AOL CEO said that Obamacare forced them to reduce 401(k) benefits

Posted Feb 7, 2014

AOL is scaling back their employee retirement benefits, which the CEO said is because of President Barack Obama’s health care reform. AOL CEO Tim Armstrong went as far as saying that two AOL employees had distressed babies that were born and the company paid a million dollars each to make sure that “those babies were OK in general. And those are the things that add up into our benefits cost.” This is why Armstrong decided to scale back the 401(k) plans that employees have.

“Obamacare is an additional $7.1 million expense for us as a company, so we have to decide whether or not to pass that expense to employees or whether to cut other benefits,” added Armstrong. These comments obviously caused a media uproar because Armstrong paid himself $12.1 million in 2012, which is four times his salary in 2011.

AOL is most likely self-insured, which means that they maintain the financial risk for employee medical costs and makes contracts with health insurance carriers to administer their health plans. AOL has around 5,600 employees as of the end of the 2012, according to company filings. This figure included the $1,200 Patch employees, which AOL sold.

Gary Claxton, the co-director of the Program for the Study of Health Reform and Private Insurance at the Kaiser Family Foundation, was especially upset about Armstrong’s comments. Claxton said that a self-insured plan either has money set aside to cover these types of claims or likely buys stop-loss reinsurance cover to protect from unexpectedly high costs in a single year. He added that a health insurance carrier bearing risk for a company that isn’t self-insured likely would not raise rates based on a one-time expense.

“Unless those babies are still sick and still extraordinarily expensive, it’s irrelevant. I mean, something that happened in 2012 should have no bearing on 2014,” said Claxton. Claxton added that the $7.1 million excess cost that Armstrong attributed to the Affordable Care Act is out of proportion based on the company’s workforce size.

“This morning, I discussed the increases we and many other companies are seeing in healthcare costs. In that context, I mentioned high-risk pregnancy as just one of many examples of how our company supports families when they are in need. We will continue supporting members of the AOL family,” said Armstrong in response to the controversy.

AOL’s profits are increasing. On Thursday, AOL said that they earned $679 million in the last 3 months of 2013, which is up 13% from the year before. The year 2013 was AOL’s most successful year in the last decade. However, AOL stopped depositing matching funds into employee 401(k) accounts each pay period starting January 1st. The company plans to make one yearly lump-sum deposit of those matching funds into the retirement accounts at the beginning of each year. This means that leave AOL before the yearly match do not get that additional income.

[Source: Huffington Post]