Following in the footsteps of numerous managed-care plans, Humana is exiting unprofitable Medicare risk markets. The company has targeted unprofitable markets in Florida, several commercial markets in Missouri and one of its largest Medicaid markets, which it declined to identify.
The decision will affect about 120,000 Humana enrollees in Florida and Missouri, excluding the unidentified Medicaid market, said company spokesman Greg Donaldson.
Louisville, Ky.-based Humana has about 145,000 Medicare and commercial enrollees in the markets it plans to leave.
The Medicare pullouts in Florida will take effect Jan. 1. Commercial contracts in the Missouri markets will not be renewed, and Humana will not seek new business there, Donaldson said.
The company is still negotiating with local government officials about the planned Medicaid pullout, Donaldson said, and it can't comment further until those discussions are completed.
Humana, with more than 6.2 million enrollees nationwide, is still smarting from the collapse last month of its proposed acquisition by Minneapolis-based United HealthCare Corp. The deal fell apart after United took an unexpected $900 million write-off, partly because of a Medicare HMO retrenchment strategy.
The mega-merger's collapse was the catalyst for a broad review of Humana's operations, officials said.
Following that process, Humana is taking a $132 million charge against third-quarter earnings to reflect the costs of exiting those markets, discontinuing some products, undoing the United merger and writing off contracts with numerous physician practice management companies. Humana's third quarter ends Sept. 30.
In the second quarter, before the United merger fell apart, Humana reported net income of $52 million on nearly $2.4 billion in revenues.
The market-exit costs alone total $63 million, officials said.
The actions were taken "in light of our determination to remain an independent public company," Chief Executive Officer Gregory Wolf said in a Sept. 15 statement.
Analysts generally praised Humana's decision to re-evaluate its options and avoid unnecessary exposure in unprofitable areas.
"I think Humana's headed in the right direction," said Greg Crawford, a healthcare analyst at Fox-Pitt, Kelton in New York. "The company's shown a lot of discipline since Gregory Wolf took over" in December 1997, he added.
Other managed-care organizations that have recently announced they are retreating from selected Medicare markets include Anthem Blue Cross and Blue Shield, Blue Shield of California, Foundation Health Systems, Health Net, Intermountain Health Care and PacifiCare Health Systems.
In virtually every case, managed-care plans blamed their decisions on the increasing costs of providing care and low reimbursement rates from HCFA. Humana will exit markets in Sarasota and Treasure Coast, Fla., where most of its enrollees are in Medicare risk plans, and Springfield and Jefferson City, Mo., where most of its enrollees are in commercial HMOs, officials said.