AOL Learns the Hard Way: Don’t Blame Rising Benefit Costs on Individual Employees…

THE FIRST RULE OF SHARING BENEFIT CUTS OR RISING BENEFIT COSTS IS: Never blame the situation on individual employees.  Couple reasons for that:

1. You're the leader, you're supposed to be figuring stuff as a leader out without pointing fingers.

2. You're known to employees as "the man" (even if you're a woman) and nobody is going to take your side when you refer to individual employees.  They're automatically going to say, "what if that was me?" and crush you in the court of public opinion for blaming a cost situation on something an employee had no control over.

Why am I talking about this today?  AOL recently cut total benefit costs by tweaking it's 401K match procedures, and CEO Tim Armstrong cited two family health situations as part of the reason why:

"In a call with AOL (AOL) employees in which he tried to explain why the company had changed its 401(k) plan, Armstrong, a former Google exec, said that two AOL employees' sick newborns factored into the decision.

"We had two AOL-ers that had distressed babies that were born that we paid a million dollars each to make sure those babies were okay in general," Armstrong said on the call. "And those are the things that add up into our benefits cost. So when we had the final decision about what benefits to cut because of the increased health care costs, we made the decision, and I made the decision, to basically change the 401(k) plan."

Of course, that's entirely lame.  My benefit leaders in the readership can pitch in her because they know more than me.  But, I have to assume that AOL is self insured, and if that's the case, they've got reinsurance on the aggregate spend company wide, but also on individual healthcare situations, which provides stop gap coverage for the major/major situations before it even gets to the aggregate spend for the company.  In that common circumstance, it wouldn't have cost them millions.  The cost per employee family situation would have stopped at 20/40/60K, wherever they put the individual reinsurance deductible.

But, whether you are self insured or fully insured on your medical plan, a bad year can definitely hurt your cost structure for the next year, which means the cost comments may have been true as they projected 2014.  

But you don't mention two families as the reason.  I've managed self insured plans that looked great and then had a bunch of bad stuff happen with 5-10 familes.  God bless them for what they went through.  It absolutely crushed the self-insured picture of the company/unit I was responsible for managing.  It never occured to me to point to a bunch of people who had cancer or other forms of major medical as the reason prices were going up.  

If you remember, Armstrong is the guy who fired an employee via conference call a while back.  Looks to be a classic case of a strong executive that's surrounding by a team who's afraid to tell him he's crazy.  

For the record, Armstrong reversed his decision.  Funny how referencing distressed babies as reasons for a tweak in the 401k match plan can make you do that.

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