AOL’s Tim Armstrong Violated Decency, Not Employee Privacy Protections

Armstrong Photograph by Daniel Acker/Bloomberg

Even reading the words can’t help but induce a wince: “We had two AOL-ers that had distressed babies that were born that we paid a million dollars each,” AOL Chief Executive Officer Tim Armstrong told employees last week, citing the cost of their care as part of the company’s justification for making unfavorable changes to other benefits. It was a disclosure that stung Deanna Fei, the mother of one of the babies in question and wife of an AOL employee, who published an essay over the weekend excoriating Armstrong. But lurking behind the foot-in-mouth firestorm are uncomfortable questions: Do corporate executives routinely keep tabs on the costly health care of individual employees? Is it even legal to share private details about unnamed workers?

“It may have been in poor taste, but I don’t know that it was necessarily a violation of anything,” says Douglass Farnsworth, an attorney at Trenam Kemker and vice chairman of the American Bar Association’s group specializing in employee benefits. That view was echoed by Deborah Peel, founder of the nonprofit group Patient Privacy Rights.

Under the Health Insurance Portability and Accountability Act (HIPAA), a small number of a company’s human resources employees can see individual-level data of health claims. But Farnsworth says those employees can only use the information to administer the health plan and must be formally designated and trained for such purposes. Outside the designated group, other company officials can see higher-level data only if it’s been scrubbed of at least 18 specific factors that could potentially identify individuals.

After the information is anonymized, it no longer has HIPAA protection. The company—and its CEO—can do with it what they please, even if trotting it out in an all-staff conference call proves insensitive or unwise.

Even at a company as large as AOL, two anonymous examples of emotionally wrenching care for newborns quickly became identifiable among co-workers. “Within minutes of Armstrong’s utterance,” Fei wrote in her essay, “my husband began fielding questions from colleagues: Wasn’t the CEO talking about his baby?” From a legal perspective, however, this shows that the husband’s co-workers already knew about his premature baby. For employees who didn’t know, nothing Armstrong said would have revealed his identity.

Assuming the disclosure was legal, it raises the question of why Armstrong, the leader of a multibillion-dollar company, would even know that level of detail about two employees in the first place? That’s probably because AOL, like most big employers, largely self-insures. According to the company’s employee benefits website, last year it offered health plans through two networks: Cigna and Kaiser Permanente (and only Cigna operates in New York, where Fei lives). AOL self-insures the Cigna plans, which means the company directly plays for all of the costs its employees accrue.

Farnsworth says the CEO of the large company where he previously worked would sometimes get deeply involved in reviewing health expenses, asking for numbers and seeking ways to slow the annual rise in spending. “If you are spending $100 million on claims each year, and 2 percent of that is coming from two claims, it’s good to know,” the attorney says.

While the costs of premature births are hard to predict, some expensive health problems are more preventable. According to Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, employers regularly use data to evaluate their plans, from the costs of hospital visits to how much they spend on asthma medication. Fronstin cites the example of Pitney Bowes, which in the early 2000s reduced how much it made its employees pay for dialysis medication. The change made workers more likely to stick to their preventive regime, which led to lower hospital and emergency costs and an overall savings of 6 percent per dialysis patient.

At the end of the day, bottom-line costs are the employer’s to deal with. Reinsurance policies might offer reimbursement in extreme cases, but Farnsworth says the larger companies often don’t seek coverage: “The premium for the reinsurance is high, so you might as well bank the money and just plan to have two or three catastrophic, million-dollar claims a year.” As he puts it, the occasional large payouts are “just the cost of self-insuring health care.”

And the cost of using “distressed babies” to justify unpopular changes in compensation? The backlash continues, as Fei went on television on Monday to discuss her family’s situation. Armstrong apologized and backtracked on the benefits change, and the overall impression left by the crisis isn’t favorable for AOL. But while the court of public opinion has judged swiftly in this case, Armstrong’s callous comments didn’t break privacy laws.

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