Humana to lay off 1,300 as it strives for competitive edge in crowded Medicare Advantage sector

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Humana's adjusted earnings per share of $3.39 in the third quarter beat analysts’ estimates of $3.27, though its pretax income was down year over year.

In an effort to “position the company for long-term sustainable success,” Humana will lay off 1,300 of its employees as part of a broader workforce reduction initiative.

The insurer confirmed the move while reporting its third-quarter earnings results on Wednesday. Including the layoffs and a voluntary early retirement program, the initiative is expected to impact approximately 2,700 employees—or 5.7% of Humana’s workforce.

The goal, Humana CEO Bruce Broussard said during an earnings call with investors, is to improve productivity and processes as well as free up funds to reinvest in various initiatives aimed at keeping the company competitive.

The insurer also announced this week that it will sell its long-term care services business to a Texas-based company, fueling analyst speculation that Humana is preparing for a sale. The company continues to be a prime acquisition target due to its considerable Medicare Advantage assets—one of the factors that fueled Aetna’s attempted purchase of Humana.

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Humana said its consolidated pretax income for the quarter declined 11% year over year—from $902 million to $799 million—due to charges associated with the workforce reductions and lower earnings in its healthcare services segment.

But its adjusted earnings per share of $3.39—up from $3.20 in Q3 2016—beat analysts’ estimates of $3.27. Its diluted earnings per share was $3.44, up from $2.98 a year earlier.

Humana also raised its full-year earnings outlook from $11.50 per share to $11.60 per share, but it decreased its GAAP EPS guidance from $17.83 to $17.62.

The company's executives said Tuesday that it appears the MA selling season is off to a promising start and noted that 74% of its members are now in plans rated four stars or higher.

Still, Humana is facing considerable headwinds in 2018, including the return of the health insurance tax—which will drive up premiums in all of its business lines—and increased competition in Medicare Advantage markets.

“Our competitors view Medicare Advantage as an exciting growth area,” Humana CFO Brian Kane said on Tuesday’s call. “It’s just something that we’re going to have to deal with. … There’s no doubt that we’re facing a much stronger competitive environment.”