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Aetna Plans to Cut 6,000 More Jobs

Insurers: The reductions come amid decline in enrollment at the HMO and includes 674 positions in California.

December 14, 2001|RONALD D. WHITE | TIMES STAFF WRITER

Aetna Inc., the nation's largest health insurer, said Thursday it will cut 6,000 jobs, or roughly 16% of its work force, as it continues struggling to digest its acquisitions of the 1990s.

Aetna's latest move follows 5,000 other job cuts it has announced already this year and a third-quarter loss of $54.4 million.

About 4,400 of the latest reductions will come through layoffs, with the other 1,600 through attrition. Aetna said the total will include 674 positions in California, with most of the rest in Georgia, Louisiana and the St. Louis area.

"Our goal is to improve profitability while better serving customers and becoming more efficient," a company spokesman said, adding that Aetna has been pulling out of markets where it could no longer be competitive.

Aetna, which has seen its enrollment drop to 17.5 million from its peak of 19.1 million last year, is one of several large health maintenance organizations to curtail its Medicare business because, they say, the federal government no longer pays them enough. The spokesman said Aetna also is seeing more medical and hospital groups that say they won't accept low fixed payments for services.

Aetna's woes stand in sharp contrast to the condition of its primary competitors. While Aetna has posted an operating loss over the last 12 months, rivals Cigna Corp., HealthNet, Oxford Health Plans Inc., PacifiCare Health Systems Inc. and WellPoint Health Networks Inc. reported substantial profits during the same period.

"The pain seems to be fairly concentrated in Aetna," said Alain Enthoven, a professor at the Stanford University graduate school of business and a specialist in health economics and health policy. Enthoven pointed to what he called a huge opportunity lost during Aetna's $8.9-billion purchase of U.S. Healthcare Inc. in 1996.

"U.S. Healthcare had a wonderful model. They were very selective about who they wanted to be part of their program, and they were doing very well," Enthoven said. "But Aetna didn't stick to that model. They ignored it."

Enthoven said U.S. Healthcare was careful to include only those hospitals and doctors that fit its model for health care, but Aetna tried to include every doctor and hospital group in a given area.

Nor was there much time to consolidate, since Aetna went on to the $1.1-billion purchase of New York Life Insurance Co.'s health insurance unit in 1998 and the $1-billion purchase of Prudential Insurance Co. of America's managed-health unit in 1999.

After those purchases, consumers complained that prices went up and customer service went down as Aetna struggled to absorb significantly different health plans and integrate incompatible computer systems.

"There is certainly some question about how well they integrated those companies in the first place," said Greg Crawford, a health-care analyst and senior vice president at Fox-Pitt Kelton Inc., an institutional brokerage and full service investment bank.

Crawford said that the layoffs could have been something that Aetna could and should have done years ago. But Crawford added that the extent of the job cuts could mean that enrollment losses could be even more drastic in 2002.

Aetna fell 30 cents to $30.74 on the New York Stock Exchange. For the year so far, shares are down 25%, or 11% lower than the Morgan Stanley health care payor index of health insurer stocks.

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