AOL’s CEO Tim Armstrong invited outrage last week when he said changes to the company’s 401(k) plan were necessary due to high medical costs, singling out two women whose “distressed babies” cost the company as much as $1 million each. Deanna Fei, one of the mothers in question, strikes back:
Let’s set aside the fact that Armstrong—who took home $12 million in pay in 2012—felt the need to announce a cut in employee benefits on the very day that he touted the best quarterly earnings in years. For me and my husband—who have been genuinely grateful for AOL’s benefits, which are actually quite generous—the hardest thing to bear has been the whiff of judgment in Armstrong’s statement, as if we selfishly gobbled up an obscenely large slice of the collective health care pie.
Suzy Khimm questions Armstrong’s numbers:
Most likely, AOL is taking on the brunt of its employees’ health care costs because, like many large employers, it is a self-insured company: Rather than having employees’ premiums go directly to insurers, the employer itself assumes the medical costs and risks, collecting the premiums and contracting with insurers itself. (AOL has declined to answer questions about its employee benefits.)
But Larry Levitt, senior vice-president of the Kaiser Family Foundation, points out that self-insured companies typically have a “reinsurance” program to protect them from such catastrophic events. “With reinsurance, their liability for a high cost case like a premature baby would likely be capped well below $1 million,” he says. And if AOL doesn’t have such a protection plan, acquiring would seem to be the logical first step in cost-reduction.
Ezra holds this up as an example of what’s wrong with our employer-based health insurance system:
An irony of Armstrong’s predicament is that Obamacare, which he partly blames for his company’s increased costs, might be its salvation. Starting in 2017, states can choose to let large employers enter state health-care exchanges. That means companies would be able to add their employees to a much larger risk pool — in some cases, millions strong. Those companies would no longer have to worry about a bad year for employee health. Their insurers couldn’t ceaselessly jack up prices because expenses soared in one year, or because employees are getting older or sicker. If insurers flock to the exchanges, it could — finally — be the end of our insane system in which each workplace is a tiny welfare state unto itself.
After outrage at Armstrong’s comments, he apologized and AOL reversed the 401(k) benefits change.
The Dish 