HARTFORD, Conn. Aetna Inc. said it will cut about 5,000 jobs, or13 percent of the company's work force, and take $565 million infourth-quarter charges as the No. 1 U.S. health insurer tries toboost profits that lag behind those of its competitors. Aetna sharesrose as much as 19 percent.
Aetna, which has 40,000 employees, plans to fire 2,400 people, andeliminate the other positions through attrition. The company alsoplans to trim about 10 percent of its 19.2 million customers bydropping unprofitable business.
Aetna's profit margin is about half that of its competitors, andthe company has been under shareholder pressure to boost its stockprice. Aetna sold financial services and international units to INGGroep NV last week to focus on health care as it tries to stem lossesat the Prudential Healthcare unit it bought for $1 billion last year.
"They just have to follow through on their plan," said ArgusResearch Corp. analyst Edward Klebanow.
The restructuring is expected to raise Aetna's profit margin to alevel closer to that of competitors UnitedHealth Group Inc., CignaCorp. and WellPoint Health Networks Inc., Chief Executive John Rowetold investors and analysts in a conference call. Rowe said the moveswill leave Aetna with more profitable customers and lower costs.
"We believe we are on a course to steadily improve our financialresults," Rowe said.
On Jan. 1, Aetna will drop about 340,000 members from its Medicarehealth-maintenance organizations. The company also will drop about300,000 to 350,000 customers from its employer HMOs and about 1.5million Prudential customers. About 1 million other Prudentialcustomers will be moved to Aetna plans.
The company said it will raise prices next year about 11 percentto 13 percent for employer health plans and about 4 percent in itsremaining Medicare markets.
It expects medical costs to rise by about 10 percent for HMOs andabout 11 percent to 13 percent in its other plans during 2001, Aetnasaid. Still, Aetna said, it expects to cut its HMO medical-cost ratio-the amount of every premium dollar that pays for medical costs-by 1percent to 2 percent.
The company said it expects to take a $100 million charge thisquarter for the job cuts. It will also record a $235 million chargerelated to leaving some Medicare markets as of Jan. 1 and a $35million charge related to the spinoff of Aetna.
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