Million-dollar babiesBlog added by Bill Coffin on February 26, 2014
Bill Coffin

Bill Coffin

New York, NY

Joined: September 27, 2010

Recently, AOL’s top executive, Tim Armstrong, blamed a sketchy health benefits plan decision on the health costs of his employees. You might remember Armstrong as the guy who became AOL’s CEO in 2009 and convinced the company to blow some $300 million on Patch, a failed network of local online news sites, before finally letting the product go in late January. You might also remember Armstrong as the guy who, last August, held a town hall meeting for all Patch employees, and publicly fired someone for taking Armstrong’s picture during the meeting. Audio of the firing went viral online, and is one of the worst HR blunders made by a senior executive in recent memory.

Until Armstrong topped himself. In AOL’s 2014 employee benefit statement, AOL changed its 401(k) matching to a lump-sum paid out only to employees active on Dec. 31, which means if you switch jobs or get laid off, you get no 401(k) matching for the year, period. Not to mention that you don’t get the benefit of gradual payment into your 401(k) over the course of the year. Armstrong defended this move by blaming it on the high medical costs of AOL employees, which forced him to seek savings elsewhere, hence the 401(k) change. He specifically pointed out — and on national TV, no less — that two AOLers had had “distressed babies” last year, which racked up a million dollars in health costs each.

AOL’s novel approach to its employees’ retirement funding is best left to another editorial. For now, let’s look to Armstrong’s medical scapegoating of two of his employees’ infant children for why everybody else at AOL no longer gets standard 401(k) matching. The mother of one of those “distressed babies” (a term which shall forevermore be shorthand for executive insensitivity) wrote about her experience on Slate. She and her husband, who worked for AOL, did not expect any problems with her pregnancy, but something went wrong, and she had an emergency C-section at four months.

Indeed, the medical costs to save the child were enormous. But, she writes, isn’t that what health insurance is for? Indeed, it is. What drove the urge to reform health care was that health insurance had, on the grand scale, broken the policyholder trust that any insurance product needs to work. People felt that they were paying into a product that, when there would be a claim, the insurer would fight against paying. The problem with health insurance is that as a product, it’s structured more like property or casualty coverage (on the assumption that perhaps the policyholder might never file a claim) than like life insurance (where a claim is always a matter of when). Sure, life insurance bets on policy lapses, but still, you don’t often see disputes over life claims like you do with health claims. Perhaps, instead of blaming the sick, we should structure health insurance in such a way that it either appropriately prices the risk it covers (which it never has), or we accept the fact that as it works now, health insurance is not designed to both make money and to deliver the best health care to policyholders whenever they need it.

In the meantime, Armstrong has already backpedaled on his 401(k) decision, but it’s probably too late for his reputation. He is already widely hailed as one of the worst CEOs in modern memory; if he’s willing to throw two infants under the bus, one can see why.
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