the segment increased its assumed health care cost trend rates for the most recent three months by 7.1% from health care cost trend rates recently observed. Health care cost trend rates during the past three years have been impacted by utilization changes driven by the COVID-19 pandemic. The impact has not been uniform, with products and select geographies experiencing utilization impacts due to COVID-19 waves. Based on historical claim experience, it is reasonably possible that the segment’s estimated health care cost trend rates may vary by plus or minus 3.5% from the assumed rates, which could impact health care costs payable by plus or minus $595 million pretax. New Accounting Pronouncements Recently Adopted See Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K for a description of recently adopted new accounting pronouncements applicable to the Company. 104Table of Contents

FY 2024-12-31 (later)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (“MD&A”) The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K (this “10-K”), “Risk Factors” included in Item 1A of this 10-K and the “Cautionary Statement Concerning Forward-Looking Statements” in this 10-K. Overview of BusinessCVS Health Corporation, together with its subsidiaries (collectively, “CVS Health,” the “Company,” “we,” “our” or “us”), is a leading health solutions company building a world of health around every consumer it serves and connecting care so that it works for people wherever they are. As of December 31, 2024, the Company had more than 9,000 retail locations, more than 1,000 walk-in and 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. Overview of the Health Care Benefits SegmentThe 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 primary customers, its members, primarily access the segment’s products and services through employer groups, government-sponsored plans or individually. The Health Care Benefits segment also serves customers who purchase products and services that are ancillary to its health insurance products. 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 December 31, 2024.Overview of the Health Services SegmentThe Health Services segment provides a full range of 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 Cordavis TM , 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, 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. 70Overview of the Pharmacy & Consumer Wellness SegmentThe 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 December 31, 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.Overview of the 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.71Results of OperationsThe following information summarizes the Company’s results of operations for 2024 compared to 2023. For discussion of the Company’s results of operations for 2023 compared to 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 7, 2024.Summary of Consolidated Financial Results ChangeYear Ended December 31, 2024 vs. 2023 2023 vs. 2022 In millions 2024 2023 2022 $ % $ %Revenues:Products $ 231,521 $ 245,138 $ 226,616 $ (13,617) (5.6) % $ 18,522 8.2 % Premiums 122,896 99,192 85,330 23,704 23.9 % 13,862 16.2 % Services 16,239 12,293 9,683 3,946 32.1 % 2,610 27.0 % Net investment income 2,153 1,153 838 1,000 86.7 % 315 37.6 % Total revenues 372,809 357,776 322,467 15,033 4.2 % 35,309 10.9 %Operating costs:Cost of products sold 206,287 217,098 196,892 (10,811) (5.0) % 20,206 10.3 % Health care costs 115,121 86,247 71,073 28,874 33.5 % 15,174 21.3 % Operating expenses 41,606 39,832 38,212 1,774 4.5 % 1,620 4.2 % Restructuring charges 1,179 507 — 672 132.5 % 507 100.0 % Opioid litigation charges 100 — 5,803 100 100.0 % (5,803) (100.0) % Loss on assets held for sale — 349 2,533 (349) (100.0) % (2,184) (86.2) % Total operating costs 364,293 344,033 314,513 20,260 5.9 % 29,520 9.4 % Operating income 8,516 13,743 7,954 (5,227) (38.0) % 5,789 72.8 % Interest expense 2,958 2,658 2,287 300 11.3 % 371 16.2 % Gain on early extinguishment of debt (491) — — (491) (100.0) % — — % Other income (99) (88) (169) (11) (12.5) % 81 47.9 % Income before income tax provision 6,148 11,173 5,836 (5,025) (45.0) % 5,337 91.4 % Income tax provision 1,562 2,805 1,509 (1,243) (44.3) % 1,296 85.9 % Net income 4,586 8,368 4,327 (3,782) (45.2) % 4,041 93.4 % Net (income) loss attributable to noncontrolling interests 28 (24) (16) 52 216.7 % (8) (50.0) % Net income attributable to CVS Health $ 4,614 $ 8,344 $ 4,311 $ (3,730) (44.7) % $ 4,033 93.6 % Commentary - 2024 compared to 2023Revenues• Total revenues increased $15.0 billion, or 4.2%, in 2024 compared to 2023. The increase in total revenues was driven by growth in the Health Care Benefits and Pharmacy & Consumer Wellness segments, partially offset by a decline in the Health Services segment.• Please see “Segment Analysis” later in this MD&A for additional information about the revenues of the Company’s segments. Operating expenses• Operating expenses increased $1.8 billion, or 4.5%, in 2024 compared to 2023. The increase in operating expenses was primarily due to increased operating expenses to support growth in the business.• Please see “Segment Analysis” later in this MD&A for additional information about the operating expenses of the Company’s segments.72Operating income• Operating income decreased $5.2 billion, or 38.0%, in 2024 compared to 2023. The decrease in operating income was primarily driven by a decrease in adjusted operating income, which is primarily the result of elevated Medicare utilization in the Health Care Benefits segment, and an increase in restructuring charges compared to 2023. These decreases in operating income were partially offset by an increase in net realized capital gains, the absence of a $349 million loss on assets held for sale related to the write-down of the Company’s Omnicare ® long-term care business recorded in the prior year, as well as lower acquisition-related transaction and integration costs.• Please see “Segment Analysis” later in this MD&A for additional information about the operating results of the Company’s segments. Interest expense• Interest expense increased $300 million, or 11.3%, in 2024 compared to 2023, due to higher debt in the year ended December 31, 2024 primarily as a result of long-term debt issuances in 2024. See “Liquidity and Capital Resources” later in this report for additional information. Gain on early extinguishment of debt • During 2024, the gain on early extinguishment of debt relates to the Company’s repayment of $2.6 billion of its outstanding senior notes pursuant to its tender offers for such senior notes in December 2024, which resulted in a gain on early extinguishment of debt of $491 million. See Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K for additional information.Income tax provision• The Company’s effective income tax rate increased to 25.4% in 2024 compared to 25.1% in the prior year. The increase was primarily due to the mix of pre-tax income and certain non-deductible expenses, partially offset by basis differences on the disposition of certain investments and utilization of tax credits in the year ended December 31, 2024 compared to the prior year. 73 2025 OutlookThe Company believes you should consider the following key business and regulatory trends and uncertainties: Key Business Trends and Uncertainties• The Company expects medical membership declines in its Medicare and individual exchange products. Medical membership disruptions may result in volatility in the Company’s financial results. • Utilization persisted at elevated levels through the fourth quarter of 2024. Although the level of utilization is difficult to accurately predict, at this time, the Company expects that continued elevated utilization will pressure its Health Care Benefits segment and its health care delivery assets in its Health Services segment into 2025. • Increases in utilization beyond the Company’s projections may also result in the Company having to record premium deficiency reserves within in the Health Care Benefits segment during 2025. • The Company’s Medicaid business is experiencing medical cost pressures, largely driven by higher than expected acuity following the resumption of member redeterminations. While the Company continues to work closely with its state partners to ensure the underlying trends are reflected in its premium rates going forward, it is uncertain when these pressures will be fully offset by state rate updates. • The Company’s individual exchange business is subject to a risk adjustment program whereby the Company estimates its ultimate risk adjustment receivable or payable based on the risk of its qualified plan members relative to the average risk of members of other qualified plans in comparable markets. Changes in the Company’s risk relative to the markets’ risk, including changes resulting from volatility in membership, could adversely impact the Company’s estimate of its risk adjustment receivable or payable. • The Company continues to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread.” The Company expects these trends to continue. • Glucagon-like peptide 1 (“GLP-1”) supply disruptions, and the associated impact on product mix, could pressure the Company’s ability to deliver savings to clients and could impact the Company’s results. • Regulatory changes or consumer sentiment shift for immunizations may negatively impact national demand impacting financial results. • Implementation of new tariffs create exposure for increased costs and supply chain disruptions that can adversely impact consumer demand or financial results. • Consumer spend management and a decline in consumer discretionary spending, as well as a shift to value, grocery and digital retailers, could drive lower front store sales. • Future financial performance will be influenced by a number of factors including competitive demand for products and services, legislative and regulatory considerations, and labor and other market dynamics, including inflation. The Company evaluates and adjusts its approach in each of the markets it serves, considering all relevant factors. • The Company expects benefits from ongoing enterprise-wide cost savings initiatives and investments in efficiencies, which aim to reduce the Company’s operating cost structure in a way that improves the consumer experience and is sustainable. During the third quarter of 2024, the Company finalized an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and generate expected cost savings of over $500 million in 2025. Refer to Note 3 ‘‘Restructuring’’ for actions implemented under the plan. • Changes in conditions in the U.S. and global capital markets can significantly and adversely affect interest rates and capital market conditions which could result in increased financing costs. • Actions taken by ratings agencies, including changes in the Company’s debt ratings, could impact the Company’s future borrowing costs, access to capital markets and new store operating lease costs.Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms.• Legislation and/or regulations seeking to regulate PBM activities in a comprehensive manner have been proposed or enacted in a majority of states and on the federal level. This legislative and regulatory activity could adversely affect 74 the Company’s ability to conduct business on commercially reasonable terms and the Company’s ability to standardize its PBM products and services across state lines.For additional information regarding these and other trends and uncertainties, see Item 1A, “Risk Factors” and Part I, Item 1 “Business - Government Regulation.”75Segment Analysis The following discussion of segment operating results is presented based on the Company’s reportable segments in accordance with the accounting guidance for segment reporting and is consistent with the segment disclosure in Note 19 ‘‘Segment Reporting’’ included in Item 8 of this 10-K.The Company has four reportable segments: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other. The Company’s segments maintain separate financial information, and the Chief Operating Decision Maker (“the CODM”) evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The Company’s CODM is the Chief Executive Officer. The CODM evaluates the performance of the Company’s segments based on adjusted operating income (loss). Adjusted operating income is defined as operating income as measured by accounting principles generally accepted in the United States of America (“GAAP”) excluding the impact of amortization of intangible assets, net realized capital gains or losses and other items, if any, that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance. See the reconciliations of operating income (loss) (GAAP measure) to adjusted operating income (loss) below for further context regarding the items excluded from operating income in determining adjusted operating income. The CODM uses adjusted operating income as its principal measure of segment performance as it enhances the CODM’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals: In millions Health Care Benefits Health Services (1) Pharmacy & Consumer Wellness Corporate/ Other Intersegment Eliminations (2) Consolidated Totals2024 Total revenues $ 130,665 $ 173,605 $ 124,500 $ 451 $ (56,412) $ 372,809 Adjusted operating income (loss) 307 7,243 5,774 (1,348) — 11,9762023 Total revenues $ 105,646 $ 186,843 $ 116,763 $ 451 $ (51,927) $ 357,776 Adjusted operating income (loss) 5,577 7,312 5,963 (1,318) — 17,534 2022Total revenues $ 91,350 $ 169,576 $ 108,596 $ 530 $ (47,585) $ 322,467 Adjusted operating income (loss) 6,338 6,781 6,531 (1,613) — 18,037_____________________________________________(1) Total revenues of the Health Services segment include approximately $11.4 billion, $13.7 billion and $12.6 billion of retail co-payments for 2024, 2023 and 2022, respectively. See Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K for additional information about retail co-payments. (2) Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment. 76 The following are reconciliations of consolidated operating income (loss) (GAAP measure) to consolidated adjusted operating income (loss), as well as reconciliations of segment GAAP operating income (loss) to segment adjusted operating income (loss): Year Ended December 31, 2024 In millions Health Care Benefits Health Services Pharmacy & Consumer Wellness Corporate/ Other Consolidated Totals Operating income (loss) (GAAP measure) $ (984) $ 6,937 $ 4,770 $ (2,207) $ 8,516 Amortization of intangible assets (1) 1,175 595 253 2 2,025 Net realized capital (gains) losses (2) 97 (289) — 75 (117) Acquisition-related integration costs (3) — — — 243 243 Restructuring charges (4) — — 747 432 1,179 Office real estate optimization charges (5) 19 — 4 7 30 Opioid litigation charges (6) — — — 100 100 Adjusted operating income (loss) $ 307 $ 7,243 $ 5,774 $ (1,348) $ 11,976Year Ended December 31, 2023 In millions Health Care Benefits Health Services Pharmacy & Consumer Wellness Corporate/ Other Consolidated Totals Operating income (loss) (GAAP measure) $ 3,949 $ 6,842 $ 5,349 $ (2,397) $ 13,743 Amortization of intangible assets (1) 1,177 465 260 3 1,905 Net realized capital losses (2) 402 — 5 90 497 Acquisition-related transaction and integration costs (3) — — — 487 487 Restructuring charges (4) — — — 507 507 Office real estate optimization charges (5) 49 5 — (8) 46Loss on assets held for sale (7)— — 349 — 349 Adjusted operating income (loss) $ 5,577 $ 7,312 $ 5,963 $ (1,318) $ 17,534 Year Ended December 31, 2022 In millions Health Care Benefits Health Services Pharmacy & Consumer Wellness Corporate/ Other Consolidated Totals Operating income (loss) (GAAP measure) $ 5,270 $ 6,612 $ 3,560 $ (7,488) $ 7,954 Amortization of intangible assets (1) 1,180 167 435 3 1,785 Net realized capital losses (2) 225 — 44 51 320 Office real estate optimization charges (5) 97 2 — 18 117Opioid litigation charges (6)— — — 5,803 5,803Loss on assets held for sale (7) 41 — 2,492 — 2,533Gain on divestiture of subsidiaries (8) (475) — — — (475) Adjusted operating income (loss) $ 6,338 $ 6,781 $ 6,531 $ (1,613) $ 18,037_____________________________________________(1) The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non- 77 GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. (2) The Company’s net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in net investment income (loss) within each segment. These capital gains and losses are the result of investment decisions, market conditions and other economic developments that are unrelated to the performance of the Company’s business, and the amount and timing of these capital gains and losses do not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Accordingly, the Company believes excluding net realized capital gains and losses enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. (3) In 2024, the acquisition-related integration costs relate to the acquisitions of Signify Health and Oak Street Health. In 2023, the acquisition-related transaction and integration costs relate to the acquisitions of Signify Health and Oak Street Health. The acquisition-related transaction and integration costs are reflected in operating expenses within the Corporate/Other segment. (4) In 2024, the restructuring charges are primarily comprised of a store impairment charge, corporate workforce optimization costs, including severance and employee-related costs, other asset impairment and related charges associated with the discontinuation of certain non-core assets, and a stock-based compensation charge. During the third quarter of 2024, the Company finalized an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with this restructuring plan, the Company completed a strategic review of its retail business and determined that it plans to close 271 retail stores in 2025, and, accordingly, it recorded a store impairment charge to write down the associated operating or financing lease right-of-use assets and property and equipment. In addition, during the third quarter of 2024, the Company also conducted a review of its various strategic assets and determined that it would discontinue the use of certain non-core assets, at which time impairment losses were recorded to write down the carrying value of these assets to the Company’s best estimate of their fair value. In 2023, the restructuring charges are primarily comprised of severance and employee-related costs, asset impairment charges and a stock-based compensation charge. The restructuring charges associated with the store impairments are reflected within the Pharmacy & Consumer Wellness segment, other asset impairments and related charges are reflected within the Corporate/Other and Pharmacy & Consumer Wellness segments and corporate workforce optimization costs, including severance and employee-related costs, as well as stock-based compensation changes, are reflected within the Corporate/Other segment. (5) In 2024, 2023 and 2022, the office real estate optimization charges primarily relate to the abandonment of leased real estate and the related right-of-use assets and property and equipment in connection with the Company’s evaluation of corporate office real estate space in response to its ongoing flexible work arrangement. The office real estate optimization charges are reflected in operating expenses within each segment. (6) In 2024, the opioid litigation charge relates to a change in the Company’s accrual related to ongoing opioid litigation matters. In 2022, the opioid litigation charges relate to agreements to resolve substantially all opioid claims against the Company by certain states and governmental entities. The opioid litigation charges are reflected within the Corporate/Other segment. (7) In 2023 and 2022, the loss on assets held for sale relates to the LTC business within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. The carrying value of the LTC business was determined to be greater than its estimated fair value less costs to sell and, accordingly, the Company recorded a loss on assets held for sale during 2022. During the first quarter of 2023, a loss on assets held for sale was recorded to write down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflected its estimated fair value less costs to sell. As of the third quarter of 2023, the Company determined the LTC business no longer met the criteria for held-for-sale accounting and, accordingly, the net assets associated with the LTC business were reclassified to held and used at their respective fair values. During 2022, the loss on assets held for sale also relates to the Company’s international health care business domiciled in Thailand (“Thailand business”), which was included in the Commercial Business reporting unit in the Health Care Benefits segment. The sale of the Thailand business closed in the second quarter of 2022, and the ultimate loss on the sale was not material. (8) In 2022, the gain on divestiture of subsidiaries represents the pre-tax gain on the sale of bswift, which the Company sold in November 2022, and the pre-tax gain on the sale of PayFlex, which the Company sold in June 2022. The gains on divestitures are reflected as a reduction of operating expenses within the Health Care Benefits segment. 78Health Care Benefits Segment The following table summarizes the Health Care Benefits segment’s performance for the respective periods: ChangeYear Ended December 31, 2024 vs. 2023 2023 vs. 2022 In millions, except percentages and basis points (“bps”) 2024 2023 2022 $ % $ %Revenues:Premiums $ 122,849 $ 99,144 $ 85,274 $ 23,705 23.9 % $ 13,870 16.3 % Services 6,343 5,737 5,600 606 10.6 % 137 2.4 % Net investment income 1,473 765 476 708 92.5 % 289 60.7 % Total revenues 130,665 105,646 91,350 25,019 23.7 % 14,296 15.6 % Health care costs 113,659 85,504 71,473 28,155 32.9 % 14,031 19.6 %MBR (Health care costs as a % of premium revenues)92.5 % 86.2 % 83.8% 630 bps 240 bps Operating expenses $ 17,990 $ 16,193 $ 14,566 $ 1,797 11.1 % $ 1,627 11.2 % Operating expenses as a % of total revenues 13.8 % 15.3 % 15.9 % Loss on assets held for sale $ — $ — $ 41 $ — — % $ (41) (100.0) % Operating income (loss) (984) 3,949 5,270 (4,933) (124.9) % (1,321) (25.1) % Operating income (loss) as a % of total revenues (0.8) % 3.7 % 5.8 %Adjusted operating income (1)$ 307 $ 5,577 $ 6,338 $ (5,270) (94.5) % $ (761) (12.0) % Adjusted operating income as a % of total revenues 0.2 % 5.3 % 6.9 %Premium revenues (by business):Government $ 88,433 $ 70,094 $ 63,141 $ 18,339 26.2 % $ 6,953 11.0 % Commercial 34,416 29,050 22,133 5,366 18.5 % 6,917 31.3 %_____________________________________________(1) See “Segment Analysis” above in this MD&A for a reconciliation of operating income (loss) (GAAP measure) to adjusted operating income for the Health Care Benefits segment, which represents the Company’s principal measure of segment performance. Commentary - 2024 compared to 2023Revenues• Total revenues increased $25.0 billion, or 23.7%, in 2024 compared to 2023, primarily driven by growth in the Medicare and individual exchange product lines.Medical Benefit Ratio • Medical benefit ratio is calculated as health care costs divided by premium revenues and represents the percentage of premium revenues spent on medical benefits for the Company’s Insured members. Management uses MBR to assess the underlying business performance and underwriting of its insurance products, understand variances between actual results and expected results and identify trends in period-over-period results. MBR provides management and investors with information useful in assessing the operating results of the Company’s Insured Health Care Benefits products.• The MBR increased from 86.2% to 92.5% in 2024 compared to the prior year primarily driven by increased utilization, the unfavorable impact of the Company’s Medicare Advantage star ratings for the 2024 payment year and higher acuity in Medicaid following the resumption of redeterminations.Operating expenses • Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.• Operating expenses increased $1.8 billion, or 11.1%, in 2024 compared to 2023. The increase in operating expenses was primarily driven by increased operating expenses to support the growth across the business. Operating expenses as a percentage of total revenues decreased to 13.8% in the year ended December 31, 2024 compared to 15.3% in the prior year, reflecting improved fixed cost leverage across the business due to membership growth. 79Adjusted operating income• Adjusted operating income decreased $5.3 billion, or 94.5%, in 2024 compared to 2023. The decrease in adjusted operating income was primarily driven by increased utilization, the unfavorable impact of the Company’s Medicare Advantage star ratings for the 2024 payment year and higher acuity in Medicaid. These decreases were partially offset by an increase in net investment income and improved fixed cost leverage across the business due to membership growth. The following table summarizes the Health Care Benefits segment’s medical membership as of December 31, 2024 and 2023: 2024 2023In thousands Insured ASC Total Insured ASC Total Medical membership:Commercial 4,691 14,160 18,851 4,252 14,087 18,339 Medicare Advantage 4,447 — 4,447 3,460 — 3,460 Medicare Supplement 1,282 — 1,282 1,343 — 1,343 Medicaid 2,094 421 2,515 2,073 444 2,517 Total medical membership 12,514 14,581 27,095 11,128 14,531 25,659Supplemental membership information:Medicare Prescription Drug Plan (standalone) 4,882 6,081Medical Membership • Medical membership represents the number of members covered by the Company’s Insured and ASC medical products and related services at a specified point in time. Management uses this metric to understand variances between actual medical membership and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of medical membership on segment total revenues and operating results.• Medical membership as of December 31, 2024 of 27.1 million increased 1.4 million members compared with December 31, 2023, reflecting increases in the Medicare and Commercial product lines.Medicare UpdateOn April 1, 2024, CMS issued its final notice detailing final 2025 Medicare Advantage payment rates. Final 2025 Medicare Advantage rates resulted in an expected average decrease in revenue for the Medicare Advantage industry of 0.16%, excluding the CMS estimate of Medicare Advantage risk score trend. On January 10, 2025, CMS issued an advance notice detailing proposed 2026 Medicare Advantage payment rates. The 2026 Medicare Advantage rates, if finalized as proposed, will result in an expected average increase in revenue for the Medicare Advantage industry of 2.23%, excluding the CMS estimate of Medicare Advantage risk score trend. CMS intends to publish the final 2026 rate announcement no later than April 7, 2025. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 ties a portion of each Medicare Advantage plan’s reimbursement to the plan’s “star ratings.” Plans must have a star rating of four or higher (out of five) to qualify for bonus payments. CMS released the Company’s 2025 star ratings in October 2024. The Company’s 2025 star ratings will be used to determine which of the Company’s Medicare Advantage plans have ratings of four stars or higher and qualify for bonus payments in 2026. Based on the Company’s membership as of December 2024, 88% of the Company’s Medicare Advantage members were in plans with 2025 star ratings of at least 4.0 stars, compared to 91% of the Company’s Medicare Advantage members being in plans with 2024 star ratings of at least 4.0 stars based on the Company’s membership as of December 2023. 80Health Services Segment The following table summarizes the Health Services segment’s performance for the respective periods: ChangeYear Ended December 31, 2024 vs. 2023 2023 vs. 2022 In millions, except percentages 2024 2023 2022 $ % $ %Revenues:Products $ 162,436 $ 180,608 $ 167,019 $ (18,172) (10.1) % $ 13,589 8.1 % Services 10,884 6,236 2,557 4,648 74.5 % 3,679 143.9 % Net investment income (loss) (1) 285 (1) — 286 NM (1) (100.0) % Total revenues 173,605 186,843 169,576 (13,238) (7.1) % 17,267 10.2 % Cost of products sold 160,036 175,424 160,738 (15,388) (8.8) % 14,686 9.1 % Health care costs 3,407 1,607 — 1,800 112.0 % 1,607 100.0 % Operating expenses 3,225 2,970 2,226 255 8.6 % 744 33.4 % Operating expenses as a % of total revenues 1.9 % 1.6 % 1.3 % Operating income $ 6,937 $ 6,842 $ 6,612 $ 95 1.4 % $ 230 3.5 % Operating income as a % of total revenues 4.0 % 3.7 % 3.9 % Adjusted operating income (2) $ 7,243 $ 7,312 $ 6,781 $ (69) (0.9) % $ 531 7.8 % Adjusted operating income as a % of total revenues 4.2 % 3.9 % 4.0 %Revenues (by distribution channel):Pharmacy network (3) $ 91,650 $ 112,718 $ 102,968 $ (21,068) (18.7) % $ 9,750 9.5 % Mail & specialty (4) 70,877 67,992 63,825 2,885 4.2 % 4,167 6.5 % Other 10,793 6,134 2,783 4,659 76.0 % 3,351 120.4 % Net investment income (loss) (1) 285 (1) — 286 NM (1) (100.0) % Pharmacy claims processed (5) 1,917.6 2,344.3 2,335.1 (426.7) (18.2) % 9.2 0.4 % Generic dispensing rate (5) 87.4 % 87.6 % 87.4 %_____________________________________________(1) NM represents a percent change that is not meaningful. (2) See “Segment Analysis” above in this MD&A for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Health Services segment, which represents the Company’s principal measure of segment performance. (3) Pharmacy network revenues relate to claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies, as well as activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order. (4) Mail & specialty revenues relate to specialty mail claims inclusive of Specialty Connect ® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. (5) Includes an adjustment to convert 90-day prescriptions to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. Commentary - 2024 compared to 2023Revenues• Total revenues decreased $13.2 billion, or 7.1%, in 2024 compared to 2023. The decrease was primarily driven by the previously announced loss of a large client and continued pharmacy client price improvements. These decreases were partially offset by pharmacy drug mix, increased contributions from the Company’s health care delivery assets, including the 2023 acquisitions of Oak Street Health and Signify Health, as well as growth in specialty pharmacy.Operating expenses • Operating expenses in the Health Services segment include selling, general and administrative expenses; and depreciation and amortization expense.• Operating expenses increased $255 million, or 8.6%, in 2024 compared to 2023. The increase was primarily driven by operating expenses associated with Oak Street Health which was acquired in May of 2023, including the amortization of acquired intangible assets. 81Adjusted operating income• Adjusted operating income decreased $69 million, or 0.9%, in 2024 compared to 2023. The decrease in adjusted operating income was primarily driven by continued pharmacy client price improvements and the previously announced loss of a large client. These decreases were largely offset by improved purchasing economics.• As you review the Health Services segment’s performance in this area, you should consider the following important information about the business: • The Company’s efforts to (i) retain existing clients, (ii) obtain new business and (iii) maintain or improve the rebates, fees and/or discounts the Company receives from manufacturers, wholesalers and retail pharmacies continue to have an impact on adjusted operating income. In particular, competitive pressures in the PBM industry have caused the Company and other PBMs to continue to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers. In addition, marketplace dynamics and regulatory changes have limited the Company’s ability to offer plan sponsors pricing that includes retail network “differential” or “spread,” and the Company expects these trends to continue. The “differential” or “spread” is any difference between the drug price charged to plan sponsors, including Medicare Part D plan sponsors, by a PBM and the price paid for the drug by the PBM to the dispensing provider. Pharmacy claims processed • Pharmacy claims processed represents the number of prescription claims processed through the Company’s pharmacy benefits manager and dispensed by either its retail network pharmacies or the Company’s mail and specialty pharmacies. Management uses this metric to understand variances between actual claims processed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of pharmacy claim volume on segment total revenues and operating results.• The Company’s pharmacy claims processed decreased 18.2% on a 30-day equivalent basis in 2024 compared to 2023 primarily driven by the previously announced loss of a large client.Generic dispensing rate • Generic dispensing rate is calculated by dividing the Health Services segment’s generic claims processed by its total claims processed. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.• The Health Services segment’s generic dispensing rate decreased to 87.4% in 2024 compared to 87.6% in the prior year. The decrease in the segment’s generic dispensing rate was primarily driven by an increase in brand name GLP-1 pharmacy claims in 2024 compared to 2023. 82Pharmacy & Consumer Wellness Segment The following table summarizes the Pharmacy & Consumer Wellness segment’s performance for the respective periods: ChangeYear Ended December 31, 2024 vs. 2023 2023 vs. 2022 In millions, except percentages 2024 2023 2022 $ % $ %Revenues:Products $ 122,028 $ 113,976 $ 104,878 $ 8,052 7.1 % $ 9,098 8.7 % Services 2,472 2,792 3,762 (320) (11.5) % (970) (25.8) % Net investment income (loss) — (5) (44) 5 100.0 % 39 88.6 % Total revenues 124,500 116,763 108,596 7,737 6.6 % 8,167 7.5 % Cost of products sold 99,337 91,447 82,063 7,890 8.6 % 9,384 11.4 % Operating expenses 19,646 19,618 20,481 28 0.1 % (863) (4.2) % Operating expenses as a % of total revenues 15.8 % 16.8 % 18.9 % Restructuring charges $ 747 $ — $ — $ 747 100.0 % $ — — % Loss on assets held for sale — 349 2,492 (349) (100.0) % (2,143) (86.0) % Operating income 4,770 5,349 3,560 (579) (10.8) % 1,789 50.3 % Operating income as a % of total revenues 3.8 % 4.6 % 3.3 %Adjusted operating income (1)$ 5,774 $ 5,963 $ 6,531 $ (189) (3.2) % $ (568) (8.7) % Adjusted operating income as a % of total revenues 4.6 % 5.1 % 6.0 %Revenues (by major goods/service lines):Pharmacy $ 100,687 $ 92,111 $ 83,480 $ 8,576 9.3 % $ 8,631 10.3 % Front Store 21,522 22,458 22,780 (936) (4.2) % (322) (1.4) % Other 2,291 2,199 2,380 92 4.2 % (181) (7.6) % Net investment income (loss) — (5) (44) 5 100.0 % 39 88.6 %Prescriptions filled (2)1,715.5 1,649.1 1,625.4 66.4 4.0 % 23.7 1.5 % Same store sales increase (decrease): (3) Total 9.4 % 10.7 % 9.1 % Pharmacy 12.3 % 13.6 % 9.5 % Front Store (2.1) % 0.3 % 7.8 %Prescription volume (2)6.8 % 3.9 % 4.0 %Generic dispensing rate (2)88.9 % 88.4 % 87.4 %_____________________________________________ (1) See “Segment Analysis” above in this MD&A for a reconciliation of operating income (GAAP measure) to adjusted operating income for the Pharmacy & Consumer Wellness segment, which represents the Company’s principal measure of segment performance. (2) Includes an adjustment to convert 90‑day prescriptions to the equivalent of three 30‑day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.(3) Same store sales and prescription volume represent the change in revenues and prescriptions filled in the Company’s retail pharmacy stores that have been operating for greater than one year and digital sales initiated online or through mobile applications and fulfilled through the Company’s distribution centers, expressed as a percentage that indicates the increase or decrease relative to the comparable prior period. Same store metrics exclude revenues and prescriptions from LTC and infusion services operations. Management uses these metrics to evaluate the performance of existing stores on a comparable basis and to inform future decisions regarding existing stores and new locations. Same-store metrics provide management and investors with information useful in understanding the portion of current revenues and prescriptions resulting from organic growth in existing locations versus the portion resulting from opening new stores. Commentary - 2024 compared to 2023Revenues• Total revenues increased $7.7 billion, or 6.6%, in 2024 compared to 2023. The increase was primarily driven by pharmacy drug mix and increased prescription volume, including increased contributions from vaccinations. These increases were partially offset by continued pharmacy reimbursement pressure, the impact of recent generic introductions and decreased 83 front store volume, including the impact of a decrease in store count and lower contributions from COVID-19 over-the-counter (“OTC”) test kits since the expiration of the public health emergency in May 2023. • Pharmacy same store sales increased 12.3% in 2024 compared to 2023. The increase was primarily driven by the 6.8% increase in pharmacy same store prescription volume on a 30-day equivalent basis, including increased contributions from vaccinations, and pharmacy drug mix, including branded GLP-1 drugs. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic introductions. • Front store same store sales decreased 2.1% in 2024 compared to 2023 primarily due to general softening of consumer demand and lower contributions from COVID-19 OTC test kits compared to the prior year.Operating expenses • Operating expenses in the Pharmacy & Consumer Wellness segment include payroll, employee benefits and occupancy costs associated with the segment’s stores and pharmacy fulfillment operations; selling expenses; advertising expenses; depreciation and amortization expense and certain administrative expenses.• Operating expenses remained relatively consistent in 2024 compared to the prior year at $19.6 billion, as the absence of gains from anti-trust legal settlements and increased investments in the segment’s operations and capabilities were substantially offset by the decrease in store count. Restructuring charges • During 2024, the Company recorded $747 million of restructuring charges related to the write-down of lease right-of-use assets and property and equipment in connection with the Company’s restructuring program. See Note 3 ‘‘Restructuring’’ included in Item 8 of this 10-K for additional information. Loss on assets held for sale • During 2023, the Company recorded losses on assets held for sale of $349 million related to the write-down of its LTC business. See Note 2 ‘‘Acquisitions, Divestitures and Asset Sales’’ included in Item 8 of this 10-K for additional information.Adjusted operating income• Adjusted operating income decreased $189 million, or 3.2%, in 2024 compared to 2023 primarily driven by continued pharmacy reimbursement pressure and decreased front store volume, including lower contributions from COVID-19 OTC test kits, largely offset by increased prescription volume, including increased contributions from vaccinations, as well as improved drug purchasing.• As you review the Pharmacy & Consumer Wellness segment’s performance in this area, you should consider the following important information about the business: • The segment’s adjusted operating income has been adversely affected by the efforts of managed care organizations, PBMs and governmental and other third-party payors to reduce their prescription drug costs, including the use of restrictive networks, as well as changes in the mix of business within the pharmacy portion of the Pharmacy & Consumer Wellness segment. If the pharmacy reimbursement pressure accelerates, the segment may not be able to grow revenues, and its adjusted operating income could be adversely affected.Prescriptions filled • Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment’s retail and long-term care pharmacies and infusion services operations. Management uses this metric to understand variances between actual prescriptions dispensed and expected amounts as well as trends in period-over-period results. This metric provides management and investors with information useful in understanding the impact of prescription volume on segment total revenues and operating results.• Prescriptions filled increased 4.0% on a 30-day equivalent basis in 2024 compared to 2023 primarily driven by increased utilization, partially offset by the decrease in store count.Generic dispensing rate • Generic dispensing rate is calculated by dividing the Pharmacy & Consumer Wellness segment’s generic drug prescriptions filled by its total prescriptions filled. Management uses this metric to evaluate the effectiveness of the business at encouraging the use of generic drugs when they are available and clinically appropriate, which aids in decreasing costs for client members and retail customers. This metric provides management and investors with information useful in understanding trends in segment total revenues and operating results.84 • The Pharmacy & Consumer Wellness segment’s generic dispensing rate increased to 88.9% in 2024 compared to 88.4% in the prior year. The increase in the segment’s generic dispensing rate was primarily driven by the impact of new generic drug introductions and the Company’s ongoing efforts to encourage plan members to use generic drugs when they are available and clinically appropriate. 85Corporate/Other Segment The following table summarizes the Corporate/Other segment’s performance for the respective periods: ChangeYear Ended December 31, 2024 vs. 2023 2023 vs. 2022 In millions, except percentages 2024 2023 2022 $ % $ %Revenues:Premiums $ 47 $ 48 $ 56 $ (1) (2.1) % $ (8) (14.3) % Services 9 9 68 — — % (59) (86.8) % Net investment income 395 394 406 1 0.3 % (12) (3.0) % Total revenues 451 451 530 — — % (79) (14.9) % Cost of products sold — 1 42 (1) (100.0) % (41) (97.6) % Health care costs 187 210 249 (23) (11.0) % (39) (15.7) % Operating expenses 1,939 2,130 1,924 (191) (9.0) % 206 10.7 % Restructuring charges 432 507 — (75) (14.8) % 507 100.0 % Opioid litigation charges 100 — 5,803 100 100.0 % (5,803) (100.0) % Operating loss (2,207) (2,397) (7,488) 190 7.9 % 5,091 68.0 %Adjusted operating loss (1)(1,348) (1,318) (1,613) (30) (2.3) % 295 18.3 %_____________________________________________ (1) See “Segment Analysis” above in this MD&A for a reconciliation of Corporate/Other segment operating loss (GAAP measure) to adjusted operating loss, which represents the Company’s principal measure of segment performance.Commentary - 2024 compared to 2023Revenues • Revenues primarily relate to products for which the Company no longer solicits or accepts new customers, such as large case pensions and long-term care insurance products.• Total revenues of $451 million in 2024 remained consistent compared to 2023.Restructuring charges• During 2024, the Company recorded $432 million of restructuring charges comprised of $129 million of asset impairment and related charges associated with the write-down of certain non-core assets, $293 million of severance and employee-related costs associated with corporate workforce optimization and a $10 million stock-based compensation charge associated with the impacted employees. During 2023, the Company recorded $507 million in pre-tax restructuring charges, comprised of $344 million of severance and employee-related costs associated with corporate workforce optimization, $152 million of asset impairment charges and an $11 million stock-based compensation charge associated with the impacted employees. See Note 3 ‘‘Restructuring’’ included in Item 8 of this 10-K for additional information.Adjusted operating loss• Adjusted operating loss of $1.3 billion in 2024 remained relatively consistent compared to 2023. 86Liquidity and Capital Resources Cash FlowsThe Company maintains a level of liquidity sufficient to allow it to meet its cash needs in the short-term. Over the long term, the Company manages its cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. The Company continuously assesses its regulatory capital requirements, working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements, dividend payouts, potential share repurchases and future investments or acquisitions. The Company believes its operating cash flows, commercial paper program, credit facilities, as well as any potential future borrowings, will be sufficient to fund these future payments and long-term initiatives. As of December 31, 2024, the Company had approximately $8.6 billion in cash and cash equivalents, approximately $3.8 billion of which was held by the parent company or nonrestricted subsidiaries. The net change in cash, cash equivalents and restricted cash for the years ended December 31, 2024, 2023 and 2022 was as follows:ChangeYear Ended December 31, 2024 vs. 2023 2023 vs. 2022 In millions 2024 2023 2022 $ % $ % Net cash provided by operating activities $ 9,107 $ 13,426 $ 16,177 $ (4,319) (32.2) % $ (2,751) (17.0) % Net cash used in investing activities (7,613) (20,889) (5,047) 13,276 63.6 % (15,842) (313.9) % Net cash provided by (used in) financing activities (1,135) 2,683 (10,516) (3,818) (142.3) % 13,199 125.5 % Net increase (decrease) in cash, cash equivalents and restricted cash $ 359 $ (4,780) $ 614 $ 5,139 107.5 % $ (5,394) (878.5) % Commentary - 2024 compared to 2023 • Net cash provided by operating activities decreased by $4.3 billion in 2024 compared to 2023 primarily due to the impact of elevated Medicare utilization on earnings. • Net cash used in investing activities decreased by $13.3 billion in 2024 compared to 2023 primarily due to the acquisitions of Oak Street Health in May 2023 and Signify Health in March 2023, partially offset by higher net purchases of investments. In addition, cash used in investing activities reflected the following activity: • Gross capital expenditures were approximately $2.8 billion and $3.0 billion in 2024 and 2023, respectively. During 2024, approximately 76% of the Company’s total capital expenditures were for technology, digital and other strategic initiatives and 24% were for store, fulfillment and support and improvements. • Net cash used in financing activities was $1.1 billion in 2024 compared to net cash provided by financing activities of $2.7 billion in 2023. The change in cash provided by (used in) financing activities primarily related to lower proceeds from the issuance of long-term debt and higher repayments of long-term debt in 2024 compared to the prior year, as well as higher repurchases of common stock in 2024, partially offset by higher proceeds from commercial paper borrowings compared to the prior year. Included in net cash used in investing activities for the years ended December 31, 2024, 2023 and 2022 was the following store development activity: (1) 2024 2023 2022 Total stores (beginning of year) 9,395 9,674 9,939New and acquired stores (2)39 39 41Closed stores (2)(299) (318) (306) Total stores (end of year) 9,135 9,395 9,674Relocated stores (2)3 5 4_____________________________________________ (1) Includes retail drugstores and pharmacies within retail chains, primarily in Target Corporation (“Target”) stores. (2) Relocated stores are not included in new and acquired stores or closed stores totals.87Short-term Borrowings Commercial Paper and Back-up Credit FacilitiesThe Company had $2.1 billion of commercial paper outstanding at a weighted average interest rate of 4.98% as of December 31, 2024. The Company had $200 million of commercial paper outstanding at a weighted interest rate of 4.31% as of December 31, 2023. In connection with its commercial paper program, the Company maintains a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 11, 2027, a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2028, and a $2.5 billion, five-year unsecured back-up revolving credit facility, which expires on May 16, 2029. The credit facilities allow for borrowings at various rates that are dependent, in part, on the Company’s public debt ratings and require the Company to pay a weighted average quarterly facility fee of approximately 0.03%, regardless of usage. As of December 31, 2024 and 2023, there were no borrowings outstanding under any of the Company’s back-up credit facilities.Term Loan AgreementOn March 25, 2024, the Company entered into a 364-day $3.0 billion term loan credit agreement. The term loan credit agreement allowed for borrowings at various rates that were dependent, in part, on the Company’s public debt ratings. On May 9, 2024, following the issuance of the $5.0 billion in senior notes described under “Long-term Borrowings” below, the term loan credit agreement terminated. There were no borrowings under the term loan credit agreement through the date of termination. On May 1, 2023, the Company entered into a 364-day $5.0 billion term loan agreement. The term loan agreement allowed for borrowings at various rates that were dependent, in part, on the Company’s debt ratings. On May 2, 2023, the Company borrowed $5.0 billion at an interest rate of approximately 6.2% under the term loan agreement to fund a portion of the Oak Street Health acquisition purchase price. On June 2, 2023, the Company repaid the outstanding balance under the term loan agreement.Federal Home Loan Bank of Boston (“FHLBB”)A subsidiary of the Company is a member of the FHLBB. As a member, the subsidiary has the ability to obtain cash advances, subject to certain minimum collateral requirements. The maximum borrowing capacity available from the FHLBB as of December 31, 2024 was approximately $1.2 billion. As of December 31, 2024 and 2023, there were no outstanding advances from the FHLBB.Long-term Borrowings2024 Notes On December 10, 2024, the Company issued $2.25 billion aggregate principal amount of 7.0% fixed-to-fixed rate series A junior subordinated notes due March 2055 and $750 million aggregate principal amount of 6.75% fixed-to-fixed rate series B junior subordinated notes due December 2054 for total proceeds of approximately $3.0 billion, net of discounts and underwriting fees. The series A junior subordinated notes bear interest at 7.0% per year until March 10, 2030, at which time the rate will reset March 10th of every fifth year, provided that the interest rate will not reset below the initial interest rate. The series B junior subordinated notes bear interest at 6.75% per year until December 10, 2034, at which time the rate will reset December 10th of every fifth year, provided that the interest rate will not reset below the initial interest rate. The series A and series B junior subordinated notes pay interest semi-annually and may be redeemed at any time beginning 90 days prior to their respective first interest rate reset date and on any interest payment date thereafter, in whole or in part at a defined redemption price plus accrued interest. The net proceeds of these offerings were used for the early extinguishment of certain of the Company’s senior notes as described below and the remaining proceeds after the early extinguishment of debt were used for general corporate purposes. On May 9, 2024, the Company issued $1.0 billion aggregate principal amount of 5.4% senior notes due June 2029, $1.0 billion aggregate principal amount of 5.55% senior notes due June 2031, $1.25 billion aggregate principal amount of 5.7% senior notes due June 2034, $750 million aggregate principal amount of 6.0% senior notes due June 2044 and $1.0 billion aggregate principal amount of 6.05% senior notes due June 2054 for total proceeds of approximately $5.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used for general corporate purposes.2023 NotesOn June 2, 2023, the Company issued $1.0 billion aggregate principal amount of 5.0% senior notes due January 2029, $750 million aggregate principal amount of 5.25% senior notes due January 2031, $1.25 billion aggregate principal amount of 5.3% senior notes due June 2033, $1.25 billion aggregate principal amount of 5.875% senior notes due June 2053 and 88 $750 million aggregate principal amount of 6.0% senior notes due June 2063 for total proceeds of approximately $4.9 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used, along with cash on hand, to repay the outstanding balance under the term loan agreement described above.On February 21, 2023, the Company issued $1.5 billion aggregate principal amount of 5.0% senior notes due February 2026, $1.5 billion aggregate principal amount of 5.125% senior notes due February 2030, $1.75 billion aggregate principal amount of 5.25% senior notes due February 2033 and $1.25 billion aggregate principal amount of 5.625% senior notes due February 2053 for total proceeds of approximately $6.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used to fund general corporate purposes, including a portion of the Signify Health acquisition purchase price. Oak Street Health Convertible Notes Prior to the Oak Street Health acquisition, Oak Street Health held 0% convertible senior notes with an aggregate principal amount of $920 million (the “Convertible Notes”), which were assumed by the Company in connection with the Oak Street Health acquisition. The Oak Street Health acquisition constituted a fundamental change in the Convertible Notes giving the holders the right to require the Company to repurchase the Convertible Notes. The repurchase price was an amount in cash equal to 100% of the principal amount of the Convertible Notes. On May 31, 2023, the Company issued a notice of repurchase to the holders of the Convertible Notes. In connection with this notice, $917 million of the Convertible Notes were submitted for repurchase and settled on July 21, 2023. Substantially all of the remaining $3 million of the Convertible Notes were submitted for repurchase and settled on October 20, 2023.Gain on Early Extinguishment of Debt In December 2024, pursuant to a cash tender offer, the Company repaid approximately $2.6 billion of its outstanding senior notes for a cash payment of approximately $2.0 billion. The senior notes purchased include: $226 million of its 4.1% senior notes due March 2025, $398 million of its 4.125% senior notes due April 2040, $883 million of its 2.7% senior notes due August 2040, $274 million of its 4.125% senior notes due November 2042, $463 million of its 3.875% senior notes due August 2047 and $351 million of its 4.25% senior notes due April 2050. In connection with the purchase of such senior notes, the Company recognized a total gain on early extinguishment of debt of $491 million, net of unamortized deferred financing costs and incurred fees.See Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K for additional information about debt issuances and debt repayments. Derivative Financial Instruments The Company uses derivative financial instruments in order to manage interest rate and foreign exchange risk and credit exposure. The Company’s use of these derivatives is generally limited to hedging risk and has principally consisted of using interest rate swaps, treasury rate locks, forward contracts, futures contracts, warrants, put options and credit default swaps. Debt CovenantsThe Company’s back-up revolving credit facilities and unsecured senior notes (see Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K) contain customary restrictive financial and operating covenants. These covenants do not include an acceleration of the Company’s debt maturities in the event of a downgrade in the Company’s credit ratings. The Company does not believe the restrictions contained in these covenants materially affect its financial or operating flexibility. As of December 31, 2024, the Company was in compliance with all of its debt covenants.Debt RatingsAs of December 31, 2024, the Company’s long-term debt was rated “BBB” by Fitch Ratings, Inc. (“Fitch”), “Baa3” by Moody’s Investors Service, Inc. (“Moody’s”) and “BBB” by Standard & Poor’s Financial Services LLC (“S&P”), and its commercial paper program was rated “F2” by Fitch, “P-3” by Moody’s and “A-2” by S&P. In August 2024, Moody’s and S&P changed their outlook on the Company’s long-term debt from “Stable” to “Negative.” In October 2024, Moody’s placed the Company’s long-term debt ratings and the Company’s commercial paper program on review for downgrade. Subsequently, in December 2024, Moody’s downgraded the Company’s long-term debt rating to “Baa3” and the Company’s commercial paper rating to “P3” and changed their outlook on the Company to “Stable”. In December 2024, Fitch initiated ratings coverage on the Company and assigned a first-time “BBB” rating to the Company’s long-term debt and a “F2” rating to the Company’s commercial paper program with the outlook on the Company of “Negative”. In assessing the Company’s credit strength, the Company believes that Moody’s, S&P and Fitch considered, among other things, the Company’s capital structure and financial 89 policies, as well as its consolidated balance sheet, its historical acquisition activity and other financial information, including the Company’s expectations for future earnings and cash flows. Although the Company currently believes its long-term debt ratings will remain investment grade, it cannot predict the future actions of Moody’s, S&P and/or Fitch. The Company’s debt ratings have a direct impact on its future borrowing costs, access to capital markets and new store operating lease costs.Share Repurchase Programs The following share repurchase programs have been authorized by CVS Health Corporation’s Board of Directors (the “Board”): The following share repurchase programs have been authorized by the Board: In billions Authorization DateAuthorized Remaining as of December 31, 2024November 17, 2022 (“2022 Repurchase Program”) $ 10.0 $ 10.0December 9, 2021 (“2021 Repurchase Program”) 10.0 1.5Each of the share Repurchase Programs was effective immediately and permit the Company to effect repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase (“ASR”) transactions, and/or other derivative transactions. Both the 2022 and 2021 Repurchase Programs can be modified or terminated by the Board at any time.During the years ended December 31, 2024, 2023 and 2022, the Company repurchased an aggregate of 39.7 million shares of common stock for approximately $3.0 billion, an aggregate of 22.8 million shares of common stock for approximately $2.0 billion and an aggregate of 34.1 million shares of common stock for approximately $3.5 billion, respectively, each pursuant to the 2021 Repurchase Program. This activity includes the share repurchases under the ASR transactions described below. Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $3.0 billion fixed dollar ASR with Morgan Stanley & Co. LLC (“Morgan Stanley”). Upon payment of the $3.0 billion purchase price on January 4, 2024, the Company received a number of shares of CVS Health Corporation’s common stock equal to 85% of the $3.0 billion notional amount of the ASR or approximately 31.4 million shares, which were placed into treasury stock in January 2024. The ASR was accounted for as an initial treasury stock transaction for $2.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In March 2024, the Company received approximately 8.3 million shares of CVS Health Corporation’s common stock, representing the remaining 15% of the $3.0 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in March 2024. Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $2.0 billion fixed dollar ASR with Citibank, N.A. Upon payment of the $2.0 billion purchase price on January 4, 2023, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $2.0 billion notional amount of the ASR or approximately 17.4 million shares, which were placed into treasury stock in January 2023. The ASR was accounted for as an initial treasury stock transaction for $1.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2023, the Company received approximately 5.4 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $2.0 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in February 2023. Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC. Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury stock and the forward contract was reclassified from capital surplus to treasury stock in February 2022. 90At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. DividendsDuring 2024, 2023 and 2022 the quarterly cash dividend was $0.665, $0.605 and $0.55 per share, respectively. CVS Health Corporation has paid cash dividends every quarter since becoming a public company and expects to maintain its quarterly dividend of $0.665 per share throughout 2025. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board. 91Future Cash RequirementsThe following table summarizes certain estimated future cash requirements under the Company’s various contractual obligations at December 31, 2024, in total and disaggregated into current and long-term obligations. The table below does not include future payments of claims to health care providers or pharmacies because certain terms of these payments are not determinable at December 31, 2024 (for example, the timing and volume of future services provided under fee-for-service arrangements and future membership levels for capitated arrangements).In millions Total Current Long-Term Operating lease liabilities (1)$ 21,189 $ 2,683 $ 18,506Finance lease liabilities (1)2,038 144 1,894Contractual lease obligations with Target (2)2,217 — 2,217Commercial paper (3)2,119 2,119 —Long-term debt (3)63,268 3,559 59,709Interest payments on long-term debt (3)42,240 2,892 39,348 Opioid litigation settlement obligations (4) 4,792 814 3,978Other long-term liabilities on the consolidated balance sheets (5) Future policy benefits (6)4,560 371 4,189Unpaid claims (6)993 280 713Policyholders’ funds (6) (7)1,270 869 401 Total $ 144,686 $ 13,731 $ 130,955_____________________________________________ (1) Refer to Note 7 ‘‘Leases’’ included in Item 8 of this 10-K for additional information regarding the maturity of lease liabilities under operating and finance leases. (2) The Company leases pharmacy and clinic space from Target. See Note 7 ‘‘Leases’’ included in Item 8 of this 10-K for additional information regarding the lease arrangements with Target. Amounts related to such operating and finance leases are reflected within the operating lease liabilities and finance lease liabilities in the table above. Pharmacy lease amounts due in excess of the remaining estimated economic life of the buildings are reflected in the table above assuming equivalent stores continue to operate through the term of the arrangements.(3) Refer to Note 10 ‘‘Borrowings and Credit Agreements’’ included in Item 8 of this 10-K for additional information regarding the maturities of debt principal and commercial paper borrowings. Interest payments on long-term debt are calculated using outstanding balances and interest rates in effect on December 31, 2024. (4) Refer to Note 18 ‘‘Commitments and Contingencies’’ included in Item 8 of this 10-K for additional information regarding the opioid litigation settlement obligations.(5) Payments of other long-term liabilities exclude Separate Accounts liabilities of approximately $3.3 billion because these liabilities are supported by assets that are legally segregated and are not subject to claims that arise out of the Company’s business.(6) Total payments of future policy benefits, unpaid claims and policyholders’ funds include $566 million, $911 million and $137 million, respectively, of reserves for contracts subject to reinsurance. The Company expects the assuming reinsurance carrier to fund these obligations and has reflected these amounts as reinsurance recoverable assets on the consolidated balance sheets. (7) Customer funds associated with group life and health contracts of approximately $52 million have been excluded from the table above because such funds may be used primarily at the customer’s discretion to offset future premiums and/or for refunds, and the timing of the related cash flows cannot be determined. Additionally, net unrealized capital losses on debt securities supporting experience-rated products of $25 million, before tax, have been excluded from the table above.Restrictions on Certain PaymentsIn addition to general state law restrictions on payments of dividends and other distributions to stockholders applicable to all corporations, health maintenance organizations (“HMOs”) and insurance companies are subject to further regulations that, among other things, may require those companies to maintain certain levels of equity (referred to as surplus) and restrict the amount of dividends and other distributions that may be paid to their equity holders. These regulations are not directly applicable to CVS Health Corporation as a holding company since CVS Health Corporation is not an HMO or an insurance company. In addition, in connection with the Aetna Acquisition, the Company made certain undertakings that require prior regulatory approval of dividends by certain of its HMOs and insurance companies. The additional regulations and undertakings applicable to the Company’s HMO and insurance company subsidiaries are not expected to affect the Company’s ability to service the Company’s debt, meet other financing obligations or pay dividends, or the ability of any of the Company’s subsidiaries to service their debt or other financing obligations. Under applicable regulatory requirements and undertakings, at December 31, 2024, the maximum amount of dividends that may be paid by the Company’s insurance and HMO subsidiaries without prior approval by regulatory authorities was $1.6 billion in the aggregate.The Company maintains capital levels in its operating subsidiaries at or above targeted and/or required capital levels and dividends amounts in excess of these levels to meet liquidity requirements, including the payment of interest on debt and92stockholder dividends. In addition, at the Company’s discretion, it uses these funds for other purposes such as funding share and debt repurchase programs, investments in new businesses and other purposes considered advisable.At December 31, 2024 and 2023, the Company held investments of $269 million and $307 million, respectively, that are not accounted for as Separate Accounts assets but are legally segregated and are not subject to claims that arise out of the Company’s business. See Note 4 ‘‘Investments’’ included in Item 8 of this 10-K for additional information on investments related to the 2012 conversion of an existing group annuity contract from a participating to a non-participating contract.Solvency RegulationThe National Association of Insurance Commissioners (the “NAIC”) utilizes risk-based capital (“RBC”) standards for insurance companies that are designed to identify weakly-capitalized companies by comparing each company’s adjusted surplus to its required surplus (the “RBC Ratio”). The RBC Ratio is designed to reflect the risk profile of insurance companies. Within certain ratio ranges, regulators have increasing authority to take action as the RBC Ratio decreases. There are four levels of regulatory action, ranging from requiring an insurer to submit a comprehensive financial plan for increasing its RBC to the state insurance commissioner to requiring the state insurance commissioner to place the insurer under regulatory control. At December 31, 2024, all of the Company’s insurance and HMO subsidiaries were above the RBC level that would require regulatory action. The RBC framework described above for insurers has been extended by the NAIC to health organizations, including HMOs. Although not all states had adopted these rules at December 31, 2024, at that date each of the Company’s active HMOs had a surplus that exceeded either the applicable state net worth requirements or, where adopted, the levels that would require regulatory action under the NAIC’s RBC rules. External rating agencies use their own capital models and/or RBC standards when they determine a company’s rating. 93Critical Accounting Policies The Company prepares the consolidated financial statements in conformity with generally accepted accounting principles, which require management to make certain estimates and apply judgment. Estimates and judgments are based on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared. On a regular basis, the Company reviews its accounting policies and how they are applied and disclosed in the consolidated financial statements. While the Company believes the historical experience, current trends and other factors considered by management support the preparation of the consolidated financial statements in conformity with generally accepted accounting principles, actual results could differ from estimates, and such differences could be material. Significant accounting policies are discussed in Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K. Management believes the following accounting policies include a higher degree of judgment and/or complexity and, thus, are considered to be critical accounting policies. The Company has discussed the development and selection of these critical accounting policies with the Audit Committee of the Board (the “Audit Committee”), and the Audit Committee has reviewed the disclosures relating to them. Revenue Recognition Health Care Benefits Segment Health Care Benefits revenue is principally derived from insurance premiums and fees billed to customers. Revenue related to the Company’s Government business is collected monthly from the U.S. federal government and various government agencies based on fixed payment rates and member eligibility. Some of the Company’s Government contracts allow for premiums to be adjusted to reflect actual experience or the relative health status of Insured members. Such adjustments are reasonably estimable at the outset of the contract, and adjustments to those estimates are made based on actual experience of the customer emerging under the contract and the terms of the underlying contract. Health Services Segment The Health Services segment sells prescription drugs directly through its specialty and mail order pharmacy offerings and indirectly through the Company’s retail pharmacy network. The Company’s pharmacy benefit arrangements are accounted for in a manner consistent with a master supply arrangement as there are no contractual minimum volumes and each prescription is considered a separate purchasing decision and distinct performance obligation transferred at a point in time. PBM services performed in connection with each prescription claim are considered part of a single performance obligation which culminates in the fulfillment of prescription drugs. The Company recognizes revenue using the gross method at the contract price negotiated with its clients when the Company has concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescriptions fulfilled indirectly through its retail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while also performing the related PBM services. Revenues include (i) the portion of the price the client pays directly to the Company, net of any discounts earned on brand name drugs or other discounts and refunds paid back to the client, (ii) the price paid to the Company by client plan members for mail order prescriptions and the price paid to retail network pharmacies by client plan members for retail prescriptions, and (iii) claims based administrative fees for retail pharmacy network contracts. Sales taxes are not included in revenues. The Company recognizes revenue when control of the prescription drugs is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those prescription drugs. The Company has established the following revenue recognition policies for the Health Services segment: • Revenues generated from prescription drugs sold by third party pharmacies in the Company’s retail pharmacy network and associated administrative fees are recognized at the Company’s point-of-sale, which is when the claim is adjudicated by the Company’s online claims processing system and the Company has transferred control of the prescription drug and completed all of its performance obligations. • Revenues generated from prescription drugs sold by specialty and mail order pharmacies are recognized when the prescription drug is delivered to the client plan member. At the time of delivery, the Company has performed substantially94all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments. For contracts under which the Company acts as an agent or does not control the prescription drugs prior to transfer to the client plan member, revenue is recognized using the net method. Drug Discounts The Company records revenue net of manufacturers’ rebates earned by its clients based on their plan members’ utilization of brand-name formulary drugs. The Company estimates these rebates at period-end based on actual and estimated claims data and its estimates of the manufacturers’ rebates earned by its clients. The estimates are based on the best available data at period-end and recent history for the various factors that can affect the amount of rebates due to the client. The Company adjusts its rebates payable to clients to the actual amounts paid when these rebates are paid or as significant events occur. Any cumulative effect of these adjustments is recorded against revenues at the time it is identified. Adjustments generally result from contract changes with clients or manufacturers that have retroactive rebate adjustments, differences between the estimated and actual product mix subject to rebates, or whether the brand name drug was included in the applicable formulary. The effect of adjustments between estimated and actual manufacturers’ rebate amounts has not been material to the Company’s operating results or financial condition. Impairments of Debt Securities The Company regularly reviews its debt securities to determine whether a decline in fair value below the cost basis or carrying value has occurred. If a debt security is in an unrealized loss position and the Company has the intent to sell the security, or it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis, the amortized cost basis of the security is written down to its fair value and the difference is recognized in net income. If a debt security is in an unrealized loss position and the Company does not have the intent to sell and it is more likely than not that the Company will not have to sell such security before recovery of its amortized cost basis, the Company bifurcates the impairment into credit-related and non-credit related (yield-related) components. The amount of the credit-related component is recorded as an allowance for credit losses and recognized in net income, and the amount of the non-credit related component is included in other comprehensive income (loss). The Company analyzes all facts and circumstances believed to be relevant for each investment when performing this analysis, in accordance with applicable accounting guidance. In evaluating whether a credit related loss exists, the Company considers a variety of factors including: the extent to which the fair value is less than the amortized cost basis; adverse conditions specifically related to the issuer of a security, an industry or geographic area; the payment structure of the security; the failure of the issuer of the security to make scheduled interest or principle payments; and any changes to the rating of the security by a rating agency. Among the factors considered in evaluating whether a decline in fair value below the cost basis or carrying value has occurred are whether the decline results from a change in the quality of the debt security itself, whether the decline results from a downward movement in the market as a whole, and the prospects for realizing the carrying value of the debt security based on the investment’s current and short-term prospects for recovery. For unrealized losses determined to be the result of market conditions (for example, increasing interest rates and volatility due to conditions in the overall market) or industry-related events, the Company determines whether it intends to sell the debt security or if it is more likely than not that the Company will be required to sell the debt security prior to the anticipated recovery of the debt security’s amortized cost basis. If either case is true, the Company recognizes a non-credit related impairment, and the cost basis or carrying amount of the debt security is written down to fair value.During the years ended December 31, 2024, 2023 and 2022, the Company recorded yield-related impairment losses on debt securities of $73 million, $152 million and $143 million, respectively. During the years ended December 31, 2024, 2023 and 2022, the Company recorded credit-related losses on debt securities of $9 million, $3 million and $13 million, respectively.The risks inherent in assessing the impairment of a debt security include the risk that market factors may differ from projections and the risk that facts and circumstances factored into the Company’s assessment may change with the passage of time. Unexpected changes to market factors and circumstances that were not present in past reporting periods are among the factors that may result in a current period decision to sell debt securities that were not impaired in prior reporting periods.Inventory Inventories are valued at the lower of cost or net realizable value using the weighted average cost method.95The value of ending inventory is reduced for estimated inventory losses that have occurred during the interim period between physical inventory counts. Physical inventory counts are taken on a regular basis in each retail store and pharmacy, and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand in each distribution center and mail facility to ensure that the amounts reflected in the consolidated financial statements are properly stated. The Company’s accounting for inventory contains uncertainty since management must use judgment to estimate the inventory losses that have occurred during the interim period between physical inventory counts. When estimating these losses, a number of factors are considered which include historical physical inventory results on a location-by-location basis and current physical inventory loss trends.The total reserve for estimated inventory losses covered by this critical accounting policy was $600 million and $607 million as of December 31, 2024 and 2023, respectively. Although management believes there is sufficient current and historical information available to record reasonable estimates for estimated inventory losses, it is possible that actual results could differ. In order to help investors assess the aggregate risk, if any, associated with the inventory-related uncertainties discussed above, a ten percent (10%) pre-tax change in estimated inventory losses, which is a reasonably likely change, would increase or decrease the total reserve for estimated inventory losses by approximately $60 million as of December 31, 2024.Although management believes that the estimates discussed above are reasonable and the related calculations conform to generally accepted accounting principles, actual results could differ from such estimates, and such differences could be material. Recoverability of Long-Lived Assets Recoverability of Definite-Lived Assets The Company evaluates the recoverability of long-lived assets, excluding goodwill and indefinite-lived intangible assets, which are tested for impairment using separate tests described below, whenever events or changes in circumstances indicate that the carrying value of such an asset may not be recoverable. The Company groups and evaluates these long-lived assets for impairment at the lowest level at which individual cash flows can be identified. If indicators of impairment are present, the Company first compares the carrying amount of the asset group to the estimated future cash flows associated with the asset group (undiscounted). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset group, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset group to the asset group’s estimated future cash flows (discounted). If required, an impairment loss is recorded for the portion of the asset group’s carrying value that exceeds the asset group’s estimated future cash flows (discounted). The long-lived asset impairment loss calculation contains uncertainty since management must use judgment to estimate each asset group’s future sales, profitability and cash flows. When preparing these estimates, the Company considers historical results and current operating trends and consolidated sales, profitability and cash flow results and forecasts. These estimates can be affected by a number of factors including general economic and regulatory conditions, efforts of third party organizations to reduce their prescription drug costs and/or increased member co-payments, the continued efforts of competitors to gain market share and consumer spending patterns.During the third quarter of 2024, in connection with its enterprise-wide restructuring plan, the Company completed a strategic review of its retail business, which included evaluating changes in population, consumer buying patterns and future health requirements to ensure continued alignment of its retail footprint with consumer needs. In connection with this initiative, in September 2024, the Company determined it planned to close 271 retail stores in 2025. As a result, management determined that there were indicators of impairment with respect to the impacted stores’ asset groups, including the associated operating or financing lease right-of-use assets and property and equipment. A long-lived asset impairment test was performed during the third quarter of 2024, the results of which indicated that the fair value of certain retail store asset groups were lower than their respective carrying values. Accordingly, in the three months ended September 30, 2024, the Company recorded a store impairment charge of $607 million, consisting of a write down of $483 million related to operating and financing lease right-of-use assets and $124 million related to property and equipment. The charge associated with the store impairments was included in the restructuring charges within the Pharmacy & Consumer Wellness segment.Recoverability of GoodwillGoodwill represents the excess of amounts paid for acquisitions over the fair value of the net identifiable assets acquired. Goodwill is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment on a reporting unit basis. The impairment test is performed by comparing the reporting unit’s fair value with its net book value (or carrying amount), including goodwill. The 96 fair value of the reporting units is estimated using a combination of a discounted cash flow method and a market multiple method. If the net book value (carrying amount) of the reporting unit exceeds its fair value, the reporting unit’s goodwill is considered to be impaired, and an impairment is recognized in an amount equal to the excess. The determination of the fair value of the reporting units requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include the selection of appropriate peer group companies; control premiums and valuation multiples appropriate for acquisitions in the industries in which the Company competes; discount rates; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, income taxes, capital expenditures and future working capital requirements. When determining these assumptions and preparing these estimates, the Company considers each reporting unit’s historical results and current operating trends; consolidated revenues, profitability and cash flow results and forecasts; and industry trends. The Company’s estimates can be affected by a number of factors, including general economic and regulatory conditions; the risk-free interest rate environment; the Company’s market capitalization; efforts of customers and payers to reduce costs, including their prescription drug costs, and/or increase member co-payments; the continued efforts of competitors to gain market share; consumer spending patterns; and the Company’s ability to achieve its revenue growth projections and execute on its cost reduction initiatives. 2024 Goodwill Impairment Test During the fourth quarter of 2024, the Company performed its required annual impairment test of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill as of the testing date. The fair values of the reporting units with goodwill exceeded their carrying values by significant margins, with the exception of the Government reporting unit and the Health Care Delivery reporting unit which exceeded their carrying values by approximately 4% and 8%, respectively. During 2024, the Government reporting unit within the Health Care Benefits segment experienced continued elevated utilization pressure in Medicare and higher than expected acuity following the resumption of member redeterminations in Medicaid, which have resulted in higher medical benefit ratios and lower gross margins than those originally estimated when the prior year annual goodwill impairment test was performed. Upon assessment of the impact of these factors on the Company’s year-to-date 2024 results and its expectations for the full year, the Company determined there were indicators that the Government reporting unit’s goodwill may be impaired, and accordingly, performed an interim goodwill impairment test during the third quarter of 2024. The results of the interim goodwill impairment test showed that the fair value of the Government reporting unit exceeded its carrying value by approximately 10%, therefore there was no impairment of goodwill as of the interim testing date. During the fourth quarter of 2024, the Company updated its budget for 2025 and outlook for future years and performed its annual impairment test of goodwill. The results of the impairment test showed that the fair value of the Government reporting unit exceeded its carrying value by approximately 4%, therefore there was no impairment of goodwill as of the annual testing date. Although the Company believes the financial projections used to determine the fair value of the Government reporting unit were reasonable and achievable, continued utilization pressure within the Medicare product line and continued higher acuity in Medicaid may affect the Company’s ability to increase operating income in the Government reporting unit at the rate estimated when such goodwill impairment test was performed. Some of the key assumptions included in the Company’s financial projections to determine the estimated fair value of its Government reporting unit include future health care costs, changes in medical membership, revenue growth rates, operating margins and operating expense ratios. The estimated fair value of the Government reporting unit is also dependent on multiples of market participants in the health insurance industry, as well as the risk-free interest rate environment which impacts the discount rate used in the discounted cash flow method. As of December 31, 2024, the goodwill balance in the Government reporting unit was approximately $21.2 billion. In 2023, the Company formed a new Health Care Delivery reporting unit within the Health Services segment. The Health Care Delivery reporting unit is primarily comprised of the Signify Health and Oak Street Health care delivery assets, which were acquired on March 29, 2023 and May 2, 2023, respectively. These transactions were accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values at the date of acquisition. Given the close proximity of the acquisition dates to the 2024 annual impairment test of goodwill, as expected, the fair value of these two businesses and, therefore, of the Health Care Delivery reporting unit, remained relatively in line with the carrying value of the reporting unit. This fair value estimate is sensitive to significant assumptions including the revenue growth rate, operating income and the discount rate. As of December 31, 2024, the goodwill balance in the Health Care Delivery reporting unit was $10.4 billion.2023 Goodwill Impairment TestDuring the fourth quarter of 2023, the Company performed its required annual impairment test of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill as of the testing date. The fair values of the reporting units 97 with goodwill exceeded their carrying values by significant margins, with the exception of the Health Care Delivery reporting unit, which exceeded its carrying value by approximately 9%.2022 Goodwill Impairment Test During the third quarter of 2022, the Company performed its required annual impairment test of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill as of the testing date. The fair values of the reporting units with goodwill exceeded their carrying values by significant margins.Recoverability of Indefinite-Lived Intangible Assets Indefinite-lived intangible assets are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate that their carrying value may not be recoverable. Indefinite-lived intangible assets are tested by comparing the estimated fair value of the asset to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized, and the asset is written down to its estimated fair value.The indefinite-lived intangible asset impairment loss calculation contains uncertainty since management must use judgment to estimate fair value based on the assumption that, in lieu of ownership of an intangible asset, the Company would be willing to pay a royalty in order to utilize the benefits of the asset. Fair value is estimated by discounting the hypothetical royalty payments to their present value over the estimated economic life of the asset. These estimates can be affected by a number of factors including general economic conditions, availability of market information and the profitability of the Company. There were no impairment losses recognized on indefinite-lived intangible assets in any of the years ended December 31, 2024, 2023 or 2022.Health Care Benefits’ IBNR Liabilities The Health Care Benefits segment’s health care costs payable include estimates of the ultimate cost of (i) services rendered to the segment’s Insured members but not yet reported to the Company and (ii) claims which have been reported to the Company but not yet paid (collectively, “IBNR”). Health care costs payable also include an estimate of the cost of services that will continue to be rendered after the financial statement date if the Company is obligated to pay for such services in accordance with contractual or regulatory requirements. IBNR estimates are developed using actuarial principles and assumptions that consider numerous factors. See Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K for additional information on the Company’s reserving methodology.During 2024 and 2023, the segment observed an increase in completion factors relative to those assumed at the prior year end. After considering the claims paid in 2024 and 2023 with dates of service prior to the fourth quarter of the previous year, the segment observed assumed incurred claim weighted average completion factors that were 23 and 4 basis points higher, respectively, than previously estimated, resulting in a decrease of $339 million and $55 million in 2024 and 2023, respectively, in health care costs payable that related to the prior year. The segment has considered the pattern of changes in its completion factors when determining the completion factors used in its estimates of IBNR as of December 31, 2024. However, based on historical claim experience, it is reasonably possible that the estimated weighted average completion factors may vary by plus or minus 9 basis points from the assumed rates, which could impact health care costs payable by approximately plus or minus $202 million pretax. Also, during 2024 and 2023, the Health Care Benefits segment observed that health care costs for claims with claim incurred dates of three months or less before the financial statement date were lower than previously estimated. Specifically, after considering the claims paid in 2024 and 2023 with claim incurred dates for the fourth quarter of the previous year, the segment observed health care costs that were 3.2% and 4.5% lower, respectively, for each fourth quarter than previously estimated, resulting in a reduction of $546 million and $620 million in 2024 and 2023, respectively, in health care costs payable that related to prior year. Management considers historical health care cost trend rates together with its knowledge of recent events that may impact current trends when developing estimates of current health care cost trend rates. When establishing reserves as of December 31, 2024, the segment increased its assumed health care cost trend rates for the most recent three months by 3.4% from health care cost trend rates recently observed. Based on historical claim experience, it is reasonably possible that the segment’s estimated health care cost trend rates may vary by plus or minus 3.5% from the assumed rates, which could impact health care costs payable by plus or minus $808 million pretax. 98 New Accounting Pronouncements See Note 1 ‘‘Significant Accounting Policies’’ included in Item 8 of this 10-K for a description of new accounting pronouncements applicable to the Company. 99Table of Contents