Michael McCallister isn't settling in slowly.
On Feb. 9-just six days after Humana named him its new president and chief executive officer-the struggling health insurer posted a huge, albeit expected, 1999 loss. Now the 47-year-old executive faces the unenviable task of continuing Humana's turnaround while persuading frustrated members and providers not to jump ship.
The Louisville, Ky.-based company lost a whopping $382 million, or $2.28 per share, last year. That compares with a net gain of $129 million, or 77 cents per share, in 1998. In the fourth quarter alone, Humana's losses reached $416 million, or $2.48 per share, vs. a net gain of $57 million, or 34 cents per share, in the fourth quarter a year ago.
The losses resulted in large part from a previously announced fourth-quarter charge of $495 million relating to the write-off of goodwill and the sale of devalued assets (Jan. 10, p. 26).
But even before the charge, annual earnings dropped 48% to $109 million, or 65 cents per share, from $213 million, or $1.27 per share.
"Our results for 1999 are clearly not acceptable," McCallister said in a written statement. "During the second half of 1999 we have put in place corrective actions that have begun to produce favorable results but more importantly set the stage for 2000."
Those measures have included shedding several underperforming side businesses and boosting premiums 13% to 20%. The insurer has also begun requiring its Medicare members to pay monthly premiums to offset low reimbursement.
Thanks to its double-digit rate hikes, Humana's revenue rose 3% to $10.1 billion in 1999, despite a 4.1% drop in members to 5.9 million. The insurer chalks up much of that attrition to its recent sell-offs. But many enrollees were scared off by the price increases, said Humana spokesman Thomas Noland Jr.
"We not only expected (the attrition), we planned for it," Noland said. "Most of the membership loss was in business with high medical expenses-medical expenses that were, in fact, greater than the amount of premiums those businesses were paying. So it actually helped us."
Last year Humana shed 40,000 individual policies, affecting 60,000 people, in Florida. Since Jan. 1, it has sold its workers' compensation unit, Medicare supplemental business and a Las Vegas HMO. And last week, the company agreed to sell the bulk of its Florida Medicaid HMO contracts to Tampa-based Well Care HMO.
"We are focused on our core business-health insurance-and we are aggressively selling noncore assets," McCallister said. The company will use the proceeds to pay down debt and build new online technologies, a move designed to improve its shaky relationship with doctors.
Humana angered its 40,000 physicians in August after establishing a claims-review process many found too broad and cumbersome. It has since limited the procedure to physicians with claims-coding patterns outside the norm.
McCallister joined Humana in 1974 and served in a variety of market and regional positions when the company ran both hospitals and health plans.