Layoff costs drag on Humana's third-quarter results
Louisville-based Humana’s profits fell 11 percent in the three-month period ended Sept. 30 as the company recognized $124 million in severance pay and other costs associated with cutting an estimated 2,700 jobs.
LOUISVILLE, Ky. (WDRB) -- Louisville-based Humana’s profits fell 11 percent in the three-month period ended Sept. 30 as the company recognized $124 million in severance pay and other costs associated with cutting an estimated 2,700 jobs.
Humana announced the job cuts, which amount to about 5.7 percent of its nationwide workforce, in a message to employees on Monday.
The company said it would lay off about 1,300 workers while another 1,150 accepted early retirement buyouts. Humana spokeswoman Kate Marx said there would some additional reductions next year due to “natural, ongoing fluctuations” in the company’s workforce.
Humana CEO Bruce Broussard said Wednesday that the job cuts are in part to free up money to improve benefits offered in the company’s products, such as its signature Medicare Advantage plans, and to pay for technology upgrades.
“I wouldn’t call it anything but just continuously trying to improve the productivity of the organization and reinvesting those dollars in the customer and reinvesting those dollars in the infrastructure of the company,” Broussard told stock analysts on the company’s quarterly conference call.
Broussard said the company had notified “the majority” of the employees who will be laid off or accepted for early retirement, and the employees should be off the company payroll by mid-January.
Humana will save about $100 million to $200 million a year from trimming its workforce, Wells Fargo Securities analyst Peter Costa estimated in a note to clients. Humana executives said they planned "hundreds of millions" of dollars in savings from the headcount reductions and other "productivity" initiatives.
Humana executives gave a tepid preliminary outlook for the company’s performance in 2018, saying competitors are increasing their offerings in Humana’s main business, Medicare Advantage, and that the return of an industry-wide health insurance tax that was part of the Affordable Care Act is expected to cost the company about $1 billion.
Medicare Advantage is a privately run version of the government’s health insurance for seniors, with insurers like Humana providing benefits in exchange for flat payments from the government.
“Our competitors view (Medicare Advantage) as an exciting growth area,” Humana chief financial officer Brian Kane said on the conference call. “ … It’s just something we’re going to have to deal with …There is no doubt we are facing a much stronger competitive environment.”
Kane added that health insurance tax is a “massive” burden that will not be deductible against other taxes.
The company’s results were also hurt by lower-than-expected use of mail-order drugs in Humana’s stand-alone Medicare prescription plan offered through Walmart. Kane said the company isn’t assuming the lower mail-order rates will “recover” next year.
Humana shares fell about 6 percent in trading on Wednesday. The company’s stock has skyrocketed this year – up 25 percent through Tuesday -- despite the collapse of Humana’s plan to be taken over by rival Aetna.