Analysts Say Humana Is Strong. Why Are 800 People Losing Their Jobs?
Louisville-based insurer Humana will lay off around 800 employees nationwide by the end of the year. The company employs about 12,000 people in Louisville, according to Humana Spokeswoman Kate Marx. She didn’t disclose how many Louisville employees will lose their jobs, but said that some of the cuts will affect local workers.
Stock analysts covering Humana say the change could be because of growing competition for new insurance enrollees, and a federal tax coming in 2020. But they also caution that the layoffs don’t likely signal a problem with the overall security of the company. Spokeswoman Marx spoke about the layoffs as positioning the company for long-term success.
“These measures are in alignment with broader efforts started earlier this year to evaluate the work and cost structure of the organization,” Marx said in a statement.
Next year, Humana and other insurers will start paying a federal tax, a possible reason for the layoffs. The tax equals about 2.4 percent of revenue from premiums, the amount charged to consumers and other entities for coverage. That tax was created as a condition of passage for the Affordable Care Act. Several taxes on different health care industry businesses were created as part of that legislation, to ensure Congress wouldn’t dip into the federal budget and increase the deficit.
Sarah James, an investor analyst with Piper Jaffray, said that tax could be behind the changes at Humana. “So that pressure increases insurance prices for consumers and also compresses the margin on some insurance products,” James said.
Humana administers and runs health plans for employer-sponsored coverage, state Medicaid programs and Medicare enrollees. Its biggest business is with Medicare, a federal program that covers people over age 65 and people with disabilities.
And that’s one reason Humana may be laying off employees: while Humana can pass on the cost of the tax to consumers in employer plans and to state Medicaid programs, it cannot do that for the Medicare plans it runs.
“That's the product where it really impacts the insurance companies the most is Medicare,” James said. “And out of all the insurers that are public, Humana is the most exposed to Medicare. So they have pressures to be as efficient as possible. It could be one reason [for the layoffs].”
The layoffs will decrease Humana’s staff to around 41,000 people; the company is still the fifth-largest health insurer in the country. Frank Morgan, a managing director in equity research for RBC Capital Markets, said he sees the layoffs as part of the normal evolution of a large company.
“Relative to the size of the organization - and it's always terrible when anybody lose a job - but in the scope of the employee base, it's obviously a pretty small adjustment,” Morgan said. “It's not large enough to be in response to any kind of major macro trend.”
The restructuring of employees could also be in part because of increased competition among insurers for Medicare enrollees. David Windley, a senior health care analyst for managed care at investment bank Jeffries said there are more insurance companies trying to get a bigger share of the Medicare market, also known as Medicare Advantage.
“In order to defend its franchise in Medicare Advantage, Humana needs to continue to drive efficiency in an overhead cost structure, to then offer better and better benefits that they sell to, in turn, attract more members,” Windley said.
Humana continues to add enrollees in Medicare plans; Medicare enrollee membership was up by 15 percent at the end of June 2019.
“I suppose it is maybe more notable that it is happening at a company that is growing pretty aggressively, and you don't normally see companies needing fewer staff when they're growing,” Windley said. “But, at the end of the day, you've got a multi-billion dollar health insurer fee coming in next year. And they cut 2,700 employees about this time two years ago, and they're cutting 800 this year. It's a relatively small number.”
Employees who are affected will be able to stay on until the end of the year. Marx with Humana said there are about 2,000 open positions with the company across the country.