AARP's Hidden Agenda--Boost MediGap Insurance

AARP's Hidden Agenda--Boost MediGap Insurance

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Across the country, seniors are scratching their graying heads and wondering: what happened to my AARP?  How can an organization that champions the interests of retired people have embraced Obamacare’s huge cuts to Medicare, and now waffle on Social Security? The Wall Street Journal reported over the weekend that the AARP “is dropping its longstanding opposition to cutting Social Security benefits,” an assertion AARP officials have been scrambling to counter.

Seniors may wonder, what drives AARP? Their confusion is anything but age-related. While AARP wants to be known as an advocacy group for older people, it is first and foremost an insurance vendor. Members might be surprised that in fact their fees constitute but a small fraction of AARP’s income. In 2009, AARP took in just under $1.4 billion in revenues; membership dues contributed only $246 million of the total.

Royalties from products sold under the AARP banner – mostly health insurance—contributed $657 million. United Healthcare Corporation, AARP’s single largest insurance partner, accounted for 65 percent of royalty income, which has almost tripled since 2002. Meanwhile income from membership, has increased a respectable but smaller 32 percent even though the number of members has dropped. Advertising revenues (in their various publications) added another $113 million and grants from the federal government totaled $105 million.

Underlying the conflicts of interest presented by its commercial activities, a report released earlier this year by Republicans on the House Ways and Means Committee highlights AARP’s very profitable insurance business and claims that AARP “stands to make upwards of one billion dollars over the next ten years” as a result of provisions in Obamacare – a bill it strenuously championed. Members of the House committee want AARP’s tax-exempt status revoked; they have sent their report to the IRS which, according to a House spokesman, is in “information finding mode.”

This isn’t the first time that Congress has attacked AARP. In 1995, Republican Senator Alan Simpson held hearings on AARP’s tax-exempt status, the year after the organization agreed in a settlement with the IRS to pay roughly $135 million in back taxes. Then, as now, the commercial interests of the AARP appeared to conflict with the well being of its members. At the time, the New York Times agreed that “Mr. Simpson may have a point….The AARP’s lobbying efforts…seemed geared primarily to advancing its business interests.”

Ironically, few organizations in the United States have enjoyed as loyal and trusting a following as AARP. In a poll conducted by Harris Interactive last year, the AARP organization emerged as one of the most trusted and the second-best known in the country, after the American Red Cross. However, Harris noted that AARP had lost some of that trust in recent years, even as people viewed it as increasingly powerful.  The slide was attributed to AARP’s support of Obamacare; a Rasmussen poll conducted in 2009 reached the same conclusion.

As confidence has dropped, so have the membership rolls. Even though the bulk of the baby boom generation became eligible 15 years ago, there are fewer members today than in 2008--37 million, down from 40 million. AARP spokesman Elly Spinweber attributes most of the decline to the recession, but acknowledges that perhaps 300,000 quit over AARP’s endorsement of the healthcare bill. Now, the flap over Social Security may further alienate its core constituency.

With a regularity that some seniors might envy, people approaching their “golden years” find their mail box overflowing with invitations to join AARP. Describing their organization as “leading positive social change and delivering value to people age 50 and over through information, advocacy and service,” AARP offers its members advice and information on health and financial matters, volunteer opportunities and discounts on products as varied as movie popcorn and reading glasses.

Most especially, however, AARP offers insurance, which has come under intense scrutiny of late. As the House study reports, “under Obamacare, it is estimated that more than 7 million seniors will lose their Medicare Advantage plans, resulting in a massive migration of seniors to Medigap plans.” AARP happens to be the country’s leading provider of Medigap insurance. Not only did the provisions of Obamacare greatly enhance its business outlook, but the manner in which AARP is compensated for additional policies – receiving 4.95% of every AARP Medigap plan sold – appears to constitute commission income, which is not tax exempt. Additionally, in what some interpreted as an act of political favoritism, the Department of Health and Human Services established rate review rules that exempted Medigap providers like AARP. Consequently, Medigap providers have more flexibility to raise rates.

Not surprisingly, AARP worked hard to secure passage of Obamacare, spending $100.9 million in 2009 on “legislation and research,” up from $58.8 million in 2008. In 2009 and 2010, AARP’s lobbying bill topped $43 million and paid for 65 lobbyists. 

The organization’s power not only stems from its overflowing coffers, but also from its influence with the country’s seniors. In a presentation about government reform to Illinois’ General Assembly in 2009,  AARP’s Robert Gallo said “Our power is in our membership and our members vote. Nearly one hundred percent of them are registered to vote, and over seventy percent vote in nearly every election. Voters age fifty and older account for the largest voting population in every election.” As American University’s James Thurber has said, “AARP’s enormous clout comes from the threat that they could defeat people in Congress who don’t do what they want.” AARP’s political clout has earned it the enmity of some on the right, who see the organization as a staunch defender of big government, and of its own interests. Hence, the excitement over the perceived softening of its position on cutting Social Security benefits. For the record, CEO Barry Rand says his outfit’s stance is unchanged, and that AARP is consistent in its dedication to securing the long-term viability of the country’s premiere retirement program

The flap over Social Security, coming on the heels of the Obamacare squabble, may lead older Americans to question whether AARP policy is aligned with their interests. The House inquiry, which is ongoing, may cause some to challenge AARP’s integrity. AARP describes itself as nonpartisan and nonprofit. As they learn more about its activities, Americans may come to regard AARP as neither of those things.

Related Links:
Republicans Continue Attack on AARP for Conflict of Interest (The Fiscal Times) 
Drug Lobbying: $7 Million and Counting (The Fiscal Times)