As we observed back in December, one of the solid benefits the Affordable Care Act has brought to business leaders is to give them a convenient scapegoat for their own management problems. AOL's chairman and CEO, Tim Armstrong, this week raised that practice to an art form. In the process he blamed a couple of the company's employees, bizarrely, for their high medical costs.
Armstrong announced changes to AOL's retirement benefits that may save the company millions a year, at a commensurate cost to its more than 5,000 employees. The reason? "Obamacare is an additional $7.1-million expense for us as a company," he told CNBC.
So something had to give, he said, and what gave was AOL's match of up to 3% of its workers' 401(k) contributions. Employees will still get it, but it will be paid at the end of each year only to employees then still on the payroll. That's a change from the previous rule at AOL, which was to pay out the match with every paycheck. Not only does it cost employees who leave during the year, but it deprives all workers of potential market gains on the company match during the year.
Armstrong, whose company owns the Huffington Post among other properties, also described the benefit change as a response to the hot rivalry for talent in the online business. "We're in the most intensive talent space in the world, and so we have to look at our benefits program very seriously," he told CNBC.
You might think that would mean AOL should improve its benefits, not cut them. But what he seems to be saying is that AOL's most talented employees get poached, so why not make it a tad harder for them to leave?
As for AOL's Obamacare-related costs, what is Armstrong talking about? He didn't specify, which is reason itself to believe he's blowing smoke. As a large employer, AOL doesn't face any new healthcare mandates under the Affordable Care Act, except to allow employees to keep children on their health plans up to age 26.
But that's an incremental cost, extremely unlikely to come to $7.1 million--the old ceiling was age 19 or through college; and young people are relatively cheap to cover. There's a $63 per plan enrollee fee that kicks in this year, but even if every AOL employee enrolled three family members, that would come to about $1.3 million. The next possible bump in costs is a tax on high-value "Cadillac" health plans, but that doesn't begin until 2018.
Armstrong doubled down on the obfuscation during a meeting with employees, at which he cited coverage expenses to "two AOL-ers that had distressed babies." Their medical expenses came to $1 million each, he said.
Health insurance experts are scratching their heads at this. As a large employer, AOL may be self-insured, but it's also big enough to take advantage of all the tools available to large-group insureds, such as reinsurance, to moderate the impact of such isolated costs. Here's a primer on how large pools work from Richard Mayhew, an insurance expert who blogs pseudonymously at Balloon-juice.com.
The most likely conclusion to draw from all this is that Armstrong is trying to shift blame to the Affordable Care Act for a cheeseparing benefit change he instituted--especially since the change was announced in conjunction with AOL's quarterly fianancial report. Quarterly revenue looked strong, but to the extent it flowed down to profits, the reason was stringent cost-cutting at AOL. Looks like that trend, at least, will continue.