Humana Health

Case 15 of the Strategic Management book analyzes Humana Health Care and the issues facing it both in the past and present. In 1999 Humana, which has grown steadily from its beginnings as a small chain of nursing homes in 1961 to become a corporate giant, found itself facing serious financial issues because of a combination of class action law suits and sharply rising heath care costs, which resulted in a net loss of $382.42 million. The company bounced back over the next four years by implementing a consumer-centric business approach, cost-cutting strategies and focusing on increasing technology, giving Humana a net income of $228.9 million in 2003.

I believe that the main issue facing Humana now, as set forth by the information in the case, is that other health insurance companies, such as Aetna and Lumenos, have also adopted consumer based strategies to compete with Humana. As a result, in 2004, Humana’s share price decreased by $1.30 per share to $17.71. Humana must find a way to differentiate itself from these companies in order to maintain its competitive advantage over these firms and increase its share price.

Unlike Humana, however, these competitors began engaging in aggressive price-cutting strategies in order to increase their customer base. Humana’s CEO, Michael B. McCallister, has said that he feels this strategy is not sustainable in the long-term and does not intend to join the ranks of his competitors in price-cutting.

Therefore, Humana must find a way to offer an alternative to its customers, the benefits of which will exceed the price cuts of competitors. I recommend, first of all, that Humana continue its consumer-centric approach so as to maintain market power in the health care industry. They also need to continue their focus on innovative technology, as this provides a clear alternative to their competitors and is also sustainable in the long-term. A user-friendly, internet based program puts healthcare in the hands of the customers rather than the doctors and hospitals, a complaint in the United States especially as opposed to European universal health care, and also works towards building lasting customer relationships.

Another recommendation is to build new and lasting relationships with large firms by convincing them to use Humana as a full-replacement provider for their healthcare. This will cut costs for both Humana and its customers. Humana’s SmartSuite is one of the programs that they use to prove that this is possible. Specialized programs such as SmartSuite, geared towards the individual companies and their needs, helps to differentiate Humana from its competitors. With the implementation of SmartSuite in 2001, Humana’s medical claims increased by