Aetna plans $1B in yearly cuts; layoffs?

Aetna Corp., which is based up in Connecticut but still employs more than 2,500 in and around the Blue Bell office center once home to predecessor U.S. Healthcare, plans to cut $250 million in yearly expenses next year, and a total of $1 billion by 2018, as it absorbs Louisville-based Humana Corp. in this planned $34 billion deal. 

The merger plan "reduces operating expenses," confirmed Aetna chief financial officer Shawn Guertin in a meeting with investors. Humana operating costs totalled $7.6 billion last year; Aetna's are more than $10 billion. Humana employs 57,000, vs. 49,000 for Aetna, but Aetna boasts higher sales, profits and market value, so it's calling the shots in this merger, if it gets past regulators.

Aetna (which is legally organized under Pennsylvania's management-friendly corporate law) employs around 7,000 in Pennsylvania, of whom around 1,300 work in Blue Bell and a roughly similar number work fulltime from homes in the area, spokesman Walter Cherniak told me. The company also has large offices around Pittsburgh, and sites in Allentown, Harrisburg, and Parsippany, N.J. "It is certainly too early to do any speculating about what (the merger) might mean" to those workers, Cherniak averred. He noted Coventry's former Medicare, Medicaid and related businesses are based at its old HQ in Rockville, Md. "We assume that business will be based in Louisville" post-consolidation, he added.

But Cherniak also warned against assuming big job cuts at any one location: "This is still a local business." Indeed, cuts and consolidations "are decisions that have not even been made," he told me.

The Aetna-Humana marriage proposal puts more pressure on Cigna Inc., whose CEO David Cordani moved his offices out of Philadelphia to Connecticut in 2012, to accept an earlier $47 billion offer from health insurer Anthem Inc., so Cigna, too, can cut costs and boost marketing, now that Obamacare has expanded the health insurance market, Ana Gupte, insurance analyst at Leerink Partners, told Bloomberg here. Cigna remains a large employer in Center City and the suburbs, subject to merger cuts.

What will this mean for health insurance patients and the employers who help pay for their policies? "The number of health insurers competing for your business almost certainly will decrease" as "the big for-profit firms merge or acquire each other," writes Wendell Potter, a former Cigna spokesman turned health-insurance critic, at PublicIntegrity.org here. He also cites this article from Modern Healthcare.

What's the thinking behind the mergers? "The companies insist that the results will enable them to operate more efficiently  through the elimination of redundancies," Potter writes.

"But don't expect your premiums to go down when the dust settles. In fact, if the past is prologue, premiums will go up. The biggest beneficiaries will be the shareholders and a handful of top executives; they'll make tens of millions of dollars on the day the transactions become final" thanks to generous deal bonuses and higher pay for bosses at bigger companies.

"Among the losers—in addition to the people enrolled in the insurers' health plans—will be many of the employees of the acquired companies. And taxpayers in the cities that come out on the short end of the stick when the combined companies decide where the corporate headquarters will be," Potter adds.

"Every one of the big five [health insurers] —Aetna, Anthem, Cigna, Humana and UnitedHealthcare—are either in play, rumored to be in play or have gone public with their intentions." Today's proposals aren't final; counteroffers could boost merger premiums and add pressure for job cuts: "UnitedHealthcare would like to have Aetna and could still make a bid for it."

Americans have "seen this movie before," Potter adds. He was Cigna's public face when it bought Healthsource, Hooksett, N.H., for $1.45 billion in 1997. He noted that Healthsource boss Norman Payson collected $94 million for his stock plus a $100,000-a-month Cigna consulting contract. "Over the next several months, almost all of Healthsource's employees were laid off," to New Hampshire's extreme discomfort. The jobs were shifted to Cigna offices in Philadelphia and Connecticut.  Cigna's current CEO, David Cordani, favors Connecticut as a headquarters.