WellPoint Inc.'s main rival announced yesterday it would slash 4,000 jobs in order to save money as its profits sag. Will other health insurers follow the lead of Minnesota-based UnitedHealth Group?
They have few other options to substantially reduce costs, said Les Funtleyder, a health care analyst at Miller Tabak & Co. in New York. Unlike industrial companies, which can shut down a factory or cut back on a shift, the big things health insures can trim are computer systems, marketing expenses or people, he said.
"Head-count reduction is often a response to poor financial results," said Funtleyder, the author of a forthcoming book titled Health Care Investing. "So it would not surprise me to see a similar industry response if, as we expect, financial results continue to be lackluster."
UnitedHealth yesterday cut its 2008 profit forecast by as much as 60 cents per share. It now expects to make $2.95 to $3.05 per share. It was UnitedHealth's second cut to its profit forecast this year.
Earlier this year, WellPoint Inc. made two sharp cuts to its profit predictions. WellPoint now expects 2008 profits of $5.42 to $5.67. That's as much as a 15-percent drop from the expectations the company issued in January.
Other health insurers that also have dialed back their profit expectations include Cigna Corp. and Coventry Health Care Inc.
UnitedHealth's job cuts will slice 6 percent from its total work force of 67,000. If WellPoint made a similarly proportioned cut, it would shed 2,500 jobs.
The company employs 41,700 nationwide and 4,500 in Indiana.
But WellPoint spokeswoman Cheryl Leamon said, "At this point, there's no planned reduction in force."
Funtleyder said it might make sense for health insurers to keep their staff if they believe that the current down cycle in the industry won't last too long. He predicts that companies will see better profit margins by the middle of 2009 and by 2010, most people will "realize the worst is over."
"It's a tough call because you don't know how long," Funtleyder said.