How Much Did Medical Bills for 2 ‘Distressed Babies’ Cost AOL?

This post comes from Krystal Steinmetz.

AOL chief executive Tim Armstrong reversed last week’s controversial decision to cut back the company’s 401(k) plan and apologized for blaming the medical bills of two employees’ “distressed babies” for a spike in health care costs.

Armstrong, who took home $12 million in pay in 2012 — four times his $3.2 million salary in 2011 — claimed that the two babies cost AOL $1 million each in 2012.

We had to wonder: How likely is that?

While AOL has declined to discuss its employee benefits, it’s likely that AOL, like many large companies, is self-insured and shoulders the brunt of its employees’ health care costs. Bloomberg says, “Self-funding means that an employer pays for health care rather than buying an insurance policy for their workers.”

Larry Levitt, senior vice president of the Kaiser Family Foundation, told MSNBC that self-insured companies typically have a “reinsurance” program to protect them from such catastrophic events. “With reinsurance, their liability for a high-cost case like a premature baby would likely be capped well below $1 million,” he said.

Levitt added that in the event AOL doesn’t have stop-loss coverage, acquiring such a protection plan would be a “logical first step in cost-reduction.”

The mother of one of the “distressed babies,” who penned a response to Armstrong’s insensitive comments on Slate.com, said the cost of her child’s birth and neonatal care is not the issue. Deanna Fei wrote:

I have no expertise in health care costs, but I have a 3-inch-thick folder of hospital bills that range from a few dollars and cents to the high six figures. So even though it’s unlikely that AOL directly paid out those sums, I don’t take issue with Armstrong’s number.

She added:

I take issue with how he reduced my daughter to a “distressed baby” who cost the company too much money. How he blamed the saving of her life for his decision to scale back employee benefits. How he exposed the most searing experience of our lives, one that my husband and I still struggle to discuss with anyone but each other, for no other purpose than an absurd justification for corporate cost-cutting.

Armstrong made his controversial “distressed baby” remarks on the same day that AOL reported its best quarterly earnings in a decade.

What did you think about his remarks and his conduct? Share your thoughts below or on our Facebook page.