Skip to main content

Two sick babies and Obamacare at AOL

By Dylan Roby
February 11, 2014 -- Updated 2226 GMT (0626 HKT)
STORY HIGHLIGHTS
  • AOL blamed 401(k) changes on cost of Obamacare and two sick newborns
  • Dylan Roby: It promptly reversed its decision after staff and public outcry
  • Roby: Obamacare can't cost that much: AOL is too big and workers pay big costs
  • Roby: Maternity coverage cost spread over lots of employees would be minimal

Editor's note: Dylan H. Roby is the director of Health Economics and Evaluation Research at the UCLA Center for Health Policy Research and an assistant professor of Health Policy and Management in the UCLA Fielding School of Public Health.

(CNN) -- As a business decision, America Online's recent announcement that it was planning to pull back its employee 401(k) matching program to save money was not a surprise. It is common practice for U.S. companies to lay off workers, reduce hours, and cut benefits to look more attractive to shareholders, even while posting record profits.

Last year's decisions by ESPN, Kellogg, and General Electric illustrate how layoffs are part of corporate growth strategies. Usually, layoffs are blamed on uncertainty, the need for efficiency, or the sluggish economy.

The surprise was when he announced the change, AOL's chief executive Tim Armstrong had placed blame for the cuts on Obamacare, which he says would cost the company $7 million, and two female employees with "distressed babies" that cost $2 million in 2012.

However, after staff and public outcry, Armstrong saw the light and said his company would reverse its decision to dole out its matching funds to employees' contributions in one lump sum at the end of the year, rather than match contributions in each paycheck.

What your boss knows about your health
AOL CEO: Yahoo! partnership a success
Is Obamacare REALLY killing 2M jobs?
CBO: Obamacare means fewer workers

Here's why two newborns and the costs of Obamacare were very unlikely reasons that AOL would have to change its 401(k) program to save money:

Health care costs are unpredictable for everyone, not just new moms. After all, a healthy, single man can break his leg or be diagnosed with cancer at any time. Patients with expensive health care needs one year are not guaranteed to spend a lot on health care in the following year -- and anyone could have a health emergency at some point. That's why we buy health insurance: to protect ourselves against an unpredictable and potentially devastating event.

So two new moms and their newborns are merely a convenient excuse that companies like AOL can use to cut costs
Dylan Roby

A large company like AOL is better able to spread the risk across all employees because it has many workers, most of whom are in good health. Rather than allow employees to sign up for various insurance plans through multiple companies, AOL is self-funded. That means it pays all claims directly, with a third-party administrator managing the business processes.

Companies like AOL that self-fund their health benefits typically buy reinsurance policies to protect them from any exorbitant, unexpected claims. In addition, AOL employees are required to pay both a share of their insurance premiums and up to $6,000 per family in out-of-pocket costs, which means they are already paying a significant share of health-care spending increases. So two new moms and their newborns are merely a convenient excuse that companies like AOL can use to cut costs to benefit their shareholders and executives' wallets.

And why did Armstrong blame ObamaCare? The Affordable Care Act does include fees for insurers and third-party administrators to help fund efforts to stabilize the individual and small group insurance markets. In 2014, AOL may need to pay just up to $63 per year per insured employee. But because AOL offers comprehensive coverage to its employees, it would not be subject to the penalties that apply to larger employers that do not provide affordable coverage to their full-time employees, starting in 2015.

Employers cannot blame the president for unpredictable health care costs either. In the past four years, the rate of national health care spending growth slowed substantially to less than 4% per year -- half the growth rate of the previous four decades.

Although it's convenient for employers to blame Obamacare for any instability or changes to health-care spending, the fact remains that the cost of maternity or other benefits spread over a large insured population is minimal.

In a 2011 report, the California Health Benefits Review Program found that adding a requirement to cover maternity services to individual insurance plans would result in just a 0.52% increase in spending.

Blaming two new mothers for these sweeping benefit cuts was an awful way to treat employees who are already facing the worst of all possible scenarios: a very sick child.

It's a mistake Armstrong should never make again.

Follow us on Twitter @CNNOpinion.

Join us on Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Dylan Roby

ADVERTISEMENT
Part of complete coverage on
July 29, 2014 -- Updated 1650 GMT (0050 HKT)
LZ Granderson says the cyber-standing ovation given to Robyn Lawley, an Australian plus-size model who posted unretouched photos, shows how crazy Americans' notions of beauty have become
July 28, 2014 -- Updated 1156 GMT (1956 HKT)
A crisis like the Gaza conflict or the surge of immigrants can be an opportunity for a lame duck president, writes Julian Zelizer
July 26, 2014 -- Updated 1822 GMT (0222 HKT)
Carol Costello says the league's light punishment sent the message that it didn't consider domestic violence a serious offense
July 28, 2014 -- Updated 1251 GMT (2051 HKT)
Danny Cevallos says saggy pants aren't the kind of fashion statement protected by the First Amendment.
July 28, 2014 -- Updated 1852 GMT (0252 HKT)
Margaret Hoover says some GOP legislators support a state's right to allow same-sex marriage and the right of churches, synagogues and mosques not to perform the sacrament
July 28, 2014 -- Updated 1831 GMT (0231 HKT)
Megan McCracken and Jennifer Moreno say it's unacceptable for states to experiment with new execution procedures without full disclosure
July 28, 2014 -- Updated 1850 GMT (0250 HKT)
Priya Satia says today's drones for bombardment and surveillance have their roots in the deadly history of Western aerial control of the Middle East that began in World War One
July 28, 2014 -- Updated 1635 GMT (0035 HKT)
Jeff Yang says it's great to see the comics make an effort at diversifying the halls of justice
July 26, 2014 -- Updated 1555 GMT (2355 HKT)
Rick Francona says the reported artillery firing from Russian territory is a sign Vladimir Putin has escalated the Ukraine battle
July 27, 2014 -- Updated 1822 GMT (0222 HKT)
Paul Callan says the fact that appeals delay the death penalty doesn't make it an unconstitutional punishment, as one judge ruled
July 24, 2014 -- Updated 2225 GMT (0625 HKT)
Pilot Robert Mark says it's been tough for the airline industry after the plane crashes in Ukraine and Taiwan.
July 25, 2014 -- Updated 1510 GMT (2310 HKT)
Jennifer DeVoe laments efforts to end subsidies that allow working Americans to finally afford health insurance.
July 26, 2014 -- Updated 1533 GMT (2333 HKT)
Ruti Teitel says assigning a costly and humiliating "collective guilt" to Germany after WWI would end up teaching the global community hard lessons about who to blame for war crimes
July 25, 2014 -- Updated 1245 GMT (2045 HKT)
John Sutter responds to criticism of his column on the ethics of eating dog.
July 25, 2014 -- Updated 1302 GMT (2102 HKT)
Frida Ghitis says it's tempting to ignore North Korea's antics as bluster but the cruel regime is dangerous.
July 25, 2014 -- Updated 1850 GMT (0250 HKT)
To the question "Is Putin evil?" Alexander Motyl says he is evil enough for condemnation by people of good will.
July 24, 2014 -- Updated 1803 GMT (0203 HKT)
Laurie Garrett: Poor governance, ignorance, hysteria worsen the Ebola epidemic in Sierra Leone, Guinea, Liberia.
July 24, 2014 -- Updated 1349 GMT (2149 HKT)
Patrick Cronin and Kelley Sayler say the world is seeing nonstate groups such as Ukraine's rebels wielding more power to do harm than ever before
July 23, 2014 -- Updated 2205 GMT (0605 HKT)
Ukraine ambassador Olexander Motsyk places blame for the MH17 tragedy squarely at the door of Russia
July 24, 2014 -- Updated 1142 GMT (1942 HKT)
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
July 24, 2014 -- Updated 1853 GMT (0253 HKT)
Les Abend says, with rockets flying over Tel Aviv and missiles shooting down MH17 over Ukraine, a commercial pilot's pre-flight checklist just got much more complicated
July 24, 2014 -- Updated 1317 GMT (2117 HKT)
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
July 24, 2014 -- Updated 1637 GMT (0037 HKT)
Gerard Jacobs says grieving families and nations need the comfort of traditional rituals to honor the remains of loved ones, particularly in a mass disaster
July 24, 2014 -- Updated 1413 GMT (2213 HKT)
The idea is difficult to stomach, but John Sutter writes that eating dog is morally equivalent to eating pig, another intelligent animal. If Americans oppose it, they should question their own eating habits as well.
July 23, 2014 -- Updated 1630 GMT (0030 HKT)
Bill van Esveld says under the laws of war, civilians who do not join in the fight are always to be protected. An International Criminal Court could rule on whether Israeli airstrikes and Hamas rocketing are war crimes.
July 23, 2014 -- Updated 1408 GMT (2208 HKT)
Gordon Brown says the kidnapped Nigerian girls have been in captivity for 100 days, but the world has not forgotten them.
ADVERTISEMENT