The AOL Babies and Healthcare Costs

Last week AOL chairman Tim Armstrong caused an uproar by linking a change in the company’s 401K plan to increased healthcare costs due to two premature births. The company has since reversed the 401K change and Armstrong apologized for his comments. But like it or not, we as a country must eventually have a conversation about how much we are willing to spend to keep a person alive, even a newborn.

Healthcare costs have skyrocketed in the United States, going from about 12% of our economy in 1990 to almost 18%, about $2.3 trillion a year. Insurance company profits and administration costs contribute but the primary cause of the increase is medical technology. Every year doctors come up with new procedures to fix maladies we used to have to live with and new technologies to save people that once would have died. Ninety years ago people died from diabetes. In the 1960’s most children born with hemophilia didn’t make it to adulthood; now the average life expectancy for a hemophiliac is almost sixty years.

The miracles of medical technology have increased life expectancies and improved quality of life. But miracles come with a price tag. Managing a severe case of hemophilia can cost over $400,000 a year. The two babies born to the AOL employees incurred $2 million dollars in medical bills. This level of spending isn’t that unusual for the first year of a premature baby’s life, and it is likely to go on for several years; there is a good chance each baby will require several million dollars in medical care before he or she is out of diapers. The extreme cost of these procedures is reflected in our healthcare spending – 1% of our population consumes about 22% of our spending; the top 5% consume about half of the $2.3 trillion we spend. And the lifesaving potential, and cost, of medical technology is still accelerating.

Healthcare is a very personal experience for each person, but it is also a group activity – the medical bills of any one member of a group plan are in part paid by the premiums and contributions of the other group members. The $2 million in care received by the two premature babies cost each of the 4,000 AOL employees $500, with part of that paid by the employees and part paid by AOL on their behalf. And next year, they will likely pay another $500 each, and possibly even the year after that. It’s nice to think that AOL is a wealthy company, and can afford to spend whatever is necessary to keep its employees healthy. It’s nice to think that as a wealthy nation we can afford to pay any amount to keep our citizens alive. But AOL can’t, and neither can the United States. Already we spend almost twice as much on healthcare as other nations and if costs keep increasing eventually it will bankrupt our country.

Needless to say, this is a challenging question. No company chairman wants to have to stand up and point out the financial cost of healthcare. No politician wants to stand up and say we can’t afford to save every premature baby or that sometimes we have to let people die because we can’t afford to keep them alive. The Affordable Care Act reflects this ambivalence. It promotes something called Accountable Care Organizations that essentially make caregivers financially responsible for excessive healthcare costs. This makes for an appealing narrative – “Take profit out of the equation and let doctors make decisions based on medicine”. But you can’t pretend away cost as a factor in healthcare decisions. Doctors will face the same pressure to avoid expensive treatments or risk bankrupting their medical practices.

The Affordable Care Act also significantly reduces employers’ ability to control healthcare spending. Many healthcare plans had implemented annual and lifetime caps on payments for any one person as a way of limiting costs. The Affordable Care Act eliminates these caps. While this is great news for the parents of the two premature babies, and great news for the parents of all children born with tragic health challenges, it is bad news for our country. Healthcare isn’t paid for by some abstract “society” – it is paid for by all of us, as employees and tax payers. And we as a society – all of us – need to decide how much we can afford to pay to keep any one person alive, even that greatest of miracles, a newborn baby.

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