The whole point of insurance is that a middle-class family can afford to pay $12,000 or $18,000 in premiums per year, but they can't easily afford a $1M black swan medical event. So the insurance company spreads the risk out over a large pool. The system breaks down, of course, if the pool is too small. A company with 10 employees probably can't absorb a $1M expense either. But AOL has 5,600 employees and it had $1.05B in net income in 2012. They can afford it to cover expenses, even if they decide to self-insure.
Of course, another solution is to make the risk pool as big as humanly possible and to get employers out of the insurance business completely, so that no startup needs to worry about medical expenses. The AMA is a messy political compromise to do exactly that. But Tim Armstrong is also upset about the AMA. So I'm not quite sure what his ideal outcome is here.