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Aetna cutting 5,000 jobs
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December 18, 2000: 10:55 a.m. ET
Biggest U.S. health insurer taking $565M charge to revamp operations, cut costs
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NEW YORK (CNNfn) - Struggling health insurer Aetna Inc. said Monday it would cut 5,000 jobs, or about 12.5 percent of its work force, and take other steps to streamline operations and boost profit in an effort to save $200 million before taxes next year and more in 2002.
Aetna (AET: Research, Estimates) shares gained $6, or 18 percent, to $39 in morning trading.
The biggest U.S. health insurer, which has been plagued with rising medical costs and disappointing profits, said the moves will result in a $565 million charge for the current fourth quarter. The Hartford, Conn.-based company said about half of the reductions in its work force of 40,000 would be through layoffs and the other half through attrition.
The moves include cutting the number of people on its health plans by exiting unprofitable markets, including some Medicare plans, as well as reorganizing its sales force, price increases and other steps.
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"These targeted actions are about running our business right, not just about belt tightening."
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John Rowe
Aetna's CEO |
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Aetna Chairman and CEO William Donaldson said the actions were meant to "improve customer service, strengthen the profitability of Aetna and increase our competitiveness."
In a conference call with analysts, Aetna also issued 2001 earnings targets that were lower than many analysts had anticipated. The company said it expects to post full-year earnings of $1.20 to $1.30 per share, compared with the First Call consensus estimate of $1.41 per share.
Health care analyst Todd Richter of Banc of America Securities said he was a bit surprised by the jump in Aetna's share price Monday morning, saying the company was fully expected to cut jobs, withdraw from Medicare coverage in some markets and raise prices as it continues to shrink its business. Richter, who has a neutral rating on Aetna stock, said he expects Aetna to post earnings of only $1 per share next year.
The question is, "Can they execute?" he said. "This is a company that for many years has said 'Next year is going to be a good year' and then not delivered on that promise."
Insurer continues to streamline
The cost cuts come less than a week after the company completed the sale of its international and financial services units to Dutch financial services firm ING Group in a $7.7 billion deal. Under the pact, ING offered Aetna shareholders $35.33 cash for each of their shares.
 The company said as part of its cost cutting, it will pull out of unprofitable businesses. As a result, membership levels are anticipated to decline next year due to Medicare market exits, commercial HMO product withdrawals in selected markets and Prudential HealthCare membership attrition.
The company also hopes to improve profitability with "significant" price increases on health plan business renewing Jan. 1 coupled with a strong focus on disciplined underwriting, with the intent of improving medical cost ratios.
"These targeted actions are about running our business right, not just about belt tightening," Aetna CEO John W. Rowe said in his statement. "They flow not only from lower membership levels and the sale of certain businesses, but also from re-engineering decisions that will make the company more disciplined and efficient." 
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Aetna
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