LOUISVILLE, Ky. (WDRB) – About 28,000 employees of Louisville-based Humana Inc. – more than half of the company’s nationwide employee base – will become eligible for performance bonuses a year earlier than previously planned as a result of the GOP-led tax cut bill, executives said Wednesday.
Humana had previously said it would start the bonus program in 2018, instead of 2019, because of the tax savings, but the company had not disclosed how many employees would be affected by the move.
The company also plans to raise its minimum wage for all employees to $15 an hour, a move that was not planned before the tax cut’s savings, CEO Bruce Broussard told stock analysts on a conference call Wednesday.
“To pay an adequate wage -- some of our staff were not at the levels that I think, sort of, the labor environment was looking at,” Broussard said.
The wage boost and bonus program come after a year in which the health insurer, despite a soaring stock price, cut 2,450 jobs through layoffs and early retirement buyouts as it focused on improving its operational efficiency.
Humana executives said the reduced corporate tax rate embedded in the GOP bill will save the company about $550 million in 2018.
About $275 million of the savings will be used for business needs such as employee pay increases, and the other half returned to shareholders through an increased dividend and stock buybacks.
The savings will be offset by the temporary return of a health insurance industry tax imposed by the Affordable Care Act, which will cost Humana about $1 billion in 2018. The tax had been waived in 2017, and Congress waived it again for 2019.
Speaking to analysts Wednesday, Broussard said using the tax savings to make more of the company’s employees eligible for performance compensation is a better strategy than paying one-time bonuses of $1,000 or so to all employees, as other companies have announced in recent weeks.
He said the “non-bonused” employees will now be better “aligned” with the company’s goals.
“We feel that benefits everybody. It creates some transparency for employees on performance, and gives them some vested interest into it,” he said.
Employees will be eligible for target annual bonuses of at least 4 percent of their annual base salary, to be paid beginning in March 2019, the company has said.
Humana spokesman Tom Noland said the 28,000 employees work “in a variety of roles throughout the company.”
Of the $275 million in tax savings in which Humana plans to invest in the business this year, “a little less than half” – or $137.5 million – will go to employees through the bonuses and minimum wage increase, Humana chief financial officer Brian Kane told analysts on the conference call.
By comparison, Humana spent $148 million in 2017 on costs, such as severance pay, associated with its layoffs and early retirement buyouts, according to figures disclosed Wednesday.
Profits surged in 2017
Humana's pretax income, or profits, surged to $4 billion in 2017, up from $1.5 billion in 2016 -- though the results were boosted by one-time items like the $936 million that Humana netted in a break-up fee after its proposed takeover by rival Aetna fell apart last year.
The company reported better-than-expected growth in customers for its core business, Medicare Advantage.
Humana covers about 3.5 million seniors, second only to United Healthcare, in the privately run version of Medicare, for which the federal government pays the company fixed prices to manage medical claims. The program comprises more than two-thirds of Humana's business.
But the company faced several questions from analysts about why it has not yet achieved profitability goals for Medicare Advantage.
Humana's stock dipped about 2 percent, to $263 a share, in trading as of early afternoon Wednesday. The company's shares rose about 35 percent over the last 12 months -- double the gain of the broader S&P 500 index during the same period.