GO
Loading...

Blame game: AOL won't explain how Obamacare costs $7.1M

David Paul Morris | Bloomberg | Getty Images

You've got fail—at blaming Obamacare.

In a whirlwind of bad press, AOL Chief Tim Armstrong last week was outed as having changed the company's 401(k) contribution system in a way that would leave some employees with less money.

In an interview on CNBC, he cited costs related to the Affordable Care Act. Later, he told employees that two difficult births had jacked up AOL's health-care costs. In the firestorm that followed, AOL reversed course and restored the previous 401(k) match.

But left hanging was Armstrong's claim that Obamacare cost AOL so much money—$7.1 million, according to the CEO—that the company had to rejigger its retirement account matching fund, making contributions in a lump sum at the end of each year to offset the hit to its bottom line.

A number of health-benefits experts were deeply curious about how ACA compliance could result in such costs for AOL or any other large company that already operates a self-funding insurance plan or buys group coverage.

After Armstrong decided to revert to matching contributions each pay period, several experts again scoffed at the idea that ACA rules could make a big enough dent in AOL's finances to spur such a dramatic move.

(Read more: AOL's Armstrong axes controversial 401(K) policy)

"That's the silliest thing I've ever heard of," said Timothy Jost, professor at the Washington and Lee University School of Law, and author of the textbook "Health Law."

Though the ACA contains several per-employee fees for large companies that could increase costs somewhat, he was incredulous that they could be even close to what Armstrong had claimed.

"This strikes me as a totally bogus explanation," he said. "Everything that goes wrong with any business in the economy now is going to blamed on the Affordable Care Act."

Ben Geyerhahn, CEO of BeneStream, whose business software helps companies identify workers eligible for Medicaid and enroll them in the program, said, "The stories I read also suggested that the knucklehead who put this plan in place gave a laundry list of reasons for the policy, including the high cost of caring for families who had premature babies," as well as Obamacare.

"It's kind of hard to imaging how [Obamacare cost AOL] $7.1 million," he added.

(Read more: AOL blamed my 'distressed' baby for benefit cuts, mom says)

"My assessment is that this was a cost-cutting measure in search of a rationale, and it seems to have hit upon a few very bad ones," Geyerhahn said.

AOL did not respond to CNBC.com's repeated requests to break down what Armstrong claimed were $7.1 million in expenses related to ACA compliance that had to be offset by the 401(k) change.

AOL is not the first company to make a claim about Obamacare costs. Earlier this year, the San Diego Union-Tribune newspaper said it was completely eliminating its 401(k) matching contribution for workers because of "significant additional expense due to Obamacare."

The newspaper did not respond to CNBC.com's requests to detail the expense resulting from the ACA.

Several benefits experts who spoke to CNBC.com were unaware of the Union-Tribune's move and were under the impression that AOL was the first to tweak its 401(k) package.

"In some cases like these, Obamacare furnishes a good excuse," said Alden Bianchi, a lawyer leading the employee benefits and executive compensation practice at the firm Mintz Levin.

As an example, he pointed out that last year UPS said it would no longer offer spouses of workers health coverage if their employers already offered it. The company cited Obamacare for that decision, though the ACA does not compel such changes.

Likewise, Bianchi said that the mandate that companies with 100 or more full-time workers offer affordable plan options does not go into effect until 2015. Companies that do not comply with that mandate can pay penalties of $2,000 per employee. (A separate, but similar provision for companies with 50 or more full-timers is now on hold until 2016 as a result of a Treasury Department rule released Monday.)

But AOL has been offering its workers health coverage for many years—before Obamacare was even being debated in Congress.

Like other benefits experts, Bianchi said that rising health premiums and other costs previously have been passed on to workers or absorbed by the company—or a combination of the two. But with the implementation of the ACA's provisions, he said, "people tend to conflate" normal cost increases in health care and ones connected to mandates.

Craig Garthwaite, a microeconomics professor at the Kellogg School of Management at Northwestern University, who has studied the ACA's effects, said that AOL's current health plans could lack mandated features, including covering mental health care the same as other medical conditions.

He added that $7.1 million is not that much money for a company AOL's size, and "it's not impossible to think the ACA has increased its costs to that degree.

"There was some specificity to that number they cited, which made me think there was some actual calculation behind it. But "I would have liked a lot more specifics in saying 'Obamacare is causing these increased costs.' It seems they were intentionally vague," Garthwaite added.

"One could imagine this is just the difference of premiums from this year to last year," he said, but if that were the case, the increases would not be directly tied to Obamacare rules.

(Read more: Armstrong responds)

Douglas Holtz-Eakin, former Congressional Budget Office director and now with the research nonprofit Center for Health and Economy, said many the existing health plans at many large companies were already ACA-compliant,

"I'd be surprised if [AOL] were radically out of line" with other businesses of similar size, he added.

On the other hand, "there could be a lot of companies out there making a $7 million adjustment from Obamacare and just not talking about it—I can't rule that out," Holtz-Eakin said. "Many companies do not want a bull's-eye on their back and don't want to appear to be contradicting the White House on this."

Robert Funk, a former chairman of the Kansas City Federal Reserve Bank who is CEO of the staffing firm Express Employment Professionals, said that what he has seen is that many clients are not hiring because of the ACA's original mandate that employers with 50 or more full-timers offer health coverage.

He also expects that Obamacare has led to premium increases so that many clients "just can't find" affordable plans," he said.

But at his own company, Funk said, "if we hadn't had four [employees] who had some cancer issues last year, we might have been able to reduce our costs this year."

High costs from individual cases mirror Armstrong's comments, at lease partly blaming the 401(k) change on two complicated births by women covered in AOL's plan. Such costly events are common in any insurance pool and not related to the ACA.

Jost at Washington and Lee University said, "Health coverage is a major cost center for American businesses and has been [rising] annually for decades. In recent years, employers have increasingly been passing on these costs to employees.

"What is new is not that costs are going up or that they are being shifted, but that now employers can blame it on the Affordable Care Act," he said. "That is what AOL tried, and I am glad they have heard from their employees and the public and are backing down."

By CNBC's Dan Mangan. Follow him on Twitter @_DanMangan.

Contact Health Care

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More