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

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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.

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Comments & discussion

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  • Bob K

    I now know what the “A” in AOL means.

  • NanWan

    It is very tragic when a family experiences a difficult birth situation, even with the best of prenatal care. Mr. Armstrong was certainly insensitive with his comment about “distressed babies” being the reason for cutting benefits. If he had only said the company had experienced some very high medical costs during the past year and he, and his executive team, were willing to give up some of their own pay, he might have received more sympathy for the necessity of cutting benefits. 2 million dollars for 2 babies is an extraordinary amount of expense , but in real life, sometimes things like this happen. If the company is responsible, they should have a stop loss to lessen their exposure for catastrophic medical expenses. What if it was HIS child we were talking about here? Wonder if he would have changed his tune? The company had record quarterly earnings recently……not the best time to come forward and announce the company is going to reduce benefits. The company just might lose a lot of high caliber employees as a result of this situation.

  • Johns.Opinion

    The real problem in the USA is that we have to save everyone. For the good of the whole at some point we have to say NO. Sorry your child is too critical to save, Sorry your to old for a new heart. Not to mention that there was a high chance that these children would of been brain damaged and the cost to society in a whole would of been astronomic over their life.

    • John Hughes

      You dare speak of a utopian society. LOL

    • Leeland Hackbarth

      Until it affects you or your loved one

    • pcl

      I’ve seen people being “cared for” in nursing homes and I’d rather be dragged out and shot than be one of them. Stuck in a bed, having to ask for everything, life would be worse than in a well-run prison. I’d also rather be aborted then live as a severely disabled child. But it would be a much harder decision to deny treatment to your own child, even if you had a suspicion that they would be better off “in heaven” or whatever. Armstrong has a point, but in making it, he’s just calling attention to his bloated salary, which is taking an even bigger chunk of AOL’s unimpressive (a record for AOL is still unimpressive in absolute terms) profits than the two babies. If Obamacare had gotten employers out of the business of health insurance, we’d all have been better off; each person would have to decide in advance how important this kind of treatment really is. If the Obama administration had done more to reign-in ego-crazed CEO’s who’s crony-packed boards set their salaries so high that they start to squeeze out their stockholders profits, we would also have been better off, but it didn’t. It’s lapses like this that will have Obama remembered as a caretaker president, rather than the great one he, at least theoretically, could have been.

  • Leeland Hackbarth

    What an *A*ssh*O**L*e

  • voice_reason

    Simply put one of two things – AOL president is lying and this is a convenient fall guy offense to blame the ACA or their risk manager is a bigger ass than the president and deserves to be fired

  • marketfog

    Thirty-seven years ago, my wife had toxemia with our first baby. I could have lost both my wife and son, but the hospital care was fantastic and both are doing well today. The cost, $25,000 at the time. I paid $100. Insurance is also for these catastrophic events as well as for ordinary health events. Do you want to see the bills for breast cancer treatment? Thank God for BC/BS and Medicare.

  • Y2KJillian

    Corporate greed is like stupidity…it has no limits.
    Jillian