United Health Group Inc. is a well known American insurance company that offers hundreds of thousands of Americans health care insurance. In mid-2008, the American economy's turmoil began to show its affects on this health care giant and the company had to cut its budget using layoffs throughout the company. The outcome of the layoffs had a ripple effect felt by employees and customers.
On June 14, 2008, the Hartford Courant reported that the insurance giant would cut 20 employees from its Hartford, Connecticut, base. This cut to the branch that once held approximately 2,300 employees was made after the president and CEO of UnitedHealth, Stephen J. Hemsley, announced that there was a need for a 5 percent reduction in operation costs.
At the time, the company was attempting to “eliminate duplication and unnecessary administrative costs companywide, to help keep premiums under control for customers” according to company spokesperson, Tyler Mason, as by the Courant.
Deeper cuts than first reported
Less than a month after the initial layoffs were reported, Hemsley once again held a press conference announcing that further cuts would need to be made to cut operation expenses. This time the cuts would be the equivalent of 4,000 employees.
In addition to promising that the cuts would help to keep the customer premiums low, the CEO stated that the layoffs were also a way to restructure and make the organization more simplified and regional.
Another bad financial expense lurking on the doorstep of the nation’s second-largest health insurer was a $900 million payout to settle a class action lawsuit. In 2006, the company was sued for a backdating scandal. The CEO at the time, Bill McGuire, resigned over the issue that cost shareholders money.
In February 2009, the layoffs continued this time branching out to subsidiaries. The data mining group, Ingenix, felt the sting. Once again, UnitedHealth spokespersons cited that a decrease in operation spending was necessary. In the 10-K annual report for 2008, UnitedHealth stated “the decrease in earnings from operations and operating margin was primarily due to excess staffing costs during 2008 for certain research projects which were canceled, as well as lower demand for certain consulting services due to the current economic environment”. This resulted in more layoffs.
The layoffs for UnitedHealth and subsidiaries continued throughout various parts of the United States. In May of 2009, more layoffs were announced in Houston, Texas. This time the layoffs were reported to be caused from the discontinuation of the Medicaid program (called Integrated Care Management). Approximately 74 positions were lost in that movement.
High ranking CEO
Throughout all of the layoffs, the CEO is climbing the Forbes List for Executive Pay. In 2008 when the layoffs began to hit the employees of UnitedHealth due to operation costs and lawsuit payouts, the company paid Hemsley $4 million in salary and compensation. This placed him at 346th on the list of highest paid executives. In 2009, with continued layoffs, Hemsley’s position on the Forbes list had moved up to 269th with an estimated compensation of $5.03 million.
End in sight
Throughout the entire ordeal, analysts have gone back and forth about whether the company is recovering. At the time the class action lawsuit was settled, analysts thought the days of the company’s turmoil was over. A problem had come to light and was being corrected. A new CEO was in place and reorganizing the company. However, immediately following this was the largest layoff the company has seen. Though the layoffs are growing smaller in number, they are still occurring. Analysts are not sure if this is a sign of more to come or aftershocks felt when a huge insurance giant falls.