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Aol’s healthcare firestorm

nestegg2 Smart people say dumb things. That’s the moral of this story.

Tim Armstrong, CEO of AOL came under fire recently for remarks he made at a company “Town Hall Meeting” regarding the company’s employee benefits. Following AOL’s decision to cut retirement benefits to make up for increases in their healthcare expenditures, Mr. Armstrong blamed the spike in healthcare costs on two things: President Obama’s healthcare reforms and two “distressed” babies that were covered by the plan.

First of all, discussing specific claims and situations related to your general population of covered employees is a monumental error and should never be publicized. NEVER. While there was no specific HIPAA violation, the announcement was insensitive. The complexity of the health insurance plan and funding is not fully understood by all, and chalking up a cut in retirement benefits due to the misfortune of two “distressed babies” is frankly, a cop-out. The truth is that these catastrophic situations are the reasons that we need health insurance. Those babies could have been born to any employee of AOL; they could have been Mr. Armstrong’s own children. Yes, medical conditions can and will continue to be very expensive. These are the situations that make people thankful they have health insurance. Large companies are prepared for this and purchase coverage to manage it.

Armstrong’s comments were also viewed by some as a cover for the company’s unpopular decision to cut back retirement benefits. Under the new changes, AOL moved the company match to a lump sum distributed at the year’s end, and only to those employees who are active as of December 31st. This means that anyone who leaves before that date won’t receive the match. So clearly, Armstrong was under pressure and made a remark that he felt could draw sympathy from workers and offer some explanation behind the cuts. The problem is, those two sick children are obviously not responsible for affecting the entire organization’s benefit plan, and singling them out clearly did not do him any favors.

At the same time, while I agree that Tim Armstrong should never have made those comments, I do not agree with one of the employee’s spouses coming forward and creating a media storm about this. Over the past few days, she has been on quite a few news programs discussing how she felt she was “attacked” and made to feel that she overspent her allotted amount due to the high medical costs from her child. That was simply her opinion and how she personally took the remarks. Mr. Armstrong never mentioned who these claims were from; he simply used them as examples of how and why costs had increased. Large medical claims happen, whether they are premature babies or cancer claims. Tim Armstrong and AOL have made every effort to apologize and rectify this situation. He called her directly and apologized and had a parent-to-parent conversation with her. AOL has also reversed their decision to cut retirement benefits for employees and apologized to them via a memo for discussing specific medical examples.

Amid the whole fiasco, AOL posted the best 4th quarter earnings they have had in the last 10 years, and revenue has climbed 13%, thanks to jumps in global ad revenues. After struggling to stay relevant and afloat, the company has climbed back and found success. Yet the media has been solely focused on Armstrong’s comments and highlighting the negativity surrounding the company. This is hardly a surprise though, since CEO’s meltdown always trumps financial reports in the news.

Finally, it’s worth noting that health care costs don’t always affect a company’s spending on retirement benefits, although they’re often considered together. Tweaking 401(k) plans can help offset rising health care costs, but it’s not the only option. Companies that are looking to more effectively manage their employee benefits costs must work collectively with executives, HR staff and their insurers to find the best solution for their organization.


About the Author

Alyssa Martin is a Vice President at William Gallagher Associates, providing proactive service, effective decision-making and advanced problem-solving capabilities to a number of national clients in the mid-sized to large markets. She also works with WGA clients to assist their employees with their individual Medicare choices as they are approaching retirement.

617.646.0350 | amartin@wgains.com | Connect with Alyssa on LinkedIn |
Follow Alyssa @Alyssaamartin
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