CVS Health Corporation

02/10/2026 | Press release | Distributed by Public on 02/10/2026 05:37

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 Business
CVS 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, 2025, the Company had approximately 9,000 retail locations, more than 1,000 walk-in and primary care medical clinics and a leading pharmacy benefits manager with approximately 87 million plan members and expanding specialty pharmacy solutions. The Company also serves an estimated more than 37 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 Segment
The Health Care Benefits segment operates as one of the nation's leading diversified health care benefits providers through its Aetna® operations. 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 also sold Insured plans directly to individual consumers through the individual public health insurance exchanges ("Public Exchanges") through the year ended December 31, 2025. The Company exited the states in which Aetna operated on the Public Exchanges effective January 2026.
Overview of the Health Services Segment
The Health Services segment provides a full range of pharmacy benefit management ("PBM") solutions through its CVS Caremark®operations and delivers health care services in its medical clinics, virtually, and in the home. 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. The segment also works directly with pharmaceutical manufacturers to commercialize and/or co-produce high quality biosimilar products through its CordavisTMsubsidiary. The Health Services segment's health care delivery assets include Signify Health, Inc. ("Signify Health"), a leader in health risk assessments and value-based care, and Oak Street Health, Inc. ("Oak Street Health"), a leading multi-payor operator of value-based primary care centers serving Medicare eligible patients. The Health Services segment's clients and customers are primarily employers, insurance companies, unions, government employee groups, health plans, PDPs, Medicaid managed care plans, the U.S. Centers for Medicare & Medicaid Services ("CMS"), plans offered on public and private health insurance exchanges and other sponsors of health benefit plans throughout the U.S., patients who receive care in the Health Services segment's medical clinics, virtually or in the home, as well as Covered Entities.
Overview of the Pharmacy & Consumer Wellness Segment
The Pharmacy & Consumer Wellness segment dispenses prescriptions in its CVS Pharmacy®retail locations and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also provides pharmacy fulfillment services to support the Health Services segment's specialty and mail order pharmacy offerings. As of December 31, 2025, the Pharmacy & Consumer Wellness segment operated approximately 9,000 retail locations, as well as online retail pharmacy websites, 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.
Results of Operations
The following information summarizes the Company's results of operations for 2025 compared to 2024.
For discussion of the Company's results of operations for 2024 compared to 2023, 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, 2024 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 12, 2025.
Summary of Consolidated Financial Results
Change
Year Ended December 31, 2025 vs. 2024 2024 vs. 2023
In millions 2025 2024 2023 $ % $ %
Revenues:
Products $ 249,908 $ 231,521 $ 245,138 $ 18,387 7.9 % $ (13,617) (5.6) %
Premiums 134,751 122,896 99,192 11,855 9.6 % 23,704 23.9 %
Services 15,175 16,239 12,293 (1,064) (6.6) % 3,946 32.1 %
Net investment income 2,233 2,153 1,153 80 3.7 % 1,000 86.7 %
Total revenues 402,067 372,809 357,776 29,258 7.8 % 15,033 4.2 %
Operating costs:
Cost of products sold 221,167 206,287 217,098 14,880 7.2 % (10,811) (5.0) %
Health care costs 125,538 115,121 86,247 10,417 9.0 % 28,874 33.5 %
Operating expenses 44,977 41,706 39,832 3,271 7.8 % 1,874 4.7 %
Goodwill impairment
5,725 - - 5,725 100.0 % - - %
Restructuring charges - 1,179 507 (1,179) (100.0) % 672 132.5 %
Loss on assets held for sale - - 349 - - % (349) (100.0) %
Total operating costs 397,407 364,293 344,033 33,114 9.1 % 20,260 5.9 %
Operating income 4,660 8,516 13,743 (3,856) (45.3) % (5,227) (38.0) %
Interest expense (3,119) (2,958) (2,658) (161) (5.4) % (300) (11.3) %
Gain on early extinguishment of debt - 491 - (491) (100.0) % 491 100.0 %
Gain on deconsolidation of subsidiary 483 - - 483 100.0 % - - %
Other income 112 99 88 13 13.1 % 11 12.5 %
Income before income tax provision 2,136 6,148 11,173 (4,012) (65.3) % (5,025) (45.0) %
Income tax provision 408 1,562 2,805 (1,154) (73.9) % (1,243) (44.3) %
Net income 1,728 4,586 8,368 (2,858) (62.3) % (3,782) (45.2) %
Net (income) loss attributable to noncontrolling interests 40 28 (24) 12 42.9 % 52 216.7 %
Net income attributable to CVS Health $ 1,768 $ 4,614 $ 8,344 $ (2,846) (61.7) % $ (3,730) (44.7) %
Commentary - 2025 compared to 2024
Revenues
•Total revenues increased $29.3 billion, or 7.8%, in 2025 compared to 2024. The increase in total revenues was driven by growth across all operating 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 $3.3 billion, or 7.8%, in 2025 compared to 2024. The increase in operating expenses was primarily due to approximately $1.2 billion of legacy litigation charges related to two court decisions associated with the Company's past business practices, a $320 million opioid litigation charge related to a change in the Company's accrual for ongoing opioid litigation matters and $288 million of pre-tax losses on Accountable Care assets, all recorded in 2025, as well as increased investments in colleagues and capabilities in 2025.
•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 decreased $3.9 billion, or 45.3%, in 2025 compared to 2024. The decrease in operating income was primarily due to a $5.7 billion goodwill impairment charge related to the Health Care Delivery reporting unit and the $1.2 billion of legacy litigation charges described above, both recorded during the year ended December 31, 2025. These decreases were partially offset by improved operating performance in the Health Care Benefits segment and the absence of approximately $1.2 billion of restructuring charges recorded in the prior year.
•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 $161 million, or 5.4%, in 2025 compared to 2024 primarily as a result of long-term debt issuances in December 2024 and August 2025. See "Liquidity and Capital Resources" later in this MD&A 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.
Gain on deconsolidation of subsidiary
•During 2025, the gain on deconsolidation of subsidiary relates to Omnicare, LLC ("Omnicare"), a wholly-owned indirect subsidiary of CVS Health Corporation, and certain of its subsidiary entities (collectively, the "Omnicare Entities"). See Note 1 ''Significant Accounting Policies'' included in Item 8 of this 10-K for additional information on the deconsolidation of the Omnicare Entities.
Income tax provision
•The Company's effective income tax rate decreased to 19.1% in 2025 compared to 25.4% in the prior year due to a worthless stock deduction associated with a subsidiary that filed for bankruptcy in 2025, partially offset by the impact of the goodwill impairment charge and the legacy litigation charges recorded during 2025 described above, both of which were not deductible for income tax purposes.
Trends and Uncertainties
The Company believes you should consider the following business and regulatory trends and uncertainties:
Business Trends and Uncertainties
•Utilization is expected to persist at elevated levels in 2026. Although the level of utilization is difficult to accurately predict, utilization beyond current elevated levels may pressure the Company's Health Care Benefits segment and its health care delivery assets in its Health Services segment in 2026.
•The Company continues to share with clients a larger portion of rebates, fees and/or discounts received from pharmaceutical manufacturers, and typically offers clients minimum pricing guarantees that cannot always be achieved. The Company also faces increasing pressure from pharmaceutical manufacturers with respect to the calculation and collection of rebates. 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.
•Changes in the economic environment, including inflation, the implementation of new tariffs or changes in tariffs, including the impact of tariffs on trade relations between the U.S. and foreign countries, and labor and other market dynamics could create exposure for increased costs and supply chain disruptions that can adversely impact consumer demand, the ability to deliver client savings or the Company's 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 in the Pharmacy & Consumer Wellness segment.
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 and Medicaid 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."
Segment 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 (loss) 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 are reconciliations 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
Totals
2025
Total revenues $ 143,354 $ 190,425 $ 139,367 $ 484 $ (71,563) $ 402,067
Adjusted operating income (loss) 2,939 7,151 6,040 (1,687) - 14,443
2024
Total revenues $ 130,665 $ 173,605 $ 124,500 $ 451 $ (56,412) $ 372,809
Adjusted operating income (loss) 307 7,243 5,774 (1,348) - 11,976
2023
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
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(1)Total revenues of the Health Services segment include approximately $10.9 billion, $11.4 billion and $13.7 billion of retail co-payments for 2025, 2024 and 2023, 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.
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, 2025
In millions Health Care
Benefits 		Health
Services 		Pharmacy &
Consumer
Wellness 		Corporate/
Other 		Consolidated
Totals
Operating income (loss) (GAAP measure) $ 1,793 $ 220 $ 4,860 $ (2,213) $ 4,660
Amortization of intangible assets (1)
1,155 569 249 3 1,976
Net realized capital (gains) losses (2)
(13) (25) - 82 44
Acquisition-related integration costs (3)
- - - 117 117
Goodwill impairment (4)
- 5,725 - - 5,725
Health Care Delivery clinic closure charge (5)
- 83 - - 83
Opioid litigation charge (6)
- - - 320 320
Office real estate optimization charges (7)
4 - 2 4 10
Legacy litigation charges (8)
- 291 929 - 1,220
Loss on Accountable Care assets (9)
- 288 - - 288
Adjusted operating income (loss) $ 2,939 $ 7,151 $ 6,040 $ (1,687) $ 14,443
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
Opioid litigation charge (6)
- - - 100 100
Office real estate optimization charges (7)
19 - 4 7 30
Restructuring charges (10)
- - 747 432 1,179
Adjusted operating income (loss) $ 307 $ 7,243 $ 5,774 $ (1,348) $ 11,976
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
Office real estate optimization charges (7)
49 5 - (8) 46
Restructuring charges (10)
- - - 507 507
Loss on assets held for sale (11)
- - 349 - 349
Adjusted operating income (loss) $ 5,577 $ 7,312 $ 5,963 $ (1,318) $ 17,534
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(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-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 2025 and 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 2025, the goodwill impairment charge relates to the Health Care Delivery reporting unit within the Health Services segment.
(5)In 2025, the Health Care Delivery clinic closure charge primarily relates to the write down of long-lived assets in connection with the planned closure of certain existing Oak Street Health clinics in 2026, as well as associated severance and employee-related costs expected to be incurred. The Health Care Delivery clinic closure charge is reflected in operating expenses within the Health Services segment.
(6)In 2025 and 2024, the opioid litigation charges relate to changes in the Company's accrual related to ongoing opioid litigation matters.
(7)In 2025, 2024 and 2023, 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.
(8)In 2025, the Company recorded legacy litigation charges related to two court decisions associated with its past business practices.
In April 2025, a jury found Omnicare and CVS Health Corporation liable in connection with alleged violations of the federal False Claims Act related to dispensing practices by Omnicare from 2010, prior to its acquisition by the Company in 2015, through 2018. Damages were found only with respect to Omnicare. Accordingly, the Company recorded a litigation charge of $387 million during the first quarter of 2025. During the second quarter of 2025, the Company recorded a charge of $542 million, reflecting penalties assessed under the False Claims Act. These litigation charges are reflected in operating expenses within the Pharmacy & Consumer Wellness segment.
In June 2025, a court found certain subsidiaries of CVS Health Corporation liable for damages in connection with a complaint filed in February 2014, in which the government declined to intervene, related to PBM direct and indirect remuneration reporting practices for two clients from 2010 through 2016, which the Company has since modified. In connection with this court decision, the Company recorded a litigation charge of $291 million during the second quarter of 2025. This litigation charge is reflected in operating expenses within the Health Services segment.
(9)In 2025, the loss on the wind down and sale of Accountable Care assets represents the pre-tax loss on the divestiture of the Company's Medicare Shared Savings Program ("MSSP") operations, which the Company sold in March 2025, as well as costs incurred in connection with the process of winding down the Company's Accountable Care Organization Realizing Equity, Access and Community Health ("ACO REACH") operations. The loss on Accountable Care assets is reflected in operating expenses within the Health Services segment.
(10)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 planned to close additional retail stores in 2025, and, accordingly, it recorded a store impairment charge to write down the associated 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 the stock-based compensation charge, are reflected within the Corporate/Other segment.
(11)In 2023, the loss on assets held for sale relates to the long-term care pharmacy ("LTC") business, which was included within the Pharmacy & Consumer Wellness segment prior to the deconsolidation of the Omnicare Entities in September 2025. 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. 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, at that time, the net assets associated with the LTC business were reclassified to held and used at their respective fair values.
Health Care Benefits Segment
The following table summarizes the Health Care Benefits segment's performance for the respective periods:
Change
Year Ended December 31, 2025 vs. 2024 2024 vs. 2023
In millions, except percentages and basis points ("bps") 2025 2024 2023 $ % $ %
Revenues:
Premiums $ 134,749 $ 122,849 $ 99,144 $ 11,900 9.7 % $ 23,705 23.9 %
Services 6,823 6,343 5,737 480 7.6 % 606 10.6 %
Net investment income 1,782 1,473 765 309 21.0 % 708 92.5 %
Total revenues 143,354 130,665 105,646 12,689 9.7 % 25,019 23.7 %
Health care costs 122,949 113,659 85,504 9,290 8.2 % 28,155 32.9 %
MBR (Health care costs as a % of premium revenues)
91.2 % 92.5 % 86.2% (130) bps 630 bps
Operating expenses $ 18,612 $ 17,990 $ 16,193 $ 622 3.5 % $ 1,797 11.1 %
Operating expenses as a % of total revenues 13.0 % 13.8 % 15.3 %
Operating income (loss)
$ 1,793 $ (984) $ 3,949 $ 2,777 282.2 % $ (4,933) (124.9) %
Operating income (loss) as a % of total revenues
1.3 % (0.8) % 3.7 %
Adjusted operating income (1)
$ 2,939 $ 307 $ 5,577 $ 2,632 857.3 % $ (5,270) (94.5) %
Adjusted operating income as a % of total revenues 2.1 % 0.2 % 5.3 %
Premium revenues (by business):
Government $ 103,362 $ 88,433 $ 70,094 $ 14,929 16.9 % $ 18,339 26.2 %
Commercial 31,387 34,416 29,050 (3,029) (8.8) % 5,366 18.5 %
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(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 - 2025 compared to 2024
Revenues
•Total revenues increased $12.7 billion, or 9.7%, in 2025 compared to 2024 primarily driven by increases in the Government business, largely due to the impact of the Inflation Reduction Act ("IRA") on the Medicare Part D program.
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 decreased to 91.2% in 2025 compared to 92.5% in the prior year primarily driven by improved underlying performance in the Government business and higher favorable prior year development.
Operating expenses
•Operating expenses in the Health Care Benefits segment include selling, general and administrative expenses and depreciation and amortization expenses.
•Operating expenses increased $622 million, or 3.5%, in 2025 compared to 2024 primarily driven by increased investments to support the segment's business operations.
Adjusted operating income
•Adjusted operating income increased $2.6 billion in 2025 compared to 2024 primarily driven by improved underlying performance in the Government business and higher favorable prior year development.
The following table summarizes the Health Care Benefits segment's medical membership as of December 31, 2025 and 2024:
2025 2024
In thousands Insured
ASC
Total Insured ASC Total
Medical membership:
Commercial 3,447 15,350 18,797 4,691 14,160 18,851
Medicare Advantage 4,267 - 4,267 4,447 - 4,447
Medicare Supplement 1,202 - 1,202 1,282 - 1,282
Medicaid 1,952 373 2,325 2,094 421 2,515
Total medical membership 10,868 15,723 26,591 12,514 14,581 27,095
Supplemental membership information:
Medicare Prescription Drug Plan (stand-alone)
4,041 4,882
Medical 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, 2025 decreased 504,000 members compared with December 31, 2024, reflecting declines in the individual exchange and Government product lines, partially offset by an increase in Commercial ASC membership.
Medicare Update
On April 7, 2025, CMS issued its final notice detailing final 2026 Medicare Advantage payment rates. Final 2026 Medicare Advantage rates resulted in an expected average increase in revenue for the Medicare Advantage industry of 5.06%, excluding the CMS estimate of Medicare Advantage risk score trend. On January 26, 2026, CMS issued an advance notice detailing proposed 2027 Medicare Advantage payment rates. The 2027 Medicare Advantage rates, if finalized as proposed, will result in an expected average increase in revenue for the Medicare Advantage industry of 0.09%, excluding the CMS estimate of Medicare Advantage risk score trend. CMS intends to publish the final 2027 rate announcement no later than April 6, 2026.
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively the "ACA") 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 2026 star ratings in October 2025. The Company's 2026 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 2027. Based on the Company's membership as of December 2025, more than 81% of the Company's Medicare Advantage members were in plans with 2026 star ratings of at least 4.0 stars, compared to 88% of the Company's Medicare Advantage members being in plans with 2025 star ratings of at least 4.0 stars based on the Company's membership as of December 2024.
Health Services Segment
The following table summarizes the Health Services segment's performance for the respective periods:
Change
Year Ended December 31, 2025 vs. 2024 2024 vs. 2023
In millions, except percentages 2025 2024 2023 $ % $ %
Revenues:
Products $ 180,927 $ 162,436 $ 180,608 $ 18,491 11.4 % $ (18,172) (10.1) %
Services 9,478 10,884 6,236 (1,406) (12.9) % 4,648 74.5 %
Net investment income (loss) (1)
20 285 (1) (265) (93.0) % 286 NM
Total revenues 190,425 173,605 186,843 16,820 9.7 % (13,238) (7.1) %
Cost of products sold 175,634 160,036 175,424 15,598 9.7 % (15,388) (8.8) %
Health care costs 4,834 3,407 1,607 1,427 41.9 % 1,800 112.0 %
Operating expenses 4,012 3,225 2,970 787 24.4 % 255 8.6 %
Operating expenses as a % of total revenues 2.1 % 1.9 % 1.6 %
Goodwill impairment
$ 5,725 $ - $ - $ 5,725 100.0 % $ - - %
Operating income 220 6,937 6,842 (6,717) (96.8) % 95 1.4 %
Operating income as a % of total revenues 0.1 % 4.0 % 3.7 %
Adjusted operating income (2)
$ 7,151 $ 7,243 $ 7,312 $ (92) (1.3) % $ (69) (0.9) %
Adjusted operating income as a % of total revenues 3.8 % 4.2 % 3.9 %
Revenues (by distribution channel):
Pharmacy network (3)
$ 101,775 $ 91,650 $ 112,718 $ 10,125 11.0 % $ (21,068) (18.7) %
Mail & specialty (4)
79,334 70,877 67,992 8,457 11.9 % 2,885 4.2 %
Other 9,296 10,793 6,134 (1,497) (13.9) % 4,659 76.0 %
Net investment income (loss) (1)
20 285 (1) (265) (93.0) % 286 NM
Pharmacy claims processed(5)
1,900.7 1,917.6 2,344.3 (16.9) (0.9) % (426.7) (18.2) %
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(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 pharmacies owned by the Company, 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 - 2025 compared to 2024
Revenues
•Total revenues increased $16.8 billion, or 9.7%, in 2025 compared to 2024 primarily driven by pharmacy drug mix and brand inflation, 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.
•Operating expenses increased $787 million, or 24.4%, in 2025 compared to 2024. The increase was primarily due to a $291 million litigation charge, $288 million in pre-tax losses on Accountable Care assets and an $83 million Health Care Delivery clinic closure charge, all recorded during 2025.
Goodwill impairment
•In 2025, the Company recorded a $5.7 billion goodwill impairment charge related to the Health Care Delivery reporting unit within the Health Services segment. See Note 6 ''Goodwill and Other Intangibles'' included in Item 8 of this 10-K for additional information.
Adjusted operating income
•Adjusted operating income decreased $92 million, or 1.3%, in 2025 compared to 2024. The decrease in adjusted operating income was primarily driven by continued pharmacy client price improvements and the impact of a higher medical benefit ratio in the Company's health care delivery business, partially offset by improved purchasing economics and pharmacy drug mix.
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 0.9% on a 30-day equivalent basis in 2025 compared to 2024.
Pharmacy & Consumer Wellness Segment
The following table summarizes the Pharmacy & Consumer Wellness segment's performance for the respective periods:
Change
Year Ended December 31, 2025 vs. 2024 2024 vs. 2023
In millions, except percentages 2025 2024 2023 $ % $ %
Revenues:
Products $ 136,575 $ 122,028 $ 113,976 $ 14,547 11.9 % $ 8,052 7.1 %
Services 2,792 2,472 2,792 320 12.9 % (320) (11.5) %
Net investment income (loss) - - (5) - - % 5 100.0 %
Total revenues 139,367 124,500 116,763 14,867 11.9 % 7,737 6.6 %
Cost of products sold 113,583 99,337 91,447 14,246 14.3 % 7,890 8.6 %
Operating expenses 20,924 19,646 19,618 1,278 6.5 % 28 0.1 %
Operating expenses as a % of total revenues 15.0 % 15.8 % 16.8 %
Restructuring charges
$ - $ 747 $ - $ (747) (100.0) % $ 747 100.0 %
Loss on assets held for sale - - 349 - - % (349) (100.0) %
Operating income 4,860 4,770 5,349 90 1.9 % (579) (10.8) %
Operating income as a % of total revenues 3.5 % 3.8 % 4.6 %
Adjusted operating income (1)
$ 6,040 $ 5,774 $ 5,963 $ 266 4.6 % $ (189) (3.2) %
Adjusted operating income as a % of total revenues 4.3 % 4.6 % 5.1 %
Revenues (by major goods/service lines):
Pharmacy $ 115,510 $ 100,687 $ 92,111 $ 14,823 14.7 % $ 8,576 9.3 %
Front Store 21,459 21,522 22,458 (63) (0.3) % (936) (4.2) %
Other 2,398 2,291 2,199 107 4.7 % 92 4.2 %
Net investment income (loss) - - (5) - - % 5 100.0 %
Prescriptions filled (2)
1,808.8 1,715.5 1,649.1 93.3 5.4 % 66.4 4.0 %
Same store sales increase (decrease): (3)
Total 15.0 % 9.4 % 10.7 %
Pharmacy 18.0 % 12.3 % 13.6 %
Front Store 1.2 % (2.1) % 0.3 %
Prescription volume (2)
8.0 % 6.8 % 3.9 %
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(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 infusion services operations and long-term care pharmacies. 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 - 2025 compared to 2024
Revenues
•Total revenues increased $14.9 billion, or 11.9%, in 2025 compared to 2024. The increase was primarily driven by pharmacy drug mix and increased prescription volume, including incremental volume resulting from the Company's Rite Aid prescription file acquisitions, partially offset by continued pharmacy reimbursement pressure and the impact of recent generic drug introductions.
•Pharmacy same store sales increased 18.0% in 2025 compared to 2024. The increase was primarily driven by pharmacy drug mix, including branded GLP-1 drugs, and the 8.0% increase in pharmacy same store prescription volume on a 30-day equivalent basis. These increases were partially offset by continued pharmacy reimbursement pressure and the impact of recent generic drug introductions.
•Front store same store sales increased 1.2% in 2025 compared to 2024.
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 increased $1.3 billion, or 6.5%, in 2025 compared to 2024. The increase in operating expenses was primarily due to $929 million in litigation charges recorded in 2025 related to the Omnicare long-term care business and increased investments in the segment's colleagues and capabilities.
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.
Adjusted operating income
•Adjusted operating income increased $266 million, or 4.6%, in 2025 compared to 2024 primarily driven by increased prescription volume, including incremental volume resulting from the Company's Rite Aid prescription file acquisitions, as well as favorable drug mix, partially offset by continued pharmacy reimbursement pressure and increased investments in the segment's colleagues and capabilities.
Prescriptions filled
•Prescriptions filled represents the number of prescriptions dispensed through the Pharmacy & Consumer Wellness segment's retail pharmacies and infusion services operations, as well as through the Omnicare long-term care pharmacies prior to their deconsolidation during the third quarter of 2025. 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 5.4% on a 30-day equivalent basis in 2025 compared to 2024 primarily driven by increased utilization and incremental volume resulting from the Company's Rite Aid prescription file acquisitions.
Corporate/Other Segment
The following table summarizes the Corporate/Other segment's performance for the respective periods:
Change
Year Ended December 31, 2025 vs. 2024 2024 vs. 2023
In millions, except percentages 2025 2024 2023 $ % $ %
Revenues:
Premiums $ 45 $ 47 $ 48 $ (2) (4.3) % $ (1) (2.1) %
Services 8 9 9 (1) (11.1) % - - %
Net investment income 431 395 394 36 9.1 % 1 0.3 %
Total revenues 484 451 451 33 7.3 % - - %
Cost of products sold - - 1 - - % (1) (100.0) %
Health care costs 177 187 210 (10) (5.3) % (23) (11.0) %
Operating expenses 2,520 2,039 2,130 481 23.6 % (91) (4.3) %
Restructuring charges - 432 507 (432) (100.0) % (75) (14.8) %
Operating loss (2,213) (2,207) (2,397) (6) (0.3) % 190 7.9 %
Adjusted operating loss(1)
(1,687) (1,348) (1,318) (339) (25.1) % (30) (2.3) %
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(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 - 2025 compared to 2024
Revenues
•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 increased $33 million, or 7.3%, in 2025 compared to 2024 primarily driven by higher net investment income driven by higher fixed income assets.
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. See Note 3 ''Restructuring'' included in Item 8 of this 10-K for additional information.
Adjusted operating loss
•Adjusted operating loss increased $339 million, or 25.1%, in 2025 compared to 2024 primarily driven by increased investments in colleagues and capabilities.
Liquidity and Capital Resources
Cash Flows
The 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, 2025, the Company had approximately $8.5 billion in cash and cash equivalents, approximately $2.8 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, 2025, 2024 and 2023 was as follows:
Change
Year Ended December 31, 2025 vs. 2024 2024 vs. 2023
In millions 2025 2024 2023 $ % $ %
Net cash provided by operating activities $ 10,639 $ 9,107 $ 13,426 $ 1,532 16.8 % $ (4,319) (32.2) %
Net cash used in investing activities (5,871) (7,613) (20,889) 1,742 22.9 % 13,276 63.6 %
Net cash provided by (used in) financing activities (4,940) (1,135) 2,683 (3,805) (335.2) % (3,818) (142.3) %
Net increase (decrease) in cash, cash equivalents and restricted cash $ (172) $ 359 $ (4,780) $ (531) (147.9) % $ 5,139 107.5 %
Commentary - 2025 compared to 2024
•Net cash provided by operating activities increased by $1.5 billion in 2025 compared to 2024 primarily due to the timing of payments and receipts and the impact of improved operating performance in the Health Care Benefits segment.
•Net cash used in investing activities decreased by $1.7 billion in 2025 compared to 2024 primarily due to higher proceeds from sales and maturities of investments, partially offset by cash paid to acquire the prescription files of certain Rite Aid pharmacies. In addition, cash used in investing activities reflected the following activity:
•Gross capital expenditures were approximately $2.8 billion in both 2025 and 2024. During 2025, approximately 77% of the Company's total capital expenditures were for technology, digital and other strategic initiatives and 23% were for store, fulfillment and support facilities and equipment expansion and improvements.
•Net cash used in financing activitiesincreased by $3.8 billion in 2025 compared to 2024 primarily due to higher repayments of commercial paper and lower proceeds from the issuance of long-term senior notes in 2025, partially offset by higher share repurchases and repayments of long-term debt in 2024.
Included in net cash used in investing activities for the years ended December 31, 2025, 2024 and 2023 was the following store development activity: (1)
2025 2024 2023
Total stores (beginning of year) 9,135 9,395 9,674
New and acquired stores (2)
87 39 39
Closed stores (2)
(243) (299) (318)
Total stores (end of year) 8,979 9,135 9,395
Relocated stores (2)
5 3 5
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(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.
Short-term Borrowings
Commercial Paper and Back-up Credit Facilities
The Company did not have any commercial paper outstanding as of December 31, 2025. The Company had $2.1 billion of commercial paper outstanding at a weighted interest rate of 4.98% as of December 31, 2024. In connection with its commercial paper program, the Company maintains three $2.5 billion, five-year unsecured back-up revolving credit facilities, which expire in May 2028, 2029 and 2030. 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, 2025 and 2024, there were no borrowings outstanding under any of the Company's back-up credit facilities.
Term Loan Agreement
On 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.
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, 2025 was approximately $1.3 billion. As of December 31, 2025 and 2024, there were no outstanding advances from the FHLBB.
Long-term Borrowings
2025 Notes
On August 15, 2025, the Company issued $750 million aggregate principal amount of 5.0% senior notes due September 2032, $1.5 billion aggregate principal amount of 5.45% senior notes due September 2035, $1.25 billion aggregate principal amount of 6.2% senior notes due September 2055 and $500 million aggregate principal amount of 6.25% senior notes due September 2065 for total proceeds of approximately $4.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used to repay existing indebtedness, including borrowings under the Company's commercial paper program, as well as for general corporate purposes.
2024 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.
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 Covenants
The 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, 2025, the Company was in compliance with all of its debt covenants.
Debt Ratings
As of December 31, 2025, 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. The outlook on the Company's long-term debt is "Negative" by both Fitch and S&P and "Stable" by Moody's. In assessing the Company's credit strength, the Company believes that Fitch, 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, 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"):
In billions
Authorization Date
Authorized
Remaining as of
December 31, 2025
November 17, 2022 ("2022 Repurchase Program") $ 10.0 $ 10.0
December 9, 2021 ("2021 Repurchase Program") 10.0 1.5
Each 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 year ended December 31, 2025, the Company did not repurchase any shares of its common stock. During the years ended December 31, 2024 and 2023, the Company repurchased an aggregate of 39.7 million shares of common stock for approximately $3.0 billion and an aggregate of 22.8 million shares of common stock for approximately $2.0 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. 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.
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.
Dividends
The quarterly cash dividend declared by the Board was $0.665 per share in 2025 and 2024 and $0.605 per share in 2023. 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 2026. Future dividend payments will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board.
Future Cash Requirements
The following table summarizes certain estimated future cash requirements under the Company's various contractual obligations at December 31, 2025, 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, 2025 (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)
$ 19,387 $ 2,626 $ 16,761
Finance lease liabilities (1)
1,960 139 1,821
Contractual lease obligations with Target (2)
2,268 - 2,268
Long-term debt (3)
63,709 4,007 59,702
Interest payments on long-term debt (3)
44,003 2,933 41,070
Opioid litigation settlement obligations (4)
3,975 648 3,327
Other long-term liabilities on the consolidated balance sheets (5)
Future policy benefits(6)
4,477 360 4,117
Unpaid claims(6)
801 202 599
Policyholders' funds (6) (7)
937 615 322
Total $ 141,517 $ 11,530 $ 129,987
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(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. Interest payments on long-term debt are calculated using outstanding balances and interest rates in effect on December 31, 2025.
(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 $2.0 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 $547 million, $761 million and $125 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 $9 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 $6 million, before tax, have been excluded from the table above.
Restrictions on Certain Payments
In 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, 2025, the maximum amount of dividends that may be paid by the Company's insurance and HMO subsidiaries without prior approval by regulatory authorities was $3.8 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 and stockholder 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.
Solvency Regulation
The 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, 2025, 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, 2025, 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.
Critical 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 substantially
all 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. 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, 2025, 2024 and 2023, the Company recorded yield-related impairment losses on debt securities of $28 million, $73 million and $152 million, respectively. The Company did not record any credit-related losses on debt securities during the year ended December 31, 2025. During the years ended December 31, 2024 and 2023, credit-related losses on debt securities were not material.
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.
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 $635 million and $600 million as of December 31, 2025 and 2024, 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 $64 million as of December 31, 2025.
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 increase 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 Goodwill
Goodwill 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.
2025 Goodwill Impairment Test
During the fourth quarter of 2025, 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 3%.
During 2025, the Health Care Delivery reporting unit continued to experience challenges, including the impact of persistent elevated utilization levels. In order to best respond to these challenges, the Company made a number of changes to its Health Care Delivery management team during 2025. During the third quarter of 2025, this new management team finalized certain strategic changes, including the determination that it would reduce the number of new primary care clinics it would open in 2026 and annually thereafter. The Company also determined that it would close certain existing Oak Street Health clinics in 2026. The strategy changes were presented to CVS Health Corporation's Board of Directors in September 2025.
These changes are expected to impact management's ability to grow the business at the rate that was originally estimated when the Company acquired the associated care delivery assets in 2023 and when the prior year annual goodwill impairment test was performed. Accordingly, the Health Care Delivery management team updated its financial projections to reflect these changes for 2026 and beyond. Based on these updated projections, management determined that there were indicators that the Health Care Delivery reporting unit's goodwill may be impaired and, accordingly, an interim goodwill impairment test was performed during the third quarter of 2025.
The results of the impairment test showed that the fair value of the Health Care Delivery reporting unit was lower than its carrying value, resulting in a $5.7 billion goodwill impairment charge, which was recorded during the third quarter of 2025. The fair value of the Health Care Delivery reporting unit was determined using a combination of a discounted cash flow method and a market multiple method. In addition to the lower financial projections, lower market multiples of the peer group companies contributed to the amount of the goodwill impairment charge.
Although the Company believes the financial projections used to determine the fair value of the Health Care Delivery reporting unit were reasonable and achievable, continued utilization pressure, insufficient CMS Medicare rate increases relative to underlying medical cost trend or further reductions to the number of existing primary care centers or new primary care center openings may affect the Company's ability to increase operating results in the Health Care Delivery 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 Health Care Delivery reporting unit include future revenue growth rates, including the impact of annual new primary care center openings, and operating income. The estimated fair value of the Health Care Delivery reporting unit is also dependent on multiples of market participants in the care delivery industry, as well as the risk-free interest rate environment which impacts the discount rate used in the discounted cash flow method. If the Company does not achieve its forecasts, given that the fair value and the carrying value of the Health Care Delivery reporting unit were the same following the goodwill impairment charge recorded during the third quarter of 2025, it is reasonably
possible in the near term that the goodwill of the Health Care Delivery reporting unit could be deemed to be impaired again by a material amount. As of December 31, 2025, the remaining goodwill balance in the Health Care Delivery reporting unit was approximately $4.2 billion.
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.
2023 Goodwill Impairment Test
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%.
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 the years ended December 31, 2025, 2024 or 2023.
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 2025 and 2024, the segment observed an increase in completion factors relative to those assumed at the prior year end. After considering the claims paid in 2025 and 2024 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 31 and 23 basis points higher, respectively, than previously estimated, resulting in a decrease of $541 million and $339 million in 2025 and 2024, 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, 2025. However, based on historical claim experience, it is reasonably possible that the estimated weighted average completion factors may vary by plus or minus 14 basis points from the assumed rates, which could impact health care costs payable by approximately plus or minus $372 million pretax.
Also, during 2025 and 2024, 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 2025 and 2024 with claim incurred dates for the fourth quarter of the previous year, the segment observed health care costs that were 6.1% and 3.2% lower, respectively, for each fourth quarter than previously estimated, resulting in a reduction of $1.4 billion and $546 million in 2025 and 2024, 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, 2025, the segment increased its assumed health care cost trend rates for the most recent three months by 4.4% 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 $805 million pretax.
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.
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