LOUISVILLE, Ky. (WDRB) – In explaining Humana’s decision this week to cut 2% of its nationwide workforce, CEO Bruce Broussard pointed to general pressures on the health insurance industry – things like, “new technologies” and the “demand for value” – according to a company-wide email on Monday.
But 2020 will be “particularly challenging” for the Louisville-based firm, Broussard said in the all-staff message, because of the expected return of the “health insurance tax,” a provision of the 2010 Obamacare health reform law that Humana estimates will cost the company $1.2 billion next year.
The health insurance industry tax – expected to raise $15.5 billion in all next year – is a special levy paid by insurance companies, one that was meant to offset the cost of other provisions of Obamacare, formally known as the Patient Protection and Affordable Care Act.
The health insurance industry despises the tax -- which, it contends, is ultimately paid by consumers with insurance – and has succeeded in persuading Congress to suspend it off and on since the tax went into effect in 2014.
The federal government did not collect the tax in 2017 and in 2019, but industry players have dwindling hopes for another reprieve in 2020.
Dave Windley, a Nashville-based analyst who follows Humana and other managed care companies for Jeffries LLC, said action on the tax is “not even on the radar” of Congressional lawmakers as the new year approaches.
Companies like Humana are grappling with how to absorb the hit. Humana said Monday it would cut more than 800 jobs nationally. The cuts will be somewhat mitigated as the company also seeks to fill 2,000 open jobs.
Humana Chief Financial Officer Brian Kane has called the health insurance industry tax “very material” for the company. In May, he told analysts it would be a $1.2 billion hit. That equates to about 70% of Humana’s net income, or profits, in 2018.
Windley noted that Humana’s last big round of job cuts – the company trimmed 2,700 positions, or nearly 6%, in late 2017 -- coincided with the return of the health insurance tax in 2018.
To be sure, Humana gave other reasons for the layoffs at the time.
“I wouldn’t call it anything but just continuously trying to improve the productivity of the organization and reinvesting those dollars in the customer,” Broussard said in 2017.
Windley said the insurance tax is especially challenging for Humana because of its main business – Medicare Advantage – in which the company contracts with the federal government to manage Medicare coverage for about 4 million seniors.
Private Medicare players like Humana and United Healthcare have less flexibility to pass the tax along to consumers through premiums hikes, and they are also reluctant to cut back on benefits for fear of losing customers to other plans, as competition is on the rise in the fast-growing Medicare Advantage market, Windley said.
Years-long pattern of job cuts
Issues with the tax aside, Monday’s announcement continues a years-long pattern in which Humana has managed to grow its business at a healthy rate and boost its stock market value while significantly culling its workforce.
Humana employed 41,600 people at the end of 2018, down from 57,000 at the end of 2014, according to annual company reports.
The erosion of jobs has come even as the company has saved hundreds of millions of dollars annually thanks to the Republican-led corporate income tax cuts of 2017. Even with the special health insurance tax, Humana’s effective tax rate dropped from 39% in 2017 to 19% in 2018, according to company reports.
About 8,000 jobs went off Humana’s payroll in 2015 when the company sold Concentra, a network of urgent care, occupational health and physical therapy clinics.
The rest of the job losses have come because Humana has not backfilled open positions, offered early retirement packages and “experienced staffing reductions as part of normal business operations,” spokeswoman Kate Marx said in an email to WDRB.
“Humana has been open with our employees and the public about the team we need in place to serve our members and to ensure long-term sustainable success,” she said.
She added that even as the company’s workforce has dropped nationwide the last four years, it has remained steady at about 12,000 employees in its headquarters of Louisville.