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 13, 2014 -- Updated 1245 GMT (2045 HKT)
To prevent war with North Korea over a comedy, what would Dennis Rodman say to Kim Jong Un? Movie critic Gene Seymour weighs in.
July 11, 2014 -- Updated 1315 GMT (2115 HKT)
Michael Werz says in light of the spying cases, U.S. is seen as a paranoid society that can't tell friends from foes.
July 11, 2014 -- Updated 1317 GMT (2117 HKT)
Eric Liu explains why in his new book, he calls himself "Chinese American" -- without a hyphen.
July 11, 2014 -- Updated 1512 GMT (2312 HKT)
John Bare says hands-on learning can make a difference in motivating students to acquire STEM skills.
July 11, 2014 -- Updated 1320 GMT (2120 HKT)
Karl Alexander and Linda Olson find blacks and whites live in urban poverty with similar backgrounds, but white privilege wins out as they grow older.
July 10, 2014 -- Updated 1620 GMT (0020 HKT)
Frida Ghitis says a poll of 14 Muslim-majority nations show people are increasingly opposed to extremism.
July 10, 2014 -- Updated 1828 GMT (0228 HKT)
Ruben Navarrette says spending more on immigation enforcement isn't going to stop the flow of people seeking refuge in the U.S.
July 10, 2014 -- Updated 2048 GMT (0448 HKT)
Faisal Gill had top security clearance and worked for the Department of Homeland Security. That's why it was a complete shock to learn the NSA had him under surveillance.
July 10, 2014 -- Updated 1841 GMT (0241 HKT)
Kevin Sabet says the scientific verdict is that marijuana can be dangerous, and Colorado should be a warning to states contemplating legalizing pot.
July 9, 2014 -- Updated 2047 GMT (0447 HKT)
World War I ushered in an era of chemical weapons use that inflicted agonizing injury and death. Its lethal legacy lingers into conflicts today, Paul Schulte says
July 10, 2014 -- Updated 1137 GMT (1937 HKT)
Tom Foley and Ben Zimmer say Detroit's recent bankruptcy draws attention to a festering problem in America -- cities big and small are failing to keep up with change.
July 10, 2014 -- Updated 1201 GMT (2001 HKT)
Mel Robbins says many people think there's "something suspicious" about Leanna Harris. But there are other interpretations of her behavior
July 9, 2014 -- Updated 1753 GMT (0153 HKT)
Amy Bass says Germany's rout of Brazil on its home turf was brutal, but in defeat the Brazilian fans' respect for the victors showed why soccer is called 'the beautiful game'
July 9, 2014 -- Updated 2107 GMT (0507 HKT)
Aaron Carroll explains how vaccines can prevent illnesses like measles, which are on the rise
July 9, 2014 -- Updated 0008 GMT (0808 HKT)
Aaron Miller says if you think the ongoing escalation between Israel and Hamas over Gaza will force a moment of truth, better think again
July 8, 2014 -- Updated 1903 GMT (0303 HKT)
Norman Matloff says a secret wage theft pact between Google, Apple and others highlights ethics problems in Silicon Valley.
July 8, 2014 -- Updated 2237 GMT (0637 HKT)
The mother of murdered Palestinian teenager Mohammed Abu Khder cries as she meets Palestinian president Mahmoud Abbas in Ramallah, West Bank on July 7, 2014.
Naseem Tuffaha says the killing of Israeli teenagers has rightly brought the world's condemnation, but Palestinian victims like his cousin's slain son have been largely reduced to faceless, nameless statistics.
ADVERTISEMENT