- AOL blames 401(k) changes on cost of Obamacare and two sick newborns
- But AOL is large enough to spread costs, and is likely insured against big claims
- Obamacare can't cost that much: AOL wont pay penalties and workers pay big costs
- Adding 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's pulling back its employee 401(k) matching program to save money is 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.
Dylan Roby
The surprising news in this case is that AOL's chief executive, Tim Armstrong 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.
The change in the 401(k) program means AOL will 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. The employee must wait till December 31 to get the matching funds, and won't receive the money if he or she leaves midyear.
Here's why two newborns and the costs of Obamacare are unlikely to be the reasons that AOL changed its 401(k) program:
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.
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 does Armstrong blame ObamaCare for the changes? 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 is an awful way to treat employees who are already facing the worst of all possible scenarios: a very sick child.
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The opinions expressed in this commentary are solely those of Dylan Roby
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