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What's really behind Humana's outcomes-linked bonuses

March 21, 2016 | By
Tools

Humana's move to tie executive compensation to members' health outcomes may actually help protect its leaders' bonuses amid less-predictable profits, according to the International Business Times.

In a recent filing with the Securities and Exchange Commission, the health insurer said that it now links 20 percent of its executives' annual bonuses to a consumer health participation performance metric, which it calculates based on five health outcomes indicators. For 2015, though, Humana didn't meet its financial or consumer health outcomes goals, so its top leaders did not receive a bonus.

Humana says the new compensation plan will "incentivize our executives to take actions to improve the health of our members." That may be a wise move for a variety of reasons, according to Dan Marcec, director of content at the firm Equilar, which tracks executive compensation.

Not only have other industries tied executive bonuses to factors other than earnings, he tells the publication, but also the business challenges associated with the Affordable Care Act means insurers like Humana want a way to incentivize executives "even if the profits are not there."

In fact, Humana's net income fell to $101 million in the fourth quarter of 2015, down from $145 million in Q4 of 2014, in part due to losses in the individual market, and the insurer said it is continuing to evaluate its participation in the ACA exchanges.

But Jim Hatch, president of the New York-based advisory firm Hatch & Associates, tells the International Business Times that he's skeptical Humana's move will actually encourage its executives to improve members' health.

Bonuses make up only 15 percent of Humana CEO Bruce Broussard's total compensation, so only 3 percent of his total pay is tied to health outcomes, he notes. For other company executives, only 4 percent of pay is tied to outcomes.

"Is that something they're going to notice everyday? Probably not," Hatch says.

To learn more:
- read the International Business Times article

Related Articles:
Humana bases executive pay on member health outcome measures
Top health insurance CEO pay exceeds $10 million in 2014
Q4 earnings roundup: Big five insurers' ACA exchange woes deepen

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