Humana reported an 11% drop compared to last year in its third-quarter earnings to $799 million.
The insurer is also cutting 5.7% of its workforce, which equals 2,700 jobs, mostly through an early retirement program. The company cited $124 million in expenses associated with those job cuts in the third quarter. That job-cutting process should end by the middle of January, Forbes reported, adding the job cuts will help pay for technology and infrastructure investments.
In addition to the job losses, Humana plans to sell its long-term care insurance business.
Humana has been working to shed costs since its failed merger with Aetna earlier this year. A federal judge ruled against the $37 billion Aetna-Humana merger in January, saying it would hurt competition, including in the Affordable Care Act (ACA) exchanges and Medicare Advantage (MA) markets. After the ruling, the two payers agreed to drop the merger deal in February. Aetna paid Humana $1 billion for a contractual breakup fee.
One way Humana is cutting costs is by pulling out of the exchanges in 2018 and redoubling efforts on Medicare offerings. Humana is the second larger MA payer behind only UnitedHealth Group. The payer’s individual offerings are down to fewer than 200,000 members across 11 states this year.
The Louisville-based company pointed to MA as a positive business line and that its group and specialty segment also performed ahead of expectations in the third quarter. “Retail segment results are in line with the company’s previous expectations as the Retail segment continues to perform well, primarily driven by Medicare Advantage,” said Humana.
However, the company recognizes companies have become increasingly interested in MA. "Our competitors view Medicare Advantage as an exciting growth area. I think they've invested a lot to grow their platforms and to expand their positions across the board, and it's just something that we're going to have to deal with," Brian Kane, CFO, stated on an earnings call on Wednesday.
"We are confident in our Medicare Advantage competitive positioning, despite the return of the Health Insurance Industry Fee in 2018. As a result of our over performance in 2017 and various cost-saving measures, we've made targeted investments in our product design, clinical programs and operating processes, which enable us to maintain stable benefits, simplify the member experience and improve clinical outcomes," Kane added."
Despite those positives, the company also said its workforce reductions and lower pretax earnings in the healthcare services sector were reasons for its losses in the third quarter. Premiums and healthcare services revenues were down 3% to $13.18 billion in the third quarter.
Though not strong numbers, Humana said the results were better than expected. Operating cash flow guidance increased from between $3 billion and $3.4 billion to $3.3 billion and $3.6 billion.
In addition to its earnings report, job cuts and sale of its long-term care insurance business, Humana is filing a lawsuit against the federal government seeking $611 million in unpaid risk-corridor payments between 2014 and 2016. The ACA created the payment program to help insurers with riskier/most expensive members in the exchanges. However, HHS and the CMS later said the program needed to reach budget neutrality and did not pay the full amount to payers as originally planned. Other payers have sued and won, while others have lost risk-corridor payment cases.