Item 1. Financial Statements

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Item 1. Financial Statements

Index to Condensed Consolidated Financial Statements


			Page
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 and 2022			2

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, 2023 and 2022			3

Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2023 and December 31, 2022			4

Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2023 and 2022			5

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended June 30, 2023 and 2022 and the three months ended March 31, 2023 and 2022			7

Notes to Condensed Consolidated Financial Statements (Unaudited)			9

Report of Independent Registered Public Accounting Firm			54

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
In millions, except per share amounts	2023		2022		2023		2022
Revenues:
Products	$	60,539	$	56,794	$	118,686	$	109,316
Premiums	25,108		21,260		49,460		42,891
Services	3,000		2,436		5,445		4,941
Net investment income	274		146		608		314
Total revenues	88,921		80,636		174,199		157,462
Operating costs:
Cost of products sold	53,536		49,290		104,991		94,799
Health care costs	21,782		17,490		42,230		35,413
Restructuring charge	496		—		496		—
Opioid litigation charge	—		—		—		484
Loss on assets held for sale	—		—		349		41

Operating expenses	9,873		9,187		19,453		18,511
Total operating costs	85,687		75,967		167,519		149,248
Operating income	3,234		4,669		6,680		8,214
Interest expense	686		583		1,275		1,169

Other income	(22)		(43)		(44)		(85)
Income before income tax provision	2,570		4,129		5,449		7,130
Income tax provision	656		1,090		1,393		1,736


Net income	1,914		3,039		4,056		5,394
Net income attributable to noncontrolling interests	(13)		(10)		(19)		(11)
Net income attributable to CVS Health	$	1,901	$	3,029	$	4,037	$	5,383

Net income per share attributable to CVS Health:
Basic	$	1.48	$	2.31	$	3.15	$	4.10
Diluted	$	1.48	$	2.29	$	3.13	$	4.06
Weighted average shares outstanding:
Basic	1,283		1,313		1,283		1,312
Diluted	1,287		1,321		1,289		1,325










Dividends declared per share	$	0.605	$	0.55	$	1.21	$	1.10

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

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2023		2022		2023		2022
Net income	$	1,914	$	3,039	$	4,056	$	5,394
Other comprehensive income (loss), net of tax:
Net unrealized investment gains (losses)	(64)		(865)		406		(1,997)
Change in discount rate on long-duration insurance reserves	60		310		(14)		679
Foreign currency translation adjustments	2		(1)		1		2
Net cash flow hedges	19		15		13		12
Pension and other postretirement benefits	—		1		—		1
Other comprehensive income (loss)	17		(540)		406		(1,303)
Comprehensive income	1,931		2,499		4,462		4,091
Comprehensive income attributable to noncontrolling interests	(13)		(10)		(19)		(11)
Comprehensive income attributable to CVS Health	$	1,918	$	2,489	$	4,443	$	4,080

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

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Balance Sheets

(Unaudited)


In millions, except per share amounts	June 30, 2023		December 31, 2022
Assets:
Cash and cash equivalents	$	13,807	$	12,945
Investments	3,080		2,778
Accounts receivable, net	29,546		27,276
Inventories	17,291		19,090
Assets held for sale	620		908
Other current assets	3,412		2,636
Total current assets	67,756		65,633
Long-term investments	22,114		21,096
Property and equipment, net	13,001		12,873
Operating lease right-of-use assets	17,703		17,872
Goodwill	91,260		78,150
Intangible assets, net	30,118		24,803
Separate accounts assets	3,267		3,228
Other assets	4,852		4,620
Total assets	$	250,071	$	228,275

Liabilities:
Accounts payable	$	13,367	$	14,838
Pharmacy claims and discounts payable	20,417		19,423
Health care costs payable	11,998		10,142
Policyholders’ funds	1,411		1,500
Accrued expenses	22,831		18,745
Other insurance liabilities	4,866		1,089
Current portion of operating lease liabilities	1,706		1,678
Short-term debt	1,000		—
Current portion of long-term debt	1,402		1,778
Liabilities held for sale	208		228
Total current liabilities	79,206		69,421
Long-term operating lease liabilities	16,609		16,800
Long-term debt	61,419		50,476
Deferred income taxes	4,588		4,016
Separate accounts liabilities	3,267		3,228
Other long-term insurance liabilities	5,659		5,835
Other long-term liabilities	6,321		6,730
Total liabilities	177,069		156,506

Shareholders’ equity:
Preferred stock, par value $0.01: 0.1 shares authorized; none issued or outstanding	—		—
Common stock, par value $0.01: 3,200 shares authorized; 1,764 shares issued and 1,282 shares outstanding at June 30, 2023 and 1,758 shares issued and 1,300 shares outstanding at December 31, 2022 and capital surplus	48,649		48,193
Treasury stock, at cost: 482 shares at June 30, 2023 and 458 shares at December 31, 2022	(33,933)		(31,858)
Retained earnings	58,868		56,398
Accumulated other comprehensive loss	(858)		(1,264)
Total CVS Health shareholders’ equity	72,726		71,469
Noncontrolling interests	276		300
Total shareholders’ equity	73,002		71,769
Total liabilities and shareholders’ equity	$	250,071	$	228,275

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

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
In millions	2023		2022
Cash flows from operating activities:
Cash receipts from customers	$	175,567	$	151,769
Cash paid for prescriptions dispensed and health services rendered	(101,318)		(90,887)
Insurance benefits paid	(41,108)		(33,920)
Cash paid to other suppliers and employees	(17,686)		(15,119)
Interest and investment income received	801		200
Interest paid	(1,131)		(1,150)
Income taxes paid	(1,779)		(1,887)
Net cash provided by operating activities	13,346		9,006

Cash flows from investing activities:
Proceeds from sales and maturities of investments	3,640		4,360
Purchases of investments	(4,499)		(5,010)
Purchases of property and equipment	(1,575)		(1,459)
Acquisitions (net of cash and restricted cash acquired)	(16,474)		(125)
Proceeds from sale of subsidiaries (net of cash and restricted cash sold of $2,807 in 2022)	—		(1,943)
Other	32		54
Net cash used in investing activities	(18,876)		(4,123)

Cash flows from financing activities:

Commercial paper borrowings (repayments), net	1,000		—
Proceeds from issuance of short-term loan	5,000		—
Repayment of short-term loan	(5,000)		—
Proceeds from issuance of long-term debt	10,898		—
Repayments of long-term debt	(1,787)		(1,529)
Repurchase of common stock	(2,016)		(2,000)

Dividends paid	(1,574)		(1,462)
Proceeds from exercise of stock options	120		348
Payments for taxes related to net share settlement of equity awards	(168)		(329)
Other	(121)		(139)
Net cash provided by (used in) financing activities	6,352		(5,111)
Net increase (decrease) in cash, cash equivalents and restricted cash	822		(228)
Cash, cash equivalents and restricted cash at the beginning of the period	13,305		12,691
Cash, cash equivalents and restricted cash at the end of the period	$	14,127	$	12,463

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
In millions	2023		2022
Reconciliation of net income to net cash provided by operating activities:
Net income	$	4,056	$	5,394
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,105		2,131


Stock-based compensation	307		236
Gain on sale of subsidiary	—		(225)

Deferred income taxes and other noncash items	87		(246)
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(804)		(2,687)
Inventories	1,800		469
Other assets	(913)		(286)
Accounts payable and pharmacy claims and discounts payable	(118)		2,033
Health care costs payable and other insurance liabilities	4,334		1,286
Other liabilities	2,492		901
Net cash provided by operating activities	$	13,346	$	9,006

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

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


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

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

Net income	—	—	—		—		2,136		—		2,136		6		2,142
Other comprehensive income	—	—	—		—		—		389		389		—		389
Stock option activity, stock awards and other	1	—	122		—		—		—		122		—		122
Purchase of treasury shares, net of ESPP issuances	—	(22)	(18)		(1,944)		—		—		(1,962)		—		(1,962)
Common stock dividends	—	—	—		—		(781)		—		(781)		—		(781)
Other decreases in noncontrolling interests	—	—	9		—		—		—		9		(108)		(99)
Balance at March 31, 2023	1,759	(480)	48,306		(33,802)		57,753		$	(875)	71,382		198		71,580
Net income	—	—	—		—		1,901		—		1,901		13		1,914
Other comprehensive income (Note 9)	—	—	—		—		—		17		17		—		17
Stock option activity, stock awards and other	5	—	345		—		—		—		345		—		345
Purchase of treasury shares, net of ESPP issuances	—	(2)	2		(131)		—		—		(129)		—		(129)
Common stock dividends	—	—	—		—		(786)		—		(786)		—		(786)
Acquisition of noncontrolling interests	—	—	—		—		—		—		—		66		66
Other decreases in noncontrolling interests	—	—	(4)		—		—		—		(4)		(1)		(5)
Balance at June 30, 2023	1,764	(482)	$	48,649	$	(33,933)	$	58,868	$	(858)	$	72,726	$	276	$	73,002

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

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

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

Index to Condensed Consolidated Financial Statements

CVS Health Corporation

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)


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

	Common Shares	Treasury Shares (1)
In millions
Balance at December 31, 2021	1,744	(422)	$	47,377	$	(28,173)	$	54,906	$	965	$	75,075	$	306	$	75,381
Adoption of new accounting standard (Note 1) (3)	—	—	—		—		91		(631)		(540)		—		(540)
Net income	—	—	—		—		2,354		—		2,354		1		2,355
Other comprehensive loss	—	—	—		—		—		(763)		(763)		—		(763)
Stock option activity, stock awards and other	3	—	300		—		—		—		300		—		300
Purchase of treasury shares, net of ESPP issuances	—	(19)	—		(1,972)		—		—		(1,972)		—		(1,972)
Common stock dividends	—	—	—		—		(730)		—		(730)		—		(730)
Other increases in noncontrolling interests	—	—	—		—		—		—		—		3		3
Balance at March 31, 2022	1,747	(441)	47,677		(30,145)		56,621		(429)		73,724		310		74,034
Net income	—	—	—		—		3,029		—		3,029		10		3,039
Other comprehensive loss (Note 9)	—	—	—		—		—		(540)		(540)		—		(540)
Stock option activity, stock awards and other	8	—	197		—		—		—		197		—		197
Purchase of treasury shares, net of ESPP issuances	—	(2)	—		(267)		—		—		(267)		—		(267)
Common stock dividends	—	—	—		—		(729)		—		(729)		—		(729)
Other increases in noncontrolling interests	—	—	—		—		—		—		—		2		2
Balance at June 30, 2022	1,755	(443)	$	47,874	$	(30,412)	$	58,921	$	(969)	$	75,414	$	322	$	75,736

(1)Treasury shares include 1 million shares held in trust and treasury stock includes $29 million related to shares held in trust as of June 30, 2022, March 31, 2022 and December 31, 2021.

(2)Common stock and capital surplus includes the par value of common stock of $18 million as of June 30, 2022 and $17 million as of March 31, 2022 and December 31, 2021.

(3)Reflects the adoption of Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944) during the three months ended March 31, 2023. See Note 1 ‘‘Significant Accounting Policies’’ for additional information.

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

Index to Condensed Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements (Unaudited)

**1.**Significant Accounting Policies

Description of Business

CVS Health Corporation, together with its subsidiaries (collectively, “CVS Health” or the “Company”), has more than 9,000 retail locations, more than 1,100 walk-in medical clinics, 177 primary care medical clinics, a leading pharmacy benefits manager with approximately 110 million plan members and expanding specialty pharmacy solutions, and a dedicated senior pharmacy care business serving more than one million patients per year. The Company also serves an estimated 36 million people through traditional, voluntary and consumer-directed health insurance products and related services, including expanding Medicare Advantage offerings and a leading standalone Medicare Part D prescription drug plan (“PDP”). The Company is a leader in key segments of health care through its foundational businesses and is creating new sources of value by expanding into next generation care delivery and health services, with a goal of improving satisfaction levels for both providers and consumers. The Company believes its integrated health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs.

In connection with its new operating model adopted in the first quarter of 2023, the Company realigned the composition of its segments to reflect how its Chief Operating Decision Maker (the “CODM”) reviews information and manages the business. As a result of this realignment, the Company formed a new Health Services segment, which in addition to providing a full range of pharmacy benefit management (“PBM”) solutions, also delivers health care services in the Company’s medical clinics, virtually, and in the home, as well as provider enablement solutions. In addition, the Company created a new Pharmacy & Consumer Wellness segment, which includes its retail and long-term care pharmacy operations and related pharmacy services, as well as its retail front store operations. This segment will also provide pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. Prior period segment financial information has been recast to conform with the current period presentation.

Following the segment realignment described above, the Company’s four reportable segments are as follows: Health Care Benefits, Health Services, Pharmacy & Consumer Wellness and Corporate/Other, which are described below.

Health Care Benefits Segment

The Health Care Benefits segment operates as one of the nation’s leading diversified health care benefits providers. The Health Care Benefits segment has the information and resources to help members, in consultation with their health care professionals, make more informed decisions about their health care. The Health Care Benefits segment offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental and behavioral health plans, medical management capabilities, Medicare Advantage and Medicare Supplement plans, PDPs and Medicaid health care management services. The Health Care Benefits segment’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental units, government-sponsored plans, labor groups and expatriates. The Company refers to insurance products (where it assumes all or a majority of the risk for medical and dental care costs) as “Insured” and administrative services contract products (where the plan sponsor assumes all or a majority of the risk for medical and dental care costs) as “ASC.” In addition, effective January 2022, the Company entered the individual public health insurance exchanges (“Public Exchanges”) in eight states through which it sells Insured plans directly to individual consumers. The Company entered Public Exchanges in four additional states effective January 2023.

Health Services Segment

The Health Services segment provides a full range of PBM solutions, delivers health care services in its medical clinics, virtually, and in the home, and offers provider enablement solutions. PBM solutions include plan design offerings and administration, formulary management, retail pharmacy network management services, and specialty and mail order pharmacy services. In addition, the Company provides clinical services, disease management services, medical spend management and pharmacy and/or other administrative services for providers and federal 340B drug pricing program covered entities (“Covered Entities”). The Company operates a group purchasing organization that negotiates pricing for the purchase of pharmaceuticals and rebates with pharmaceutical manufacturers on behalf of its participants and provides various administrative, management and reporting services to pharmaceutical manufacturers. The Health Services segment’s clients 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 Exchanges and private health insurance exchanges, other sponsors of health benefit plans throughout the United States and Covered Entities.

Pharmacy & Consumer Wellness Segment

The Pharmacy & Consumer Wellness segment dispenses prescriptions in its retail pharmacies and through its infusion operations, provides ancillary pharmacy services including pharmacy patient care programs, diagnostic testing and vaccination administration, and sells a wide assortment of health and wellness products and general merchandise. The segment also conducts long-term care pharmacy (“LTC”) operations, which distribute prescription drugs and provide related pharmacy consulting and ancillary services to long-term care facilities and other care settings, and provides pharmacy fulfillment services to support the Health Services segment’s specialty and mail order pharmacy offerings. As of June 30, 2023, the Pharmacy & Consumer Wellness segment operated more than 9,000 retail locations, as well as online retail pharmacy websites, LTC pharmacies and on-site pharmacies, retail specialty pharmacy stores, compounding pharmacies and branches for infusion and enteral nutrition services.

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, information technology and finance departments, expenses associated with the Company’s investments in its transformation and enterprise modernization programs and acquisition-related transaction and integration costs; and
Products for which the Company no longer solicits or accepts new customers such as its large case pensions and long-term care insurance products.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CVS Health and its subsidiaries have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In accordance with such rules and regulations, certain information and accompanying note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022, which were revised to conform with current year financial statement changes as described in Note 12 “Segment Reporting,” and are included in Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2023 (the “May 2023 8-K”).

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

Principles of Consolidation

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

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

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

Reclassifications

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

Restricted Cash

Restricted cash included in other current assets on the unaudited condensed consolidated balance sheets primarily represents funds held on behalf of members and funds held in escrow in connection with agreements with accountable care organizations.

Restricted cash included in other assets on the unaudited condensed consolidated balance sheets represents amounts held in a trust in one of the Company’s captive insurance companies to satisfy collateral requirements associated with the assignment of certain insurance policies.

All restricted cash is invested in demand deposits, time deposits and money market funds.

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


In millions	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	13,807	$	12,945
Restricted cash (included in other current assets)	87		144
Restricted cash (included in other assets)	233		216
Total cash, cash equivalents and restricted cash in the statements of cash flows	$	14,127	$	13,305

Accounts Receivable

Accounts receivable are stated net of allowances for credit losses, customer credit allowances, contractual allowances and estimated terminations. Accounts receivable, net at June 30, 2023 and December 31, 2022 was composed of the following:


In millions	June 30, 2023		December 31, 2022
Trade receivables	$	9,949	$	8,983
Vendor and manufacturer receivables	14,911		12,395
Premium receivables	2,296		2,676
Other receivables	2,607		3,449
Total accounts receivable, net (1)	$	29,763	$	27,503

(1)Includes accounts receivable of $217 million and $227 million which have been accounted for as assets held for sale and are included in assets held for sale on the unaudited condensed consolidated balance sheets at June 30, 2023 and December 31, 2022, respectively. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

The Company’s allowance for credit losses was $313 million and $333 million as of June 30, 2023 and December 31, 2022, respectively. When developing an estimate of the Company’s expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The Company’s accounts receivable are short duration in nature and typically settle in less than 30 days.

Health Care Contract Acquisition Costs

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

recognized prospectively over the estimated terms of the contract. The amortization of deferred acquisition costs is recorded in operating expenses in the unaudited condensed consolidated statements of operations.

The following is a roll forward of deferred acquisition costs for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
In millions		2023		2022
Deferred acquisition costs, beginning of the period		$	1,219	$	879
Capitalizations		274		279
Amortization expense		(128)		(103)

Deferred acquisition costs, end of the period		$	1,365	$	1,055

Goodwill

The Company accounts for business combinations using the acquisition method of accounting, which requires the excess cost of an acquisition over the fair value of net assets acquired and identifiable intangible assets to be recorded as goodwill. Goodwill is not amortized, but is subject to impairment reviews annually, or more frequently, if necessary.

Intangible Assets

The Company’s identifiable intangible assets consist primarily of trademarks, trade names, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired (“VOBA”). These intangible assets arise primarily from the determination of their respective fair market values at the date of acquisition. Amounts assigned to identifiable intangible assets, and their related useful lives, are derived from established valuation techniques and management estimates.

The Company’s definite-lived intangible assets are amortized over their estimated useful lives based upon the pattern of future cash flows attributable to the asset. Definite-lived intangible assets are amortized using the straight-line method. VOBA is subject to loss recognition testing annually, or more frequently, if necessary.

Indefinite lived intangible assets are not amortized but are tested for impairment annually, or more frequently, if necessary.

Separate Accounts

Separate Accounts assets and liabilities related to large case pensions products represent funds maintained to meet specific objectives of contract holders who bear the investment risk. These assets and liabilities are carried at fair value. Net investment income (including net realized capital gains and losses) accrue directly to such contract holders. The assets of each account are legally segregated and are not subject to claims arising from the Company’s other businesses. Deposits, withdrawals and net investment income (including net realized and net unrealized capital gains and losses) on Separate Accounts assets are not reflected in the unaudited condensed consolidated statements of operations or cash flows. Management fees charged to contract holders are included in services revenue and recognized over the period earned.

See Note 5 ‘‘Fair Value’’ and Note 7 ‘‘Other Insurance Liabilities and Separate Accounts’’ for additional information about separate accounts.

Future Policy Benefits

Future policy benefits consist primarily of reserves for products for which the Company no longer solicits or accepts new customers, including limited payment pension and annuity contracts and long-term care insurance contracts and are recorded in other insurance liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets. Contracts are grouped into cohorts by contract type and issue year. The liability for future policy benefits is adjusted for differences between actual and expected experience.

Reserves for limited payment pension and annuity contracts represent the Company’s estimate of the present value of future benefits to be paid to or on behalf of policyholders and are computed using actuarial principles that consider, among other things, assumptions reflecting anticipated mortality and retirement experience. On an annual basis, or more frequently if necessary, the Company reviews mortality assumptions against both industry standards and its experience.

Reserves for long-term care insurance contracts represent the Company’s estimate of the present value of future benefits and settlement costs to be paid to or on behalf of policyholders less the present value of future net premiums. The Company’s estimate of the present value of future benefits under such contracts is based upon mortality, morbidity, lapse and interest rate assumptions. On an annual basis, or more frequently if necessary, the Company reviews its mortality, morbidity and lapse assumptions against its experience. Annually, or each time the assumptions are changed, the net premium ratio used to calculate the future policy benefit liability is updated to reflect actual experience, as well as the impact of any change in assumptions on the Company’s future cash flows.

The Company discounts its future policy benefit liability using a curve of spot rates derived from an upper-medium grade fixed-income investment. At each reporting date, the Company will measure its liability for future policy benefits using both the current spot rate curve and the locked-in discount rate at each cohort’s inception. Any difference between the measured liabilities is recorded in other comprehensive income (loss). In subsequent periods, the current period amount recorded in other comprehensive income (loss) will be adjusted for amounts previously recorded in accumulated other comprehensive loss.

As of June 30, 2023, future policy benefits balances of $377 million and $4.7 billion were recorded in other insurance liabilities and other long-term insurance liabilities, respectively. As of December 31, 2022, future policy benefits balances of $334 million and $4.7 billion were recorded in other insurance liabilities and other long-term insurance liabilities, respectively.

See Note 7 ‘‘Other Insurance Liabilities and Separate Accounts’’ for additional information about future policy benefits.

Revenue Recognition

Disaggregation of Revenue

The following tables disaggregate the Company’s revenue by major source in each segment for the three and six months ended June 30, 2023 and 2022:


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Three Months Ended June 30, 2023
Major goods/services lines:
Pharmacy	$	—	$	44,706	$	22,614	$	—	$	(12,258)	$	55,062
Front Store	—		—		5,629		—		—		5,629
Premiums	25,095		—		—		13		—		25,108
Net investment income	205		—		1		68		—		274
Other	1,447		1,509		540		2		(650)		2,848
Total	$	26,747	$	46,215	$	28,784	$	83	$	(12,908)	$	88,921

Health Services distribution channel:
Pharmacy network (1)			$	27,477
Mail & specialty (2)			17,229
Other			1,509
Total			$	46,215

Three Months Ended June 30, 2022
Major goods/services lines:
Pharmacy	$	—	$	42,179	$	20,442	$	—	$	(11,295)	$	51,326
Front Store	—		—		5,736		—		—		5,736
Premiums	21,245		—		—		15		—		21,260
Net investment income (loss)	88		—		(18)		76		—		146
Other	1,408		759		586		19		(604)		2,168
Total	$	22,741	$	42,938	$	26,746	$	110	$	(11,899)	$	80,636

Health Services distribution channel:
Pharmacy network (1)			$	25,896
Mail & specialty (2)			16,283
Other			759
Total			$	42,938


In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations		Consolidated Totals
Six Months Ended June 30, 2023
Major goods/services lines:
Pharmacy	$	—	$	88,443	$	44,394	$	—	$	(24,990)	$	107,847
Front Store	—		—		11,226		—		—		11,226
Premiums	49,434		—		—		26		—		49,460
Net investment income (loss)	369		—		(2)		241		—		608
Other	2,821		2,363		1,088		4		(1,218)		5,058
Total	$	52,624	$	90,806	$	56,706	$	271	$	(26,208)	$	174,199

Health Services distribution channel:
Pharmacy network (1)			$	55,069
Mail & specialty (2)			33,374
Other			2,363
Total			$	90,806

Six Months Ended June 30, 2022
Major goods/services lines:
Pharmacy	$	—	$	80,975	$	40,412	$	—	$	(22,571)	$	98,816
Front Store	—		—		11,049		—		—		11,049
Premiums	42,859		—		—		32		—		42,891
Net investment income (loss)	177		—		(34)		171		—		314
Other	2,799		1,578		1,217		33		(1,235)		4,392
Total	$	45,835	$	82,553	$	52,644	$	236	$	(23,806)	$	157,462

Health Services distribution channel:
Pharmacy network (1)			$	50,024
Mail & specialty (2)			30,951
Other			1,578
Total			$	82,553

(1)Health Services pharmacy network is defined as claims filled at retail and specialty retail pharmacies, including the Company’s retail pharmacies and LTC pharmacies. Effective January 1, 2023, pharmacy network also includes activity associated with Maintenance Choice, which permits eligible client plan members to fill their maintenance prescriptions through mail order delivery or at a CVS pharmacy retail store for the same price as mail order. Maintenance Choice activity was previously reflected in mail & specialty. Prior period financial information has been revised to conform with current period presentation.

(2)Health Services mail & specialty is defined as specialty mail claims inclusive of Specialty Connect® claims picked up at a retail pharmacy, as well as mail order and specialty claims fulfilled by the Pharmacy & Consumer Wellness segment. Effective January 1, 2023, mail & specialty excludes Maintenance Choice activity, which is now reflected within pharmacy network. Prior period financial information has been revised to conform with current period presentation.

Contract Balances

Contract liabilities primarily represent the Company’s obligation to transfer additional goods or services to a customer for which the Company has received consideration, and primarily include ExtraBucks® Rewards and unredeemed Company gift cards. The consideration received remains a contract liability until goods or services have been provided to the customer. In addition, the Company recognizes breakage on Company gift cards based on historical redemption patterns.

The following table provides information about receivables and contract liabilities from contracts with customers:


In millions	June 30, 2023		December 31, 2022
Trade receivables (included in accounts receivable, net)	$	9,949	$	8,983
Contract liabilities (included in accrued expenses)	161		71

During the six months ended June 30, 2023 and 2022, the contract liabilities balance includes increases related to customers’ earnings in ExtraBucks Rewards or issuances of Company gift cards and decreases for revenues recognized during the period as a result of the redemption of ExtraBucks Rewards or Company gift cards and breakage of Company gift cards. During the six months ended June 30, 2023, the contract liabilities balance also reflects the addition of contract liabilities acquired in connection with the Company’s acquisitions of Signify Health, Inc. (“Signify Health”) and Oak Street Health, Inc. (“Oak Street Health”) on March 29, 2023 and May 2, 2023, respectively. Below is a summary of such changes:


	Six Months Ended June 30,
In millions	2023		2022
Contract liabilities, beginning of the period	$	71	$	87
Rewards earnings and gift card issuances	165		175
Redemption and breakage	(180)		(182)
Acquired contract liabilities	104		—
Other	1		—
Contract liabilities, end of the period	$	161	$	80

Related Party Transactions

The Company has an equity method investment in SureScripts, LLC (“SureScripts”), which operates a clinical health information network. The Company utilizes this clinical health information network in providing services to its client plan members and retail customers. The Company expensed fees for the use of this network of $15 million and $16 million in the three months ended June 30, 2023 and 2022, respectively, and expensed fees for the use of this network of $32 million and $31 million in the six months ended June 30, 2023 and 2022, respectively. The Company’s investment in and equity in the earnings of SureScripts for all periods presented is immaterial.

The Company has an equity method investment in Heartland Healthcare Services, LLC (“Heartland”), which operates an LTC pharmacy. Heartland paid the Company $10 million and $23 million for pharmaceutical inventory purchases during the three months ended June 30, 2023 and 2022, respectively, and $29 million and $44 million for pharmaceutical inventory purchases during the six months ended June 30, 2023 and 2022, respectively. Additionally, the Company performs certain collection functions for Heartland and then transfers those customer cash collections to Heartland. The Company’s investment in and equity in the earnings of Heartland for all periods presented is immaterial.

New Accounting Pronouncements Recently Adopted

Targeted Improvements to the Accounting for Long-Duration Insurance Contracts

In August 2018, the Financial Accounting Standards Board issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944) (the “long-duration insurance standard”). This standard requires the Company to review cash flow assumptions for its long-duration insurance contracts at least annually and recognize the effect of changes in future cash flow assumptions in net income. This standard also requires the Company to update discount rate assumptions quarterly and recognize the effect of changes in these assumptions in other comprehensive income. The rate used to discount the Company’s liability for future policy benefits will be based on an estimate of the yield for an upper-medium grade fixed-income instrument with a duration profile matching that of the Company’s liabilities. In addition, this standard changes the amortization method for deferred acquisition costs and requires additional disclosures regarding the long duration insurance contract liabilities in the Company’s interim and annual financial statements.

The Company adopted this accounting standard on January 1, 2023, using the modified retrospective transition method as of the earliest period presented, January 1, 2021, also referred to as the “transition date”, for changes to its liabilities for future policy benefits, deferred acquisition costs and value of business acquired intangible asset. Upon adoption, the Company recorded a transition date net adjustment to reduce accumulated other comprehensive income (loss) by $986 million ($766 million after-

tax) with a corresponding increase to its liability for future policy benefits, the majority of which is included within other insurance liabilities and other long-term liabilities on the unaudited condensed consolidated balance sheets. The transition date net adjustment was a result of updating the rate used to discount the liabilities to reflect the yield for an upper-medium grade fixed-income instrument compared to the Company’s expected investment yield under the historical guidance. The Company was not required to record an adjustment to retained earnings on the transition date. Prior period financial information has been revised to reflect the adoption of the long-duration insurance standard.

The following summarizes changes in the balances of long-duration insurance liabilities as a result of the adoption of the long-duration insurance standard effective January 1, 2021:


In millions	Large Case Pensions		Long-Term Care		Other
Balance at December 31, 2020, net of reinsurance	$	3,224	$	1,142	$	480
Add: Reinsurance recoverable	—		—		274
Balance at December 31, 2020	3,224		1,142		754
Change in discount rate assumptions	604		553		44
Removal of shadow adjustments in accumulated other comprehensive income	(181)		—		—
Adjusted balance at January 1, 2021	3,647		1,695		798
Less: Reinsurance recoverable	—		—		308
Adjusted balance at January 1, 2021, net of reinsurance	$	3,647	$	1,695	$	490

Impact of Long-Duration Insurance Standard Adoption on Financial Statement Line Items

As a result of applying the long-duration insurance standard using a modified retrospective method, the following adjustments were made to amounts reported in the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2022:


	Impact of Change in Accounting Policy
In millions	As Reported June 30, 2022		Adjustments		Adjusted June 30, 2022
Three Months Ended
Condensed Consolidated Statement of Operations:
Operating costs:
Health care costs	$	17,606	$	(116)	$	17,490
Operating expenses	9,171		16		9,187
Total operating costs	76,067		(100)		75,967
Operating income	4,569		100		4,669
Income before income tax provision	4,029		100		4,129
Income tax provision	1,068		22		1,090
Net income	2,961		78		3,039
Net income attributable to CVS Health	2,951		78		3,029
Net income per share attributable to CVS Health:
Basic	$	2.25	$	0.06	$	2.31
Diluted	$	2.23	$	0.06	$	2.29

Six Months Ended
Condensed Consolidated Statement of Operations:
Operating costs:
Health care costs	$	35,557	$	(144)	$	35,413
Operating expenses	18,522		(11)		18,511
Total operating costs	149,403		(155)		149,248
Operating income	8,059		155		8,214
Income before income tax provision	6,975		155		7,130
Income tax provision	1,701		35		1,736
Net income	5,274		120		5,394
Net income attributable to CVS Health	5,263		120		5,383
Net income per share attributable to CVS Health:
Basic	$	4.01	$	0.09	$	4.10
Diluted	$	3.97	$	0.09	$	4.06


	Impact of Change in Accounting Policy
In millions	As Reported December 31, 2022		Adjustments		Adjusted December 31, 2022
Condensed Consolidated Balance Sheet:
Other current assets	$	2,685	$	(49)	$	2,636
Total current assets	65,682		(49)		65,633
Intangible assets, net	24,754		49		24,803
Total assets	228,275		—		228,275
Health care costs payable	10,406		(264)		10,142
Other insurance liabilities	1,140		(51)		1,089
Total current liabilities	69,736		(315)		69,421
Deferred income taxes	3,880		136		4,016
Other long-term insurance liabilities	6,108		(273)		5,835
Other long-term liabilities	6,732		(2)		6,730
Total liabilities	156,960		(454)		156,506
Retained earnings	56,145		253		56,398
Accumulated other comprehensive loss	(1,465)		201		(1,264)
Total CVS Health shareholders’ equity	71,015		454		71,469
Total shareholders’ equity	71,315		454		71,769
Total liabilities and shareholders’ equity	228,275		—		228,275


	Impact of Change in Accounting Policy
In millions	As Reported June 30, 2022		Adjustments		Adjusted June 30, 2022
Condensed Consolidated Statement of Cash Flows:
Reconciliation of net income to net cash provided by operating activities:
Net income	$	5,274	$	120	$	5,394
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,142		(11)		2,131
Deferred income taxes and other noncash items	(281)		35		(246)
Change in operating assets and liabilities, net of effects from acquisitions:
Other assets	(325)		39		(286)
Health care costs payable and other insurance liabilities	1,467		(181)		1,286
Other liabilities	903		(2)		901

**2.**Acquisitions and Assets Held for Sale

Oak Street Health Acquisition

On May 2, 2023 (the “Oak Street Health Acquisition Date”), the Company acquired 100% of the outstanding shares and voting interest of Oak Street Health for cash (“Oak Street Health Acquisition”). Under the terms of the merger agreement, Oak Street Health stockholders received $39.00 per share in cash. The Company financed the transaction with borrowings of $5.0 billion from a term loan agreement entered into on May 1, 2023 as described in Note 8 ‘‘Borrowings’’ and cash on hand. Oak Street Health is a leading multi-payor, senior focused value-based primary care company. Oak Street Health is included within the Health Services segment. The Company acquired Oak Street Health to advance its value-based care strategy and broaden its platform into primary care.

The fair value of the consideration transferred on the date of acquisition consisted of the following:


In millions
Cash	$	9,579
Fair value of replacement equity awards for pre-combination services (3.9 million shares) (1)	118
Effective settlement of pre-existing relationship (2)	(29)
Total consideration transferred	$	9,668

(1)The fair value of the replacement equity awards issued by the Company was determined as of the Oak Street Health Acquisition Date. The fair value of the awards attributed to pre-combination services of $118 million is included in the consideration transferred and the fair value of the awards attributed to post-combination services of $165 million has been, or will be, included in the Company’s post-combination financial statements as compensation costs.

(2)The purchase price included $29 million of effectively settled liabilities the Company owed to Oak Street Health from their pre-existing relationship.

The transaction has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


In millions
Cash and cash equivalents	$	201
Investments	168
Accounts receivable	1,143
Other current assets	46
Property and equipment	180
Operating lease right-of-use assets	316
Goodwill	7,193
Intangible assets	4,233
Other long-term assets	7
Total assets acquired	13,487
Health care costs payable	1,102
Other current liabilities	443
Operating lease liabilities (current and long-term)	378
Debt (current and long-term)	1,028
Deferred income taxes	773
Other long-term liabilities	29
Total liabilities assumed	3,753
Noncontrolling interests	66
Total consideration transferred	$	9,668

The assessment of fair value is preliminary and is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared. The most significant open items included the valuation of certain intangible assets and health care costs payable, the accounting for income taxes and the accounting for contingencies as management is awaiting additional information to complete its assessment of these matters. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. The finalization of the Company’s purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed, which could be material.

Goodwill

Goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the health services industry, the assembled workforce acquired, expected revenue and medical cost synergies, as well as operating efficiencies and cost savings. The preliminary valuation of goodwill was allocated to the Company’s business segments as follows:


In millions
Health Services	$	6,916
Pharmacy & Consumer Wellness	156
Health Care Benefits	121
Total goodwill	$	7,193

The amount of goodwill deductible for income tax purposes was not material.

Intangible Assets

The following table summarizes the preliminary fair values and weighted average useful lives for intangible assets acquired in the Oak Street Health Acquisition, each of which is subject to change as the Company finalizes its purchase accounting:


In millions, except weighted average useful life	Gross Fair Value		Weighted Average Useful Life (years)
Customer relationships (1)	$	3,620	19.9
Technology	143		3.0
Trademark (definite-lived)	470		8.0
Total intangible assets	$	4,233	18.0

(1) The substantial majority of the customer relationships intangible asset relates to relationships with health plan payers.

Deferred Income Taxes

The purchase price allocation includes net deferred tax liabilities of $773 million, primarily related to deferred tax liabilities established on the identifiable acquired intangible assets.

Consolidated Results of Operations

During the period from the Oak Street Health Acquisition Date through June 30, 2023, the Company’s consolidated results of operations included $507 million of revenue associated with the results of operations of Oak Street Health, while its impact on consolidated operating income was not material.

During the six months ended June 30, 2023, the Company incurred transaction costs of $77 million associated with the Oak Street Health Acquisition, which were recorded in operating expenses.

Signify Health Acquisition

On March 29, 2023 (the “Signify Health Acquisition Date”), the Company acquired 100% of the outstanding shares and voting interest of Signify Health for cash (“Signify Health Acquisition”). Under the terms of the merger agreement, Signify Health stockholders received $30.50 per share in cash. The Company financed the transaction with cash on hand, which included approximately $6 billion of proceeds from the issuance of senior unsecured notes in February 2023. Signify Health is a leader in health risk assessments, value-based care and provider enablement services. Signify Health is included within the Health Services segment. The Company acquired Signify Health to advance its health care services strategy, growth in value-based care and new product offerings for other payers.

The fair value of the consideration transferred on the date of acquisition consisted of the following:


In millions
Cash	$	7,450
Fair value of replacement equity awards for pre-combination services (3.2 million shares) (1)	14
Effective settlement of pre-existing relationship (2)	(111)
Total consideration transferred	$	7,353

(1)The fair value of the replacement equity awards issued by the Company was determined as of the Signify Health Acquisition Date. The fair value of the awards attributed to pre-combination services of $14 million is included in the consideration transferred and the fair value of the awards attributed to post-combination services of $167 million has been, or will be, included in the Company’s post-combination financial statements as compensation costs.

(2)The purchase price included $111 million of effectively settled liabilities the Company owed to Signify Health from their pre-existing relationship.


In millions
Cash and cash equivalents	$	376
Accounts receivable	190
Other current assets (including restricted cash of $28)	149
Property and equipment	25
Goodwill	5,917
Intangible assets	1,920
Other long-term assets	23
Total assets acquired	8,600
Other current liabilities	601
Debt (current and long-term)	346
Deferred income taxes	274
Other long-term liabilities	26
Total liabilities assumed	1,247
Total consideration transferred	$	7,353

The assessment of fair value is preliminary and is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared. The most significant open items included the estimation of certain contract assets and contract liabilities, the accounting for income taxes and the accounting for contingencies as management is awaiting additional information to complete its assessment of these matters. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. The finalization of the Company’s purchase accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed, which could be material.

Goodwill


In millions
Health Services	$	3,414
Health Care Benefits	2,473
Pharmacy & Consumer Wellness	30
Total goodwill	$	5,917

Approximately $1.7 billion of goodwill is deductible for income tax purposes.

Intangible Assets

The following table summarizes the fair values and weighted average useful lives for intangible assets acquired in the Signify Health Acquisition:


In millions, except weighted average useful life	Gross Fair Value		Weighted Average Useful Life (years)
Customer relationships	$	1,810	16.7
Technology	50		3.0
Trademark (definite-lived)	60		5.0
Total intangible assets	$	1,920	16.0

Deferred Income Taxes

The purchase price allocation includes net deferred tax liabilities of $274 million, primarily related to deferred tax liabilities established on the identifiable acquired intangible assets.

Consolidated Results of Operations

During the period from the Signify Health Acquisition Date through June 30, 2023, the Company’s consolidated results of operations included $267 million of revenue associated with the results of operations of Signify Health, while its impact on consolidated operating income was not material.

During the six months ended June 30, 2023, the Company incurred transaction costs of $37 million associated with the Signify Health Acquisition, which were recorded in operating expenses.

Assets Held For Sale

The Company continually evaluates its portfolio for non-strategic assets. The Company determined that its Omnicare® long-term care business (“LTC business”), which is included within the Pharmacy & Consumer Wellness segment, was no longer a strategic asset and during the third quarter of 2022 committed to a plan to sell the LTC business. During 2022, the LTC business met the criteria to be classified as held for sale and the carrying value of the LTC business was determined to be greater than its estimated fair value less costs to sell. Accordingly, the Company recorded total losses on assets held for sale of $2.5 billion during the year ended December 31, 2022. As of June 30, 2023, the net assets of the LTC business continued to meet the criteria for held-for-sale accounting and the carrying value of the LTC business reflected its estimated fair value less costs to sell. During the first quarter of 2023, a loss on assets held for sale of $349 million was recorded to write-down the carrying value of the LTC business to the Company’s best estimate of the ultimate selling price which reflects its estimated fair value less costs to sell. The loss on assets held for sale represents the write-down of long-lived assets and was recorded in the Company’s unaudited condensed consolidated statement of operations within the Pharmacy & Consumer Wellness segment. The LTC business operating income was not material for the three and six months ended June 30, 2023 and 2022.

The LTC business met the criteria to be classified as held for sale at both June 30, 2023 and December 31, 2022, but did not meet the criteria to be classified as discontinued operations. As a result, the related assets and liabilities were included in the separate held-for-sale line items of the asset and liability sections of the unaudited condensed consolidated balance sheets. As the assets held for sale are measured at fair value on a nonrecurring basis primarily using unobservable inputs as of the measurement date, they are classified in Level 3 of the fair value hierarchy. The following table summarizes the assets and liabilities held for sale at June 30, 2023 and December 31, 2022:


In millions	June 30, 2023		December 31, 2022
Assets:
Accounts receivable, net	$	217	$	227
Inventories	168		188
Property and equipment, net	—		244
Deferred income taxes	206		131
Other	29		118
Total assets held for sale	$	620	$	908

Liabilities:
Accounts payable	$	85	$	86
Accrued expenses	53		71
Other	70		71
Total liabilities held for sale	$	208	$	228

**3.**Restructuring Program

During the second quarter of 2023, the Company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives, including providing clinical trials services. In connection with the restructuring plan, during the three months ended June 30, 2023, the Company recorded a $496 million pre-tax restructuring charge, comprised of $344 million of severance and employee-related costs associated with corporate workforce optimization and $152 million of asset impairment charges. The restructuring charge is reflected in the Corporate/Other segment. The severance and employee-related costs were recorded in accrued expenses and the asset impairments were recorded as a reduction of property and equipment, net, on the unaudited condensed consolidated balance sheet at June 30, 2023. There were no payments made related to the severance and employee-related costs during the three months ended June 30, 2023. The restructuring program is expected to be substantially complete by the end of 2023.

Severance and employee-related costs consist primarily of salary continuation benefits, prorated annual incentive compensation, continuation of health care benefits and outplacement services. Severance and employee-related benefits are determined pursuant to the Company’s written severance plans and are recognized when the benefits are determined to be probable of being paid and are reasonably estimable.

**4.**Investments

Total investments at June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023						December 31, 2022
In millions	Current		Long-term		Total		Current		Long-term		Total
Debt securities available for sale	$	2,988	$	17,915	$	20,903	$	2,718	$	17,562	$	20,280
Mortgage loans	90		1,143		1,233		55		989		1,044
Other investments	2		3,056		3,058		5		2,562		2,567
Total investments (1)	$	3,080	$	22,114	$	25,194	$	2,778	$	21,113	$	23,891

(1)Includes long-term investments of $17 million which have been accounted for as assets held for sale and are included in assets held for sale on the unaudited condensed consolidated balance sheet at December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Debt Securities

Debt securities available for sale at June 30, 2023 and December 31, 2022 were as follows:


In millions	Gross Amortized Cost		Allowance for Credit Losses		Net Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2023
Debt securities:
U.S. government securities	$	2,066	$	—	$	2,066	$	1	$	(159)	$	1,908
States, municipalities and political subdivisions	2,391		—		2,391		10		(91)		2,310
U.S. corporate securities	10,061		—		10,061		32		(703)		9,390
Foreign securities	2,761		(1)		2,760		17		(192)		2,585
Residential mortgage-backed securities	863		—		863		1		(79)		785
Commercial mortgage-backed securities	1,137		—		1,137		1		(140)		998
Other asset-backed securities	2,969		—		2,969		7		(68)		2,908
Redeemable preferred securities	20		—		20		—		(1)		19
Total debt securities (1)	$	22,268	$	(1)	$	22,267	$	69	$	(1,433)	$	20,903

December 31, 2022
Debt securities:
U.S. government securities	$	2,074	$	—	$	2,074	$	—	$	(182)	$	1,892
States, municipalities and political subdivisions	2,393		—		2,393		8		(129)		2,272
U.S. corporate securities	9,838		(3)		9,835		26		(903)		8,958
Foreign securities	2,780		(1)		2,779		15		(244)		2,550
Residential mortgage-backed securities	845		—		845		1		(89)		757
Commercial mortgage-backed securities	1,172		—		1,172		1		(155)		1,018
Other asset-backed securities	2,940		—		2,940		6		(136)		2,810
Redeemable preferred securities	25		—		25		—		(2)		23
Total debt securities (1)	$	22,067	$	(4)	$	22,063	$	57	$	(1,840)	$	20,280

(1)Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At June 30, 2023, debt securities with a fair value of $600 million, gross unrealized capital gains of $4 million and gross unrealized capital losses of $44 million and at December 31, 2022, debt securities with a fair value of $609 million, gross unrealized capital gains of $3 million and gross unrealized capital losses of $59 million were included in total debt securities, but support experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive loss.

The net amortized cost and fair value of debt securities at June 30, 2023 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity.


In millions	Net Amortized Cost		Fair Value
Due to mature:
Less than one year	$	1,304	$	1,288
One year through five years	7,318		6,942
After five years through ten years	4,408		4,078
Greater than ten years	4,268		3,904
Residential mortgage-backed securities	863		785
Commercial mortgage-backed securities	1,137		998
Other asset-backed securities	2,969		2,908
Total	$	22,267	$	20,903

Summarized below are the debt securities the Company held at June 30, 2023 and December 31, 2022 that were in an unrealized capital loss position, aggregated by the length of time the investments have been in that position:


	Less than 12 months					Greater than 12 months					Total
In millions, except number of securities	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
June 30, 2023
Debt securities:
U.S. government securities	174	$	476	$	19	346	$	1,144	$	140	520	$	1,620	$	159
States, municipalities and political subdivisions	440	816		12		610	913		79		1,050	1,729		91
U.S. corporate securities	2,697	3,438		125		3,647	4,633		578		6,344	8,071		703
Foreign securities	566	854		24		954	1,356		168		1,520	2,210		192
Residential mortgage-backed securities	321	403		18		218	336		61		539	739		79
Commercial mortgage-backed securities	126	311		15		328	619		125		454	930		140
Other asset-backed securities	466	1,174		16		669	1,168		52		1,135	2,342		68
Redeemable preferred securities	2	3		—		6	14		1		8	17		1
Total debt securities	4,792	$	7,475	$	229	6,778	$	10,183	$	1,204	11,570	$	17,658	$	1,433

December 31, 2022
Debt securities:
U.S. government securities	519	$	1,620	$	164	35	$	191	$	18	554	$	1,811	$	182
States, municipalities and political subdivisions	859	1,370		95		196	322		34		1,055	1,692		129
U.S. corporate securities	5,193	6,537		622		1,479	1,822		281		6,672	8,359		903
Foreign securities	1,168	1,715		147		403	592		97		1,571	2,307		244
Residential mortgage-backed securities	452	464		39		91	257		50		543	721		89
Commercial mortgage-backed securities	288	611		69		187	381		86		475	992		155
Other asset-backed securities	1,008	1,893		88		391	694		48		1,399	2,587		136
Redeemable preferred securities	13	18		2		2	5		—		15	23		2
Total debt securities	9,500	$	14,228	$	1,226	2,784	$	4,264	$	614	12,284	$	18,492	$	1,840

The Company reviewed the securities in the table above and concluded that they are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the quality of the investment security based on research performed by the Company’s internal credit analysts and external rating agencies and the prospects of realizing the carrying value of the security based on the investment’s current prospects for recovery. Unrealized capital losses at June 30, 2023 were generally caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. As of June 30, 2023, the Company did not intend to sell these securities, and did not believe it was more likely than not that it would be required to sell these securities prior to the anticipated recovery of their amortized cost basis.

The maturity dates for debt securities in an unrealized capital loss position at June 30, 2023 were as follows:


	Supporting experience-rated products				Supporting remaining products				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Due to mature:
Less than one year	$	17	$	—	$	1,074	$	16	$	1,091	$	16
One year through five years	146		5		5,982		381		6,128		386
After five years through ten years	121		13		3,194		335		3,315		348
Greater than ten years	186		22		2,927		374		3,113		396
Residential mortgage-backed securities	11		1		728		78		739		79
Commercial mortgage-backed securities	19		2		911		138		930		140
Other asset-backed securities	19		1		2,323		67		2,342		68
Total	$	519	$	44	$	17,139	$	1,389	$	17,658	$	1,433

Mortgage Loans

The Company’s mortgage loans are collateralized by commercial real estate. During the three and six months ended June 30, 2023 and 2022, the Company had the following activity in its mortgage loan portfolio:


	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2023		2022		2023		2022
New mortgage loans	$	168	$	121	$	223	$	180
Mortgage loans fully repaid	3		39		17		74
Mortgage loans foreclosed	—		—		—		—

The Company assesses mortgage loans on a regular basis for credit impairments, and assigns a credit quality indicator to each loan. The Company’s credit quality indicator is internally developed and categorizes each loan in its portfolio on a scale from 1 to 7. These indicators are based upon several factors, including current loan-to-value ratios, current and future property cash flow, property condition, market trends, creditworthiness of the borrower and deal structure.

Category 1 - Represents loans of superior quality.
Categories 2 to 4 - Represent loans where credit risk is minimal to acceptable; however, these loans may display some susceptibility to economic changes.
Categories 5 and 6 - Represent loans where credit risk is not substantial, but these loans warrant management’s close attention.
Category 7 - Represents loans where collections are potentially at risk; if necessary, an impairment is recorded.

Based on the Company’s assessments at June 30, 2023 and December 31, 2022, the amortized cost basis of the Company's mortgage loans within each credit quality indicator by year of origination was as follows:


	Amortized Cost Basis by Year of Origination
In millions, except credit quality indicator	2023		2022		2021		2020		2019		Prior		Total
June 30, 2023
1	$	—	$	—	$	—	$	—	$	—	$	13	$	13
2 to 4	194		339		258		36		11		376		1,214
5 and 6	—		—		—		—		—		6		6
7	—		—		—		—		—		—		—
Total	$	194	$	339	$	258	$	36	$	11	$	395	$	1,233

December 31, 2022
1			$	—	$	—	$	—	$	—	$	15	$	15
2 to 4			326		247		36		11		402		1,022
5 and 6			—		—		—		—		7		7
7			—		—		—		—		—		—
Total			$	326	$	247	$	36	$	11	$	424	$	1,044

Net Investment Income

Sources of net investment income for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2023		2022		2023		2022
Debt securities	$	204	$	172	$	395	$	336
Mortgage loans	14		13		27		24
Other investments	165		68		410		145
Gross investment income	383		253		832		505
Investment expenses	(11)		(9)		(21)		(18)
Net investment income (excluding net realized capital losses)	372		244		811		487
Net realized capital losses (1)	(98)		(98)		(203)		(173)
Net investment income (2)	$	274	$	146	$	608	$	314

(1)Net realized capital losses include yield-related impairment losses on debt securities of $37 million and are net of the reversal of previously recorded credit-related impairment losses on debt securities of $2 million in the three months ended June 30, 2023. Net realized capital losses include yield-related impairment losses on debt securities of $61 million and are net of the reversal of previously recorded credit-related impairment losses on debt securities of $3 million in the six months ended June 30, 2023. Net realized capital losses include yield-related impairment losses on debt securities of $30 million and are net of the reversal of previously recorded credit-related impairment losses on debt securities of $22 million in the three months ended June 30, 2022. Net realized capital losses include yield-related and credit-related impairment losses on debt securities of $48 million and $16 million, respectively, in the six months ended June 30, 2022.

(2)Net investment income includes $9 million and $17 million for the three and six months ended June 30, 2023, respectively, and $9 million and $18 million for the three and six months ended June 30, 2022, respectively, related to investments supporting experience-rated products.

Excluding amounts related to experience-rated products, proceeds from the sale of available-for-sale debt securities and the related gross realized capital gains and losses for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2023		2022		2023		2022
Proceeds from sales	$	991	$	1,052	$	2,332	$	2,963
Gross realized capital gains	2		3		5		17
Gross realized capital losses	73		72		184		107

**5.**Fair Value

The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with GAAP requires certain assets and liabilities to be reflected at their fair value and others to be reflected on another basis, such as an adjusted historical cost basis. The Company’s assets and liabilities carried at fair value have been classified within one of three levels of a hierarchy established by GAAP. The following are the levels of the hierarchy and a brief description of the type of valuation information (“valuation inputs”) that qualifies a financial asset or liability for each level:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 – Valuation inputs other than Level 1 that are based on observable market data. These include: quoted prices for similar assets in active markets, quoted prices for identical assets in inactive markets, valuation inputs that are observable that are not prices (such as interest rates and credit risks) and valuation inputs that are derived from or corroborated by observable markets.
Level 3 – Developed from unobservable data, reflecting the Company’s assumptions.

For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 4 “Fair Value” in Exhibit 99.1 to the May 2023 8-K.

There were no financial liabilities measured at fair value on a recurring basis on the unaudited condensed consolidated balance sheets at June 30, 2023 or December 31, 2022. Financial assets measured at fair value on a recurring basis on the unaudited condensed consolidated balance sheets at June 30, 2023 and December 31, 2022 were as follows:


In millions	Level 1		Level 2		Level 3		Total
June 30, 2023
Cash and cash equivalents (1)	$	4,326	$	9,488	$	—	$	13,814
Debt securities:
U.S. government securities	1,866		42		—		1,908
States, municipalities and political subdivisions	—		2,310		—		2,310
U.S. corporate securities	—		9,360		30		9,390
Foreign securities	—		2,577		8		2,585
Residential mortgage-backed securities	—		785		—		785
Commercial mortgage-backed securities	—		998		—		998
Other asset-backed securities	—		2,908		—		2,908
Redeemable preferred securities	—		19		—		19
Total debt securities	1,866		18,999		38		20,903
Equity securities	193		—		65		258
Total	$	6,385	$	28,487	$	103	$	34,975

December 31, 2022
Cash and cash equivalents (1)	$	6,902	$	6,049	$	—	$	12,951
Debt securities:
U.S. government securities	1,860		32		—		1,892
States, municipalities and political subdivisions	—		2,272		—		2,272
U.S. corporate securities	—		8,897		61		8,958
Foreign securities	—		2,542		8		2,550
Residential mortgage-backed securities	—		757		—		757
Commercial mortgage-backed securities	—		1,018		—		1,018
Other asset-backed securities	—		2,810		—		2,810
Redeemable preferred securities	—		23		—		23
Total debt securities	1,860		18,351		69		20,280
Equity securities	116		—		60		176
Total	$	8,878	$	24,400	$	129	$	33,407

(1)Includes cash and cash equivalents of $7 million and $6 million which have been accounted for as assets held for sale and are included in assets held for sale on the unaudited condensed consolidated balance sheets at June 30, 2023 and December 31, 2022, respectively. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

During the three and six months ended June 30, 2023, there were $13 million and $42 million, respectively, of transfers out of Level 3. During the three and six months ended June 30, 2022, there were $26 million and $29 million, respectively, of transfers out of Level 3.

The carrying value and estimated fair value classified by level of fair value hierarchy for financial instruments carried on the unaudited condensed consolidated balance sheets at adjusted cost or contract value at June 30, 2023 and December 31, 2022 were as follows:


	Carrying Value			Estimated Fair Value
In millions			Level 1			Level 2			Level 3			Total
June 30, 2023
Assets:
Mortgage loans	$	1,233		$	—		$	—		$	1,176		$	1,176
Equity securities (1)	499			N/A			N/A			N/A			N/A
Liabilities:
Investment contract liabilities:
With a fixed maturity	1			—			—			1			1
Without a fixed maturity	321			—			—			287			287
Long-term debt (2)	62,824			58,476			—			—			58,476

December 31, 2022
Assets:
Mortgage loans	$	1,044		$	—		$	—		$	978		$	978
Equity securities (1)	411			N/A			N/A			N/A			N/A
Liabilities:
Investment contract liabilities:
With a fixed maturity	3			—			—			3			3
Without a fixed maturity	332			—			—			305			305
Long-term debt (2)	52,257			47,653			—			—			47,653

(1)It was not practical to estimate the fair value of these cost-method investments as it represents shares of unlisted companies.

(2)Includes long-term debt of $3 million which has been accounted for as liabilities held for sale and is included in liabilities held for sale on the unaudited condensed consolidated balance sheets at both June 30, 2023 and December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Separate Accounts assets relate to the Company’s large case pensions products which represent funds maintained to meet specific objectives of contract holders. Since contract holders bear the investment risk of these assets, a corresponding Separate Accounts liability has been established equal to the assets. These assets and liabilities are carried at fair value. Separate Accounts financial assets as of June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023								December 31, 2022
In millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	1	$	153	$	—	$	154	$	2	$	154	$	—	$	156
Debt securities	709		1,958		—		2,667		712		1,965		—		2,677

Common/collective trusts	—		420		—		420		—		480		—		480
Total (1)	$	710	$	2,531	$	—	$	3,241	$	714	$	2,599	$	—	$	3,313

(1)Excludes $26 million of other receivables and $85 million of other payables at June 30, 2023 and December 31, 2022, respectively.

**6.**Health Care Costs Payable

The following table shows the components of the change in health care costs payable during the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
In millions	2023		2022
Health care costs payable, beginning of the period	$	10,142	$	8,678
Less: Reinsurance recoverables	5		8
Less: Impact of discount rate on long-duration insurance reserves (1)	8		—
Health care costs payable, beginning of the period, net	10,129		8,670
Acquisitions, net	1,102		—
Add: Components of incurred health care costs
Current year	42,705		35,884
Prior years	(619)		(666)
Total incurred health care costs (2)	42,086		35,218
Less: Claims paid
Current year	32,502		26,971
Prior years	8,800		6,732
Total claims paid	41,302		33,703
Add: Premium deficiency reserve	—		5

Health care costs payable, end of the period, net	12,015		10,190
Add: Reinsurance recoverables	5		4
Add: Impact of discount rate on long-duration insurance reserves (1)	(22)		8
Health care costs payable, end of the period	$	11,998	$	10,202

(1)Reflects the difference between the current discount rate and the locked-in discount rate on long-duration insurance reserves which is recorded within accumulated other comprehensive loss on the unaudited condensed consolidated balance sheets. Refer to Note 1 ‘‘Significant Accounting Policies’’ for further information related to the adoption of the long-duration insurance contracts accounting standard.

(2)Total incurred health care costs for the six months ended June 30, 2023 and 2022 in the table above exclude $42 million and $41 million, respectively, of health care costs recorded in the Health Care Benefits segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets and $102 million and $149 million, respectively, of health care costs recorded in the Corporate/Other segment that are included in other insurance liabilities on the unaudited condensed consolidated balance sheets. The incurred health care costs for the six months ended June 30, 2022 also exclude $5 million for a premium deficiency reserve related to the Company’s Medicaid products.

The Company’s estimates of prior years’ health care costs payable decreased by $619 million and $666 million, respectively, in the six months ended June 30, 2023 and 2022, because claims were settled for amounts less than originally estimated (i.e., the amount of claims incurred was lower than originally estimated), primarily due to lower health care cost trends as well as the actual claim submission time being faster than originally assumed (i.e., the Company’s completion factors were higher than originally assumed) in estimating health care costs payable at the end of the prior year.

At June 30, 2023, the Company’s liabilities for the ultimate cost of (i) services rendered to the Company’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”) plus expected development on reported claims totaled approximately $8.7 billion. Substantially all of the Company’s liabilities for IBNR plus expected development on reported claims at June 30, 2023 related to the current year.

**7.**Other Insurance Liabilities and Separate Accounts

Future Policy Benefits

The following tables show the components of the change in the liability for future policy benefits, which is included in other insurance liabilities and other long-term insurance liabilities on the unaudited condensed consolidated balance sheets, during the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30, 2023
In millions	Large Case Pensions		Long-Term Care
Present value of expected net premiums (1)
Liability for future policy benefits, beginning of period - current discount rate			$	300

Beginning liability for future policy benefits at original (locked-in) discount rate			$	302
Effect of changes in cash flow assumptions			—
Effect of actual variances from expected experience			5
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate			307

Interest accrual (using locked-in discount rate)			8
Net premiums (actual)			(20)

Ending liability for future policy benefits at original (locked-in) discount rate			295
Effect of changes in discount rate assumptions			(1)
Liability for future policy benefits, end of period - current discount rate			$	294

Present value of expected future policy benefits
Liability for future policy benefits, beginning of period - current discount rate	$	2,253	$	1,566

Beginning liability for future policy benefits at original (locked-in) discount rate	$	2,425	$	1,613
Effect of changes in cash flow assumptions	—		—
Effect of actual variances from expected experience	—		—
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate	2,425		1,613
Issuances	7		—
Interest accrual (using locked-in discount rate)	50		40
Benefit payments (actual)	(143)		(35)


Ending liability for future policy benefits at original (locked-in) discount rate	2,339		1,618
Effect of changes in discount rate assumptions	(154)		(22)
Liability for future policy benefits, end of period - current discount rate	$	2,185	$	1,596

Net liability for future policy benefits	$	2,185	$	1,302
Less: Reinsurance recoverable	—		—
Net liability for future policy benefits, net of reinsurance recoverable	$	2,185	$	1,302

(1)The present value of expected net premiums is equivalent to the present value of expected gross premiums for the long-term care insurance contracts as net premiums are set equal to gross premiums.


	Six Months Ended June 30, 2022
In millions	Large Case Pensions		Long-Term Care
Present value of expected net premiums (1)
Liability for future policy benefits, beginning of the period - current discount rate			$	389

Beginning liability for future policy benefits at original (locked-in) discount rate			$	323
Effect of changes in cash flow assumptions			(14)
Effect of actual variances from expected experience			10
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate			319

Interest accrual (using locked-in discount rate)			8
Net premiums (actual)			(20)

Ending liability for future policy benefits at original (locked-in) discount rate			307
Effect of changes in discount rate assumptions			13
Liability for future policy benefits, end of the period - current discount rate			$	320

Present value of expected future policy benefits
Liability for future policy benefits, beginning of the period - current discount rate	$	3,034	$	1,991

Beginning liability for future policy benefits at original (locked-in) discount rate	$	2,650	$	1,480
Effect of changes in cash flow assumptions	—		98
Effect of actual variances from expected experience	(10)		13
Adjusted beginning liability for future policy benefits - original (locked-in) discount rate	2,640		1,591
Issuances	4		—
Interest accrual (using locked-in discount rate)	54		40
Benefit payments (actual)	(148)		(32)


Ending liability for future policy benefits at original (locked-in) discount rate	2,550		1,599
Effect of changes in discount rate assumptions	(54)		82
Liability for future policy benefits, end of the period - current discount rate	$	2,496	$	1,681

Net liability for future policy benefits	$	2,496	$	1,361
Less: Reinsurance recoverable	—		—
Net liability for future policy benefits, net of reinsurance recoverable	$	2,496	$	1,361

(1)The present value of expected net premiums is equivalent to the present value of expected gross premiums for the long-term care insurance contracts as net premiums are set equal to gross premiums.

The Company did not have any material differences between the actual experience and expected experience for the significant assumptions used in the computation of the liability for future policy benefits.

The amount of undiscounted expected gross premiums and expected future benefit payments for long-duration insurance liabilities as of June 30, 2023 and 2022 were as follows:


In millions	June 30, 2023		June 30, 2022
Large case pensions
Expected future benefit payments	$	3,398	$	3,732
Expected gross premiums	—		—

Long-term care
Expected future benefit payments	$	3,238	$	3,278
Expected gross premiums	425		445

The weighted-average interest rate used in the measurement of the long-duration insurance liabilities as of June 30, 2023 and 2022 were as follows:


	June 30, 2023	June 30, 2022
Large case pensions
Interest accretion rate	4.20%	4.20%
Current discount rate	5.17%	4.50%

Long-term care
Interest accretion rate	5.11%	5.11%
Current discount rate	5.24%	4.70%

The weighted-average durations (in years) of the long-duration insurance liabilities as of June 30, 2023 and 2022 were as follows:


	June 30, 2023	June 30, 2022
Large case pensions	7.4	7.5
Long-term care	12.4	12.9

Policyholders’ Funds

The following table shows the components of the change in policyholders’ funds related to long-duration insurance contracts, which are included in policyholders’ funds and other long-term liabilities on the unaudited condensed consolidated balance sheets, during the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
In millions, except weighted average crediting rate	2023		2022
Policyholders’ funds, beginning of the period	$	345	$	522

Deposits received	(1)		8
Policy charges	(1)		(1)
Surrenders and withdrawals	(20)		(19)


Interest credited	5		7
Change in net unrealized gains (losses)	16		(126)
Other	(14)		(14)
Policyholders’ funds, end of the period	$	330	$	377

Weighted average crediting rate	4.55%		4.85%

Net amount at risk	$	—	$	—

Cash surrender value	$	323	$	339

Separate Accounts

The following table shows the fair value of assets, by major investment category, supporting Separate Accounts as of June 30, 2023 and December 31, 2022:


In millions	June 30, 2023		December 31, 2022

Cash and cash equivalents	$	154	$	156
Debt securities:
U.S. government securities	712		717
States, municipalities and political subdivisions	28		27
U.S. corporate securities	1,664		1,667


Foreign securities	203		201
Residential mortgage-backed securities	36		41
Commercial mortgage-backed securities	6		6
Other asset-backed securities	18		18
Total debt securities	2,667		2,677

Common/collective trusts	420		480

Total (1)	$	3,241	$	3,313

(1)Excludes $26 million of other receivables and $85 million of other payables at June 30, 2023 and December 31, 2022, respectively.

The following table shows the components of the change in Separate Accounts liabilities during the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
In millions	2023		2022

Separate Accounts liability, beginning of the period	$	3,228	$	5,087
Premiums and deposits	457		426

Surrenders and withdrawals	(6)		(4)
Benefit payments	(495)		(464)
Investment earnings	88		(910)
Net transfers from general account	2		8
Other	(7)		(3)
Separate Accounts liability, end of the period	$	3,267	$	4,140

Cash surrender value, end of the period	$	2,152	$	2,827

The Company did not recognize any gains or losses on assets transferred to Separate Accounts during the six months ended June 30, 2023 and 2022.

**8.**Borrowings

The following table is a summary of the Company’s borrowings at June 30, 2023 and December 31, 2022:


In millions	June 30, 2023		December 31, 2022
Short-term debt
Commercial paper	$	1,000	$	—

Long-term debt




2.8% senior notes due June 2023	—		1,300
4% senior notes due December 2023	414		414
3.375% senior notes due August 2024	650		650
2.625% senior notes due August 2024	1,000		1,000
3.5% senior notes due November 2024	750		750
5% senior notes due December 2024 (1)	299		299
4.1% senior notes due March 2025	950		950
3.875% senior notes due July 2025	2,828		2,828
5% senior notes due February 2026	1,500		—
0% convertible senior notes due March 2026	920		—
2.875% senior notes due June 2026	1,750		1,750
3% senior notes due August 2026	750		750
3.625% senior notes due April 2027	750		750
6.25% senior notes due June 2027	372		372
1.3% senior notes due August 2027	2,250		2,250
4.3% senior notes due March 2028	5,000		5,000
5% senior notes due January 2029	1,000		—
3.25% senior notes due August 2029	1,750		1,750
5.125% senior notes due February 2030	1,500		—
3.75% senior notes due April 2030	1,500		1,500
1.75% senior notes due August 2030	1,250		1,250
5.25% senior notes due January 2031	750		—
1.875% senior notes due February 2031	1,250		1,250
2.125% senior notes due September 2031	1,000		1,000
5.25% senior notes due February 2033	1,750		—
5.3% senior notes due June 2033	1,250		—
4.875% senior notes due July 2035	652		652
6.625% senior notes due June 2036	771		771
6.75% senior notes due December 2037	533		533
4.78% senior notes due March 2038	5,000		5,000
6.125% senior notes due September 2039	447		447
4.125% senior notes due April 2040	1,000		1,000
2.7% senior notes due August 2040	1,250		1,250
5.75% senior notes due May 2041	133		133
4.5% senior notes due May 2042	500		500
4.125% senior notes due November 2042	500		500
5.3% senior notes due December 2043	750		750
4.75% senior notes due March 2044	375		375
5.125% senior notes due July 2045	3,500		3,500
3.875% senior notes due August 2047	1,000		1,000
5.05% senior notes due March 2048	8,000		8,000
4.25% senior notes due April 2050	750		750


5.625% senior notes due February 2053	1,250		—
5.875% senior notes due June 2053	1,250		—
6% senior notes due June 2063	750		—
Finance lease liabilities	1,499		1,465
Other	312		314
Total debt principal	64,405		52,753
Debt premiums	194		200
Debt discounts and deferred financing costs	(775)		(696)
	63,824		52,257
Less:
Short-term debt (commercial paper)	(1,000)		—
Current portion of long-term debt	(1,402)		(1,778)
Long-term debt (1)	$	61,422	$	50,479

(1)Includes long-term debt of $3 million which has been accounted for as liabilities held for sale and is included in liabilities held for sale on the unaudited condensed consolidated balance sheets at both June 30, 2023 and December 31, 2022. See Note 2 ‘‘Acquisitions and Assets Held for Sale’’ for additional information.

Short-term Borrowings

Commercial Paper

The Company had $1.0 billion of commercial paper outstanding at a weighted average interest rate of 5.56% as of June 30, 2023.

Term Loan Agreement

On May 1, 2023, the Company entered into a 364-day $5.0 billion term loan agreement. The term loan agreement allows for borrowings at various rates that are dependent, in part, on the Company’s debt ratings. On May 2, 2023, the Company borrowed $5.0 billion at an interest rate of approximately 6.2% under the term loan agreement to fund a portion of the Oak Street Health acquisition purchase price. On June 2, 2023, the Company repaid the outstanding balance under the term loan agreement.

Long-term Borrowings

2023 Notes

On June 2, 2023, the Company issued $1.0 billion aggregate principal amount of 5.0% senior notes due January 2029, $750 million aggregate principal amount of 5.25% senior notes due January 2031, $1.25 billion aggregate principal amount of 5.3% senior notes due June 2033, $1.25 billion aggregate principal amount of 5.875% senior notes due June 2053 and $750 million aggregate principal amount of 6.0% senior notes due June 2063 for total proceeds of approximately $4.9 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used, along with cash on hand, to repay the outstanding balance under the term loan agreement described above.

On February 21, 2023, the Company issued $1.5 billion aggregate principal amount of 5.0% senior notes due February 2026, $1.5 billion aggregate principal amount of 5.125% senior notes due February 2030, $1.75 billion aggregate principal amount of 5.25% senior notes due February 2033 and $1.25 billion aggregate principal amount of 5.625% senior notes due February 2053 for total proceeds of approximately $6.0 billion, net of discounts and underwriting fees. The net proceeds of these offerings were used to fund general corporate purposes, including a portion of the Signify Health Acquisition purchase price.

Oak Street Health Convertible Notes

Prior to the Oak Street Health Acquisition, Oak Street Health held 0% convertible senior notes with an aggregate principal amount of $920 million (the “Convertible Notes”), which were assumed by the Company in connection with the Oak Street Health Acquisition. The Oak Street Health Acquisition constituted a fundamental change in the Convertible Notes giving the holders the right to require the Company to repurchase the Convertible Notes. The repurchase price was an amount in cash equal to 100% of the principal amount of the Convertible Notes. On May 31, 2023, the Company issued a notice of repurchase to the holders of the Convertible Notes. In connection with this notice, $917 million of the Convertible Notes were submitted for repurchase and settled on July 21, 2023, with $3 million remaining outstanding.

**9.**Shareholders’ Equity

Share Repurchases

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 June 30, 2023
November 17, 2022 (“2022 Repurchase Program”)	$	10.0	$	10.0
December 9, 2021 (“2021 Repurchase Program”)	10.0		4.5

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 six months ended June 30, 2023 and 2022, the Company repurchased an aggregate of 22.8 million shares of common stock for approximately $2.0 billion and an aggregate of 19.1 million shares of common stock for approximately $2.0 billion, respectively, both 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 $2.0 billion fixed dollar ASR with Citibank, N.A. (“Citibank”). Upon payment of the $2.0 billion purchase price on January 4, 2023, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $2.0 billion notional amount of the ASR or approximately 17.4 million shares at a price of $92.19 per share, which were placed into treasury stock in January 2023. The ASR was accounted for as an initial treasury stock transaction for $1.6 billion and a forward contract for $0.4 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2023, the Company received approximately 5.4 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $2.0 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in February 2023.

Pursuant to the authorization under the 2021 Repurchase Program, the Company entered into a $1.5 billion fixed dollar ASR with Barclays Bank PLC (“Barclays”). Upon payment of the $1.5 billion purchase price on January 4, 2022, the Company received a number of shares of CVS Health Corporation’s common stock equal to 80% of the $1.5 billion notional amount of the ASR or approximately 11.6 million shares at a price of $103.34 per share, which were placed into treasury stock in January 2022. The ASR was accounted for as an initial treasury stock transaction for $1.2 billion and a forward contract for $0.3 billion. The forward contract was classified as an equity instrument and was recorded within capital surplus. In February 2022, the Company received approximately 2.7 million shares of CVS Health Corporation’s common stock, representing the remaining 20% of the $1.5 billion notional amount of the ASR, thereby concluding the ASR. These shares were placed into treasury and the forward contract was reclassified from capital surplus to treasury stock in February 2022.

At the time they were received, the initial and final receipt of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share.

Dividends

The quarterly cash dividend declared by the Board was $0.605 and $0.55 per share in the three months ended June 30, 2023 and 2022, respectively. Cash dividends declared by the Board were $1.21 and $1.10 per share in the six months ended June 30, 2023 and 2022, respectively. CVS Health Corporation has paid cash dividends every quarter since becoming a public company. Future dividend payments will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board.

**10.**Other Comprehensive Income (Loss)

Shareholders’ equity included the following activity in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2023		2022		2023		2022
Net unrealized investment gains (losses):
Beginning of period balance	$	(1,049)	$	(334)	$	(1,519)	$	778
Adoption of new accounting standard ($0, $0, $0, $26 pretax) (1)	—		—		—		20
Other comprehensive income (loss) before reclassifications ($(175), $(1,172), $165, $(2,547) pretax)	(174)		(920)		165		(2,127)
Amounts reclassified from accumulated other comprehensive income (loss) ($110, $77, $241, $154 pretax) (2)	110		55		241		130
Other comprehensive income (loss)	(64)		(865)		406		(1,997)
End of period balance	(1,113)		(1,199)		(1,113)		(1,199)

Change in discount rate on long-duration insurance reserves:
Beginning of period balance	145		(282)		219		—
Adoption of new accounting standard ($0, $0, $0, $(838) pretax) (1)	—		—		—		(651)
Other comprehensive income (loss) before reclassifications ($78, $399, $(23), $874 pretax)	60		310		(14)		679
Other comprehensive income (loss)	60		310		(14)		679
End of period balance	205		28		205		28

Foreign currency translation adjustments:
Beginning of period balance	(1)		3		—		—
Other comprehensive income (loss) before reclassifications	2		(1)		—		2

Other comprehensive income (loss)	2		(1)		1		2
End of period balance	1		2		1		2

Net cash flow hedges:
Beginning of period balance	233		219		239		222
Other comprehensive income (loss) before reclassifications ($3, $24, $(3), $24 pretax )	2		18		(2)		18
Amounts reclassified from accumulated other comprehensive income ($23, $(4), $20, $(8) pretax) (3)	17		(3)		15		(6)
Other comprehensive income	19		15		13		12
End of period balance	252		234		252		234

Pension and other postretirement benefits:
Beginning of period balance	(203)		(35)		(203)		(35)

Amounts reclassified from accumulated other comprehensive loss ($0, $1, $0, $1 pretax) (4)	—		1		—		1
Other comprehensive income	—		1		—		1
End of period balance	(203)		(34)		(203)		(34)

Total beginning of period accumulated other comprehensive income (loss)	(875)		(429)		(1,264)		965
Adoption of new accounting standard (1)	—		—		—		(631)
Total other comprehensive income (loss)	17		(540)		406		(1,303)
Total end of period accumulated other comprehensive loss	$	(858)	$	(969)	$	(858)	$	(969)

(1)Reflects the adoption of ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944) during the six months ended June 30, 2023. See Note 1 ‘‘Significant Accounting Policies’’ for additional information.

(2)Amounts reclassified from accumulated other comprehensive income (loss) for specifically identified debt securities are included in net investment income in the unaudited condensed consolidated statements of operations.

(3)Amounts reclassified from accumulated other comprehensive income for specifically identified cash flow hedges are included in interest expense in the unaudited condensed consolidated statements of operations. The Company expects to reclassify approximately $15 million, net of tax, in net gains associated with its cash flow hedges into net income within the next 12 months.

(4)Amounts reclassified from accumulated other comprehensive loss for specifically identified pension and other postretirement benefits are included in

other income in the unaudited condensed consolidated statements of operations.

**11.**Earnings Per Share

Earnings per share is computed using the treasury stock method. Stock options and stock appreciation rights to purchase 9 million and 6 million shares of common stock were outstanding, but were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2023, respectively, because their exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. For the same reason, stock options and stock appreciation rights to purchase 4 million and 3 million shares of common stock were outstanding, but were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2022, respectively.

The following is a reconciliation of basic and diluted earnings per share for the respective periods:


	Three Months Ended June 30,				Six Months Ended June 30,
In millions, except per share amounts	2023		2022		2023		2022
Numerator for earnings per share calculation:



Net income attributable to CVS Health	$	1,901	$	3,029	$	4,037	$	5,383

Denominator for earnings per share calculation:
Weighted average shares, basic	1,283		1,313		1,283		1,312
Restricted stock units and performance stock units	2		4		4		8
Stock options and stock appreciation rights	2		4		2		5
Weighted average shares, diluted	1,287		1,321		1,289		1,325

Earnings per share:
Basic	$	1.48	$	2.31	$	3.15	$	4.10
Diluted	$	1.48	$	2.29	$	3.13	$	4.06

**12.**Commitments and Contingencies

Lease Guarantees

Between 1995 and 1997, the Company sold or spun off a number of subsidiaries, including Bob’s Stores and Linens ‘n Things, each of which subsequently filed for bankruptcy, and Marshalls. In many cases, when a former subsidiary leased a store, the Company provided a guarantee of the former subsidiary’s lease obligations for the initial lease term and any extension thereof pursuant to a renewal option provided for in the lease prior to the time of the disposition. When the subsidiaries were disposed of and accounted for as discontinued operations, the Company’s guarantees remained in place, although each initial purchaser agreed to indemnify the Company for any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries fail to make the required payments under a store lease, the Company could be required to satisfy those obligations. As of June 30, 2023, the Company guaranteed 64 such store leases (excluding the lease guarantees related to Linens ‘n Things, which have been recorded as a liability on the unaudited condensed consolidated balance sheets), with the maximum remaining lease term extending through 2034.

Guaranty Fund Assessments, Market Stabilization and Other Non-Voluntary Risk Sharing Pools

Under guaranty fund laws existing in all states, insurers doing business in those states can be assessed (in most states up to prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants. The life and health insurance guaranty associations in which the Company participates that operate under these laws respond to insolvencies of

long-term care insurers and life insurers as well as health insurers. The Company’s assessments generally are based on a formula relating to the Company’s health care premiums in the state compared to the premiums of other insurers. Certain states allow assessments to be recovered over time as offsets to premium taxes. Some states have similar laws relating to HMOs and/or other payors such as not-for-profit consumer-governed health plans established under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and one of its subsidiaries (collectively, “Penn Treaty”) in rehabilitation, an intermediate action before insolvency, and subsequently petitioned a state court to convert the rehabilitation into a liquidation. Penn Treaty was placed in liquidation in March 2017. The Company has recorded a liability for its estimated share of future assessments by applicable life and health insurance guaranty associations. It is reasonably possible that in the future the Company may record a liability and expense relating to other insolvencies which could have a material adverse effect on the Company’s operating results, financial condition and cash flows, and the risk is heightened by any significant adverse impact the coronavirus disease 2019 (“COVID-19”) pandemic had on the solvency of other insurers, including long-term care and life insurers. While historically the Company has ultimately recovered more than half of guaranty fund assessments through statutorily permitted premium tax offsets, significant increases in assessments could lead to legislative and/or regulatory actions that limit future offsets.

HMOs in certain states in which the Company does business are subject to assessments, including market stabilization and other risk-sharing pools, for which the Company is assessed charges based on incurred claims, demographic membership mix and other factors. The Company establishes liabilities for these assessments based on applicable laws and regulations. In certain states, the ultimate assessments the Company pays are dependent upon the Company’s experience relative to other entities subject to the assessment, and the ultimate liability is not known at the financial statement date. While the ultimate amount of the assessment is dependent upon the experience of all pool participants, the Company believes it has adequate reserves to cover such assessments.

Litigation and Regulatory Proceedings

The Company has been involved or is currently involved in numerous legal proceedings, including litigation, arbitration, government investigations, audits, reviews and claims. These include routine, regular and special investigations, audits and reviews by CMS, state insurance and health and welfare departments, the U.S. Department of Justice (the “DOJ”), state Attorneys General, the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”) and other governmental authorities.

Legal proceedings, in general, and securities, class action and multi-district litigation, in particular, and governmental special investigations, audits and reviews can be expensive and disruptive. Some of the litigation matters may purport or be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. The Company also may be named from time to time in qui tam actions initiated by private third parties that could also be separately pursued by a governmental body. The results of legal proceedings, including government investigations, are often uncertain and difficult to predict, and the costs incurred in these matters can be substantial, regardless of the outcome.

The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and reasonably estimable, the Company does not establish an accrued liability. Other than the controlled substances litigation accruals described below, none of the Company’s accruals for outstanding legal matters are material individually or in the aggregate to the Company’s unaudited condensed consolidated balance sheets.

Except as otherwise noted, the Company cannot predict with certainty the timing or outcome of the legal matters described below, and the Company is unable to reasonably estimate a possible loss or range of possible loss in excess of amounts already accrued for these matters. The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s financial position. Substantial unanticipated verdicts, fines and rulings, however, do sometimes occur, which could result in judgments against the Company, entry into settlements or a revision to its expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations. In addition, as a result of governmental investigations or proceedings, the Company may be subject to damages, civil or criminal fines or penalties, or other sanctions including possible suspension or loss of licensure and/or exclusion from

participating in government programs. The outcome of such governmental investigations of proceedings could be material to the Company.

Usual and Customary Pricing Litigation

The Company is named as a defendant in a number of lawsuits that allege that the Company’s retail pharmacies overcharged for prescription drugs by not submitting the correct usual and customary price during the claims adjudication process. These actions are brought by a number of different types of plaintiffs, including plan members, private payors and government payors, and are based on different legal theories. Some of these cases are brought as putative class actions, and in some instances, classes have been certified. In October 2022, one of the litigating shareholders made a litigation demand to the Board related to these and other issues after his amended derivative complaint was dismissed for failing to demonstrate demand futility. The Company is defending itself against these claims.

PBM Litigation and Investigations

The Company is named as a defendant in a number of lawsuits and is subject to a number of investigations concerning its PBM practices.

The Company is facing multiple lawsuits, including by state Attorneys General, governmental subdivisions, and several putative class actions, regarding drug pricing and its rebate arrangements with drug manufacturers. These complaints, brought by a number of different types of plaintiffs under a variety of legal theories, generally allege that rebate agreements between the drug manufacturers and PBMs caused inflated prices for certain drug products. The Company is defending itself against these claims. The Company has also received subpoenas, civil investigative demands (“CIDs”), and other requests for documents and information from, and is being investigated by, the FTC and Attorneys General of several states and the District of Columbia regarding its PBM practices, including pricing and rebates. The Company has been providing documents and information in response to these subpoenas, CIDs, and requests for information.

United States ex rel. Behnke v. CVS Caremark Corporation, et al. (U.S. District Court for the Eastern District of Pennsylvania). In April 2018, the Court unsealed a complaint filed in February 2014. The government has declined to intervene in this case. The relator alleges that the Company submitted, or caused to be submitted, to Part D of the Medicare program Prescription Drug Event data and/or Direct and Indirect Remuneration reports that misrepresented true prices paid by the Company’s PBM to pharmacies for drugs dispensed to Part D beneficiaries with prescription benefits administered by the Company’s PBM. The Company is defending itself against these claims.

Controlled Substances Litigation, Audits and Subpoenas

In December 2022, the Company agreed to a formal settlement agreement, the financial amounts of which were agreed to in principle in October 2022, with a leadership group of a number of state Attorneys General and the Plaintiffs’ Executive Committee. Upon finalization, the agreement resolves substantially all opioid claims against Company entities by participating states and political subdivisions but not private plaintiffs, alleging claims beginning as far back as the early 2000s generally concerning the impacts of widespread prescription opioid abuse. The maximum amount payable by the Company under the settlement is approximately $4.3 billion in opioid remediation and $625 million in attorneys’ fees and costs and additional remediation. The amounts are payable over 10 years, beginning in 2023. The agreement also contains injunctive terms relating to the dispensing of opioid medications. The settlement agreement is available at nationalopioidsettlement.com.

Upon reaching an agreement in principle in October 2022, the Company concluded that settlement of opioid claims by governmental entities and tribes was probable, and the loss related thereto could be reasonably estimated. As a result of that conclusion, and its assessment of certain other opioid-related claims including those for which the Company reached agreement in August and September 2022, the Company recorded pre-tax charges of $5.3 billion during the year ended December 31, 2022. Settlement accruals expected to be paid within twelve months from the balance sheet date are classified as accrued expenses on the unaudited condensed consolidated balance sheets and settlement accruals expected to be paid greater than twelve months from the balance sheet date are classified as other long-term liabilities on the unaudited condensed consolidated balance sheets.

In June 2023, the Company elected to move forward with a final settlement agreement, the financial amounts of which were agreed to in principle in October 2022, to resolve claims brought by participating states and political subdivisions such as counties, cities, and towns, but not by private plaintiffs, alleging claims beginning as far back as the early 2000s generally concerning the impacts of widespread prescription opioid abuse. The agreement became effective in June 2023.

Forty-five states, the District of Columbia, and all eligible United States territories are participating in the settlement. A high percentage of eligible subdivisions within the participating states also have elected to join the settlement. The Company has separately entered into settlement agreements with four states – Florida, West Virginia, New Mexico, and Nevada – and a high percentage of eligible subdivisions within those states also have elected to participate.

The final settlement agreement contains certain contingencies related to payment obligations. Because these contingencies are inherently unpredictable, the assessment requires judgments about future events. The amount of ultimate loss may differ from the amount accrued by the Company.

The State of Maryland has not elected to participate in the settlement. Subdivisions within the State of Maryland thus may not participate in the settlement. The State of Maryland has issued a civil subpoena for information from the Company.

In December 2022, the Company also agreed to a formal settlement agreement with a leadership group representing tribes throughout the United States. The agreement resolves substantially all opioid claims against Company entities by such tribes. The maximum amount payable by the Company under the settlement is $113 million in opioid remediation and $16 million in attorneys’ fees and costs, payable over 10 years. The Company also entered into a separate settlement with the Cherokee Nation.

These settlements resolve a majority of the cases against the Company that had been pending in the consolidated multidistrict litigation captioned In re National Prescription Opiate Litigation (MDL No. 2804) pending in the U.S. District Court for the Northern District of Ohio. However, certain opioid-related cases against the Company remain pending in the multidistrict litigation and in various state courts, including those brought by non-participating subdivisions and private parties such as hospitals and third-party payors. The Company continues to defend those cases.

In November 2021, the Company was among the chain pharmacies found liable by a jury in a trial in federal court in Ohio; in August 2022, the court issued a judgment jointly against the three defendants in the amount of $651 million to be paid over 15 years and also ordered certain injunctive relief. The Company is appealing the judgment and has not accrued a liability for this matter.

Because of the many uncertainties associated with any settlement arrangement or other resolution of opioid-related litigation matters, and because the Company continues to actively defend ongoing litigation for which it believes it has defenses and assertions that have merit, the Company is not able to reasonably estimate the range of ultimate possible loss for all opioid-related litigation matters at this time. The outcome of these legal matters could have a material effect on the Company’s business, financial condition, operating results and/or cash flows.

In January 2020, the DOJ served the Company with a DEA administrative subpoena. The subpoena seeks documents relating to practices with respect to prescription opioids and other controlled substances at CVS pharmacy locations concerning potential violations of the federal Controlled Substances Act and the federal False Claims Act. The DOJ subsequently served additional DEA administrative subpoenas relating to controlled substances. The DOJ also served the Company with additional CIDs relating to controlled substances. The Company is providing documents and information in response to these matters.

Prescription Processing Litigation and Investigations

The Company is named as a defendant in a number of lawsuits and is subject to a number of investigations concerning its prescription processing practices, including the following:

U.S. ex rel. Bassan et al. v. Omnicare, Inc. and CVS Health Corp. (U.S. District Court for the Southern District of New York). In December 2019, the U.S. Attorney’s Office for the Southern District of New York (the “SDNY”) filed a complaint-in-intervention in this previously sealed qui tam case. The complaint alleges that for certain non-skilled nursing facilities, Omnicare improperly filled prescriptions beyond one year where a valid prescription did not exist and that these dispensing events violated the federal False Claims Act. The Company is defending itself against these claims.

U.S. ex rel. Gill et al. v. CVS Health Corp. et al. (U.S. District Court for the Northern District of Illinois). In July 2022, the Delaware Attorney General’s Office moved for partial intervention as to allegations under the Delaware false claims act related to not escheating alleged overpayments in this previously sealed qui tam case. The federal government and the remaining states declined to intervene on other additional theories in the relator’s complaint. The Company is defending itself against all of the claims.

In July 2017, the Company also received a subpoena from the California Department of Insurance requesting documents concerning the Company’s Omnicare pharmacies’ cycle fill process for assisted living facilities. The Company has been cooperating with the California Department of Insurance and providing documents and information in response to this subpoena.

Provider Proceedings

The Company is named as a defendant in purported class actions and individual lawsuits arising out of its practices related to the payment of claims for services rendered to its members by providers with whom the Company has a contract and with whom the Company does not have a contract (“out-of-network providers”). Among other things, these lawsuits allege that the Company paid too little to its health plan members and/or providers for out-of-network services (including COVID-19 testing) and/or otherwise allege that the Company failed to timely or appropriately pay or administer claims and benefits (including the Company’s post payment audit and collection practices). Other major health insurers are the subject of similar litigation or have settled similar litigation.

The Company also has received subpoenas and/or requests for documents and other information from, and been investigated by, state Attorneys General and other state and/or federal regulators, legislators and agencies relating to claims payments, and the Company is involved in other litigation regarding, its out-of-network benefit payment and administration practices. It is reasonably possible that others could initiate additional litigation or additional regulatory action against the Company with respect to its out-of-network benefit payment and/or administration practices.

CMS Actions

CMS regularly audits the Company’s performance to determine its compliance with CMS’s regulations and its contracts with CMS and to assess the quality of services it provides to Medicare beneficiaries. CMS uses various payment mechanisms to allocate and adjust premium payments to the Company’s and other companies’ Medicare plans by considering the applicable health status of Medicare members as supported by information prepared, maintained and provided by providers. The Company collects claim and encounter data from providers and generally relies on providers to appropriately code their submissions to the Company and document their medical records, including the diagnosis data submitted to the Company with claims. CMS pays increased premiums to Medicare Advantage plans and Medicare PDP plans for members who have certain medical conditions identified with specific diagnosis codes. Federal regulators review and audit the providers’ medical records to determine whether those records support the related diagnosis codes that determine the members’ health status and the resulting risk-adjusted premium payments to the Company. In that regard, CMS has instituted risk adjustment data validation (“RADV”) audits of various Medicare Advantage plans, including certain of the Company’s plans, to validate coding practices and supporting medical record documentation maintained by providers and the resulting risk-adjusted premium payments to the plans. CMS may require the Company to refund premium payments if the Company’s risk-adjusted premiums are not properly supported by medical record data. The Office of the Inspector General of the U.S. Department of Health and Human Services (“OIG”) also is auditing the Company’s risk adjustment-related data and that of other companies. The Company expects CMS and the OIG to continue these types of audits.

In 2012, in the “Notice of Final Payment Error Calculation for Part C Medicare Advantage Risk Adjustment Validation Data (RADV) Contract-Level Audits,” CMS revised its audit methodology for RADV contract-level audits to determine refunds payable by Medicare Advantage plans for contract year 2011 and forward. Under the revised methodology, among other things, CMS announced extrapolation of the error rate identified in the audit sample along with the application of a process to account for errors in the government’s traditional fee-for-service Medicare program (“FFS Adjuster”). For contract years prior to 2011, CMS did not extrapolate sample error rates to the entire contract, nor did CMS propose to apply a FFS adjuster. By applying the FFS Adjuster, Medicare Advantage organizations would have been liable for repayments only to the extent that their extrapolated payment errors exceeded the error rate in Original Medicare, which could have impacted the extrapolated repayments to which Medicare Advantage organizations are subject. This revised contract-level audit methodology increased the Company’s exposure to premium refunds to CMS based on incomplete medical records maintained by providers. In the RADV audit methodology CMS used from 2011-2013, CMS selected only a few of the Company’s Medicare Advantage contracts for various contract years for contract-level RADV audits. In October 2018, CMS in the proposed rule (“Proposed Rule”) announced a new methodology for RADV audits targeting certain health conditions and members with many diagnostic conditions along with extrapolation for the error rates identified without use of a FFS Adjuster. While the rule was under proposal, CMS initiated contract-level RADV audits for the years 2014 and 2015 with this new RADV methodology without a final rule.

On January 30, 2023, CMS released the final rule (“RADV Audit Rule”), announcing it may use extrapolation for payment years 2018 forward, for both RADV audits and OIG audits, and eliminated the application of a FFS Adjuster in Part C contract-level RADV audits of Medicare Advantage organizations. In the RADV Audit Rule, CMS indicated that it will use more than one audit methodology going forward and indicated CMS will audit contracts it believes are at the highest risk for overpayments based on its statistical modeling, citing a 2016 Governmental Accountability Office report that recommended selection of contract-level RADV audits with a focus on contracts likely to have high rates of improper payment, the highest coding intensity scores, and contracts with high levels of unsupported diagnoses from prior RADV audits.

The Company is currently unable to predict which of its Medicare Advantage contracts will be selected for future audit, the amounts of any retroactive refunds for years prior to 2018 or prospective adjustments to Medicare Advantage premium payments made to the Company, the effect of any such refunds or adjustments on the actuarial soundness of the Company’s Medicare Advantage bids, or whether any RADV audit findings would require the Company to change its method of estimating future premium revenue in future bid submissions to CMS or compromise premium assumptions made in the Company’s bids for prior contract years, the current contract year or future contract years. Any premium or fee refunds or adjustments resulting from regulatory audits, whether as a result of RADV, Public Exchange related or other audits by CMS, the OIG or otherwise, including audits of the Company’s minimum loss ratio rebates, methodology and/or reports, could be material and could adversely affect the Company’s operating results, cash flows and/or financial condition.

The RADV Audit Rule does not apply to the CMS Part C Improper Payment Measures audits nor the HHS-RADV programs.

Medicare and Medicaid Litigation and Investigations

The Company has received CIDs from the Civil Division of the DOJ in connection with a current investigation of the Company’s patient chart review processes related to risk adjustment data submissions under Parts C and D of the Medicare program. The Company has been cooperating with the government and providing documents and information in response to these CIDs.

In May 2017, the Company received a CID from the U.S. Attorney’s Office for the Southern District of New York requesting documents and information concerning possible false claims submitted to Medicare in connection with reimbursements for prescription drugs under the Medicare Part D program. The Company has been cooperating with the government and providing documents and information in response to this CID.

In November 2021, prior to its acquisition by the Company, Oak Street Health received a CID from the DOJ in connection with an investigation of possible false claims submitted to Medicare related to Oak Street Health’s relationships with third-party marketing agents and Oak Street Health’s provision of free transportation to federal health care beneficiaries. The Company has been cooperating with the government and has provided documents and information in response to the CID.

In January 2022, the U.S. Attorney’s Office for the District of Massachusetts issued a subpoena to Aetna Life Insurance Company seeking, among other things, information in connection with its relationship with certain brokers, and the Company may receive similar inquiries in the future. The Company is cooperating with the subpoena.

Stockholder Matters

Beginning in February 2019, multiple class action complaints, as well as a derivative complaint, were filed by putative plaintiffs against the Company and certain current and former officers and directors. The plaintiffs in these cases assert a variety of causes of action under federal securities laws that are premised on allegations that the defendants made certain omissions and misrepresentations relating to the performance of the Company’s LTC business unit. Since filing, several of the cases have been consolidated, and two have resolved, including the first-filed federal case, City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, et al. (formerly known as Anarkat), the dismissal of which the First Circuit affirmed in August 2022. The Company and its current and former officers and directors are defending themselves against remaining claims. The Company has moved to dismiss the amended complaint in In re CVS Health Corp. Securities Act Litigation (formerly known as Waterford). In In re CVS Health Corp. Securities Litigation (formerly known as City of Warren and Freundlich), the court granted the Company’s motion to dismiss in February 2023 and the plaintiffs have filed a notice of appeal.

In August and September 2020, two class actions under the Employee Retirement Income Security Act of 1974 (“ERISA”) were filed in the U.S. District Court for the District of Connecticut against CVS Health, Aetna Inc. (“Aetna”), and several current and former executives, directors and/or members of Aetna’s Compensation and Talent Management Committee: Radcliffe v. Aetna Inc., et al. and Flaim v. Aetna Inc., et al. The plaintiffs in these cases asserted a variety of causes of action

premised on allegations that the defendants breached fiduciary duties and engaged in prohibited transactions relating to participants in the Aetna 401(k) Plan’s investment in company stock between December 3, 2017 and February 20, 2019, claiming losses related to the performance of the Company’s LTC business. In October 2022, the court granted the Company’s motion to dismiss the amended consolidated complaint with prejudice. Plaintiffs appealed this decision to the Second Circuit and later withdrew the appeal in January 2023.

Beginning in December 2021, the Company has received three demands for inspection of books and records pursuant to Delaware Corporation Law Section 220, as well as a derivative complaint (Vladimir Gusinsky Revocable Trust v. Lynch, et al.) that was filed in January 2023. The demands and the complaint purport to be related to potential breaches of fiduciary duties by the Board in relation to certain matters concerning opioids. The Company and its current and former officers and directors are defending themselves against these matters.

In January 2022, a shareholder class action complaint was filed in the Northern District of Illinois, Allison v. Oak Street Health, Inc., et al. Defendants include Oak Street Health and certain of its pre-acquisition officers and directors. The putative plaintiffs assert causes of action under various securities laws premised on allegations that defendants made omissions and misrepresentations to investors relating to marketing conduct they allege may violate the False Claims Act. The Company and the individual defendants are defending themselves against these claims.

Other Legal and Regulatory Proceedings

The Company is also a party to other legal proceedings and is subject to government investigations, inquiries and audits and has received and is cooperating with the government in response to CIDs, subpoenas, or similar process from various governmental agencies requesting information. These other legal proceedings and government actions include claims of or relating to bad faith, medical or professional malpractice, breach of fiduciary duty, claims processing, dispensing of medications, non-compliance with state and federal regulatory regimes, marketing misconduct, denial of or failure to timely or appropriately pay or administer claims and benefits, provider network structure (including the use of performance-based networks and termination of provider contracts), rescission of insurance coverage, improper disclosure or use of personal information, anticompetitive practices, general contractual matters, product liability, intellectual property litigation, discrimination and employment litigation. Some of these other legal proceedings are or are purported to be class actions or derivative claims. The Company is defending itself against the claims brought in these matters.

Awards to the Company and others of certain government contracts, particularly Medicaid contracts and other contracts with government customers in the Company’s Health Care Benefits segment, frequently are subject to protests by unsuccessful bidders. These protests may result in awards to the Company being reversed, delayed, or modified. The loss or delay in implementation of any government contract could adversely affect the Company’s operating results. The Company will continue to defend contract awards it receives.

There also continues to be a heightened level of review and/or audit by regulatory authorities and legislators of, and increased litigation regarding, the Company’s and the rest of the health care and related benefits industry’s business and reporting practices, including premium rate increases, utilization management, development and application of medical policies, complaint, grievance and appeal processing, information privacy, provider network structure (including provider network adequacy, the use of performance-based networks and termination of provider contracts), provider directory accuracy, calculation of minimum medical loss ratios and/or payment of related rebates, delegated arrangements, rescission of insurance coverage, limited benefit health products, student health products, pharmacy benefit management practices (including manufacturers’ rebates, pricing, the use of narrow networks and the placement of drugs in formulary tiers), sales practices, customer service practices, vendor oversight, and claim payment practices (including payments to out-of-network providers).

As a leading national health solutions company, the Company regularly is the subject of government actions of the types described above. These government actions may prevent or delay the Company from implementing planned premium rate increases and may result, and have resulted, in restrictions on the Company’s businesses, changes to or clarifications of the Company’s business practices, retroactive adjustments to premiums, refunds or other payments to members, beneficiaries, states or the federal government, withholding of premium payments to the Company by government agencies, assessments of damages, civil or criminal fines or penalties, or other sanctions, including the possible suspension or loss of licensure and/or suspension or exclusion from participation in government programs.

The Company can give no assurance that its businesses, financial condition, operating results and/or cash flows will not be materially adversely affected, or that the Company will not be required to materially change its business practices, based on: (i) future enactment of new health care or other laws or regulations; (ii) the interpretation or application of existing laws or regulations as they may relate to one or more of the Company’s businesses, one or more of the industries in which the Company

competes and/or the health care industry generally; (iii) pending or future federal or state government investigations of one or more of the Company’s businesses, one or more of the industries in which the Company competes and/or the health care industry generally; (iv) pending or future government audits, investigations or enforcement actions against the Company; (v) adverse developments in any pending qui tam lawsuit against the Company, whether sealed or unsealed, or in any future qui tam lawsuit that may be filed against the Company; or (vi) adverse developments in pending or future legal proceedings against the Company or affecting one or more of the industries in which the Company competes and/or the health care industry generally.

**13.**Segment Reporting

The Company has three operating segments, Health Care Benefits, Health Services and Pharmacy & Consumer Wellness, as well as a Corporate/Other segment. The Company’s segments maintain separate financial information, and the CODM evaluates the segments’ operating results on a regular basis in deciding how to allocate resources among the segments and in assessing segment performance. The CODM evaluates the performance of the Company’s segments based on adjusted operating income. Adjusted operating income is defined as operating income (GAAP measure) excluding the impact of amortization of intangible assets and other items, if any, that neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance. Effective for the first quarter of 2023, adjusted operating income also excludes the impact of net realized capital gains or losses. See the reconciliations of consolidated operating income (GAAP measure) to consolidated adjusted operating income below for further context regarding the items excluded from operating income in determining adjusted operating income. The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

Segment financial information for the three and six months ended June 30, 2022 has been revised to conform with current period presentation for the following items:

The realignment of the Company’s segments to correspond with changes made to its operating model as described in Note 1 “Significant Accounting Policies,” including the discontinuance of the former Maintenance Choice segment reporting practice as described in Note (1) of the table included on the next page.
The impact of the adoption of the long-duration insurance accounting standard, which the Company adopted on January 1, 2023 using a modified retrospective transition method, as described in Note 1 “Significant Accounting Policies.”
The exclusion of the impact of net realized capital gains or losses from adjusted operating income, as described above.

The impact of these items on segment financial information for the three and six months ended June 30, 2022 is reflected in the “Adjustments” lines of the table included on the next page.


	Three Months Ended June 30, 2022
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (1)		Consolidated Totals




Total revenues, as previously reported	$	22,756	$	42,812	$	26,286	$	110	$	(11,328)	$	80,636
Adjustments	(15)		126		460		—		(571)		—
Total revenues, as adjusted	$	22,741	$	42,938	$	26,746	$	110	$	(11,899)	$	80,636

















Adjusted operating income (loss), as previously reported	$	1,831	$	1,855	$	1,862	$	(555)	$	(183)	$	4,810
Adjustments	92		(25)		(152)		94		183		192
Adjusted operating income (loss), as adjusted	$	1,923	$	1,830	$	1,710	$	(461)	$	—	$	5,002

	Six Months Ended June 30, 2022
In millions	Health Care Benefits		Health Services		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (1)		Consolidated Totals
Total revenues, as previously reported	$	45,865	$	82,273	$	51,704	$	236	$	(22,616)	$	157,462
Adjustments	(30)		280		940		—		(1,190)		—
Total revenues, as adjusted	$	45,835	$	82,553	$	52,644	$	236	$	(23,806)	$	157,462

Adjusted operating income (loss), as previously reported	$	3,582	$	3,491	$	3,467	$	(860)	$	(387)	$	9,293
Adjustments	202		(190)		(184)		101		387		316
Adjusted operating income (loss), as adjusted	$	3,784	$	3,301	$	3,283	$	(759)	$	—	$	9,609

(1)Intersegment revenue eliminations relate to intersegment revenue generating activities that occur between the Health Care Benefits segment, the Health Services segment, and/or the Pharmacy & Consumer Wellness segment. Prior to January 1, 2023, intersegment adjusted operating income eliminations occurred when members of the Health Services segment’s clients enrolled in Maintenance Choice elected to pick up maintenance prescriptions at one of the Company’s retail pharmacies instead of receiving them through the mail. When this occurred, both the Health Services and Pharmacy & Consumer Wellness segments recorded the adjusted operating income on a stand-alone basis. Effective January 1, 2023, the adjusted operating income associated with such transactions is reported only in the Pharmacy & Consumer Wellness segment, therefore no adjusted operating income elimination is required. Prior period financial information has been recast to conform with current period presentation.

The following is a reconciliation of financial measures of the Company’s segments to the consolidated totals:


In millions	Health Care Benefits		Health Services (1)		Pharmacy & Consumer Wellness		Corporate/ Other		Intersegment Eliminations (2)		Consolidated Totals
Three Months Ended
June 30, 2023
Revenues from external customers	$	26,521	$	43,032	$	19,079	$	15	$	—	$	88,647
Intersegment revenues	21		3,183		9,704		—		(12,908)		—
Net investment income	205		—		1		68		—		274
Total revenues	26,747		46,215		28,784		83		(12,908)		88,921
Adjusted operating income (loss)	1,541		1,894		1,413		(367)		—		4,481

June 30, 2022
Revenues from external customers	$	22,633	$	39,946	$	17,877	$	34	$	—	$	80,490
Intersegment revenues	20		2,992		8,887		—		(11,899)		—
Net investment income (loss)	88		—		(18)		76		—		146
Total revenues	22,741		42,938		26,746		110		(11,899)		80,636
Adjusted operating income (loss)	1,923		1,830		1,710		(461)		—		5,002

Six Months Ended
June 30, 2023
Revenues from external customers	$	52,213	$	83,843	$	37,505	$	30	$	—	$	173,591
Intersegment revenues	42		6,963		19,203		—		(26,208)		—
Net investment income (loss)	369		—		(2)		241		—		608
Total revenues	52,624		90,806		56,706		271		(26,208)		174,199
Adjusted operating income (loss)	3,365		3,574		2,547		(635)		—		8,851

June 30, 2022
Revenues from external customers	$	45,618	$	76,257	$	35,208	$	65	$	—	$	157,148
Intersegment revenues	40		6,296		17,470		—		(23,806)		—
Net investment income (loss)	177		—		(34)		171		—		314
Total revenues	45,835		82,553		52,644		236		(23,806)		157,462
Adjusted operating income (loss)	3,784		3,301		3,283		(759)		—		9,609

(1)Total revenues of the Health Services segment include approximately $3.4 billion and $3.1 billion of retail co-payments for the three months ended June 30, 2023 and 2022, respectively. Total revenues of the Health Services segment include approximately $7.5 billion and $6.9 billion of retail co-payments for the six months ended June 30, 2023 and 2022, respectively.

(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 to adjusted operating income for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2023		2022		2023		2022
Operating income (GAAP measure)	$	3,234	$	4,669	$	6,680	$	8,214
Amortization of intangible assets (1)	485		460		887		922
Net realized capital losses (2)	98		98		203		173
Acquisition-related transaction and integration costs (3)	157		—		200		—
Restructuring charge (4)	496		—		496		—
Office real estate optimization charges (5)	11		—		36		—
Loss on assets held for sale (6)	—		—		349		41
Gain on divestiture of subsidiary (7)	—		(225)		—		(225)

Opioid litigation charge (8)	—		—		—		484
Adjusted operating income	$	4,481	$	5,002	$	8,851	$	9,609

(1)The Company’s acquisition activities have resulted in the recognition of intangible assets as required under the acquisition method of accounting which consist primarily of trademarks, customer contracts/relationships, covenants not to compete, technology, provider networks and value of business acquired. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in the unaudited condensed consolidated statements of operations in operating expenses within each segment. Although intangible assets contribute to the Company’s revenue generation, the amortization of intangible assets does not directly relate to the underwriting of the Company’s insurance products, the services performed for the Company’s customers or the sale of the Company’s products or services. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of the Company’s acquisition activity. Accordingly, the Company believes excluding the amortization of intangible assets enhances the Company’s and investors’ ability to compare the Company’s past financial performance with its current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within the Company’s GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.

(2)The Company’s net realized capital gains and losses arise from various types of transactions, primarily in the course of managing a portfolio of assets that support the payment of insurance liabilities. Net realized capital gains and losses are reflected in the unaudited condensed consolidated statements of operations 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)During the three and six months ended June 30, 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 the Company’s unaudited condensed consolidated statements of operations in operating expenses within the Corporate/Other segment.

(4)During the three and six months ended June 30, 2023, the restructuring charge is primarily comprised of severance and employee-related costs and asset impairment charges. During the second quarter of 2023, the Company developed an enterprise-wide restructuring plan intended to streamline and simplify the organization, improve efficiency and reduce costs. In connection with the development of this plan and the recently completed acquisitions of Signify Health and Oak Street Health, the Company also conducted a strategic review of its various transformation initiatives and determined that it would terminate certain initiatives. The restructuring charge is reflected within the Corporate/Other segment.

(5)During the three and six months ended June 30, 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 planned reduction of corporate office real estate space in response to the Company’s new flexible work arrangement. The office real estate optimization charges are reflected in the Company’s unaudited condensed consolidated statements of operations in operating expenses within the Health Care Benefits, Health Services and Corporate/Other segments.

(6)During the six months ended June 30, 2023, the loss on assets held for sale relates to the Company’s LTC reporting unit within the Pharmacy & Consumer Wellness segment. During 2022, the Company determined that its LTC business was no longer a strategic asset and committed to a plan to sell it, at which time the LTC business met the criteria for held-for-sale accounting and its net assets were accounted for as assets held for sale. As of June 30, 2023, the net assets of the LTC business continued to meet the criteria for held-for-sale accounting and the carrying value of the LTC business reflected its estimated fair value less costs to sell. 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 reflects its estimated fair value less costs to sell. During the six months ended June 30, 2022, the loss on assets held for sale relates to the Company’s international health care business domiciled in Thailand (“Thailand business”), which was included in the Commercial Business reporting unit in the Health Care Benefits segment. The sale of the Thailand business closed in the second quarter of 2022, and the ultimate loss on the sale was not material.

(7)During the three and six months ended June 30, 2022, the gain on divestiture of subsidiary represents the pre-tax gain on the sale of PayFlex Holdings, Inc., which the Company sold on June 1, 2022, for approximately $775 million. The gain on divestiture is reflected as a reduction in operating expenses in the Company’s unaudited condensed consolidated statements of operations within the Health Care Benefits segment.

(8)During the six months ended June 30, 2022, the opioid litigation charge relates to an agreement to resolve substantially all opioid claims against the Company by the State of Florida. The opioid litigation charge is reflected within the Corporate/Other segment.

Index to Condensed Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of CVS Health Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of CVS Health Corporation (the Company) as of June 30, 2023, the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2023 and 2022, the related condensed consolidated statements of shareholders’ equity for the three-month periods ended March 31, 2023 and 2022 and June 30, 2023 and 2022, the related condensed consolidated statements of cash flows for the six-month periods ended June 30, 2023 and 2022, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 8, 2023, except for Note 8 and Note 18, as to which the date is May 25, 2023, we expressed an unqualified audit opinion on those consolidated financial statements.

As described in Note 1 to the Company’s condensed consolidated interim financial statements, on January 1, 2023, the Company adopted ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Boston, Massachusetts

August 2, 2023

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