AARP to make $10B from ObamaCare Push

Posted on March 30, 2011


House Republicans seek IRS probe of AARP

AARP lobbied for the new health care law and now it stands to profit, Republican lawmakers charged Wednesday as they called for the IRS to investigate whether the powerful interest group deserves to keep its federal tax exemption.

Three veteran GOP representatives released a report that estimates the seniors lobby could make an additional $1 billion over 10 years on health insurance plans whose sales are expected to pick up under the new law. They also questioned seven-figure compensation for some AARP executives.

“Based on the available evidence, substantial questions remain about whether AARP should maintain its tax-exempt status,” said the report, released by Reps. Wally Herger of California, Charles Boustany of Louisiana and Dave Reichert of Washington.

AARP said profit had nothing to do with its support for President Barack Obama’s health care overhaul, which expands coverage to nearly all Americans, a goal that the organization has long pursued.

“Our decision to support health care reform was in no way, shape or form influenced by revenue considerations,” said spokesman Jim Dau. Polls show that seniors are more likely to oppose the new law than younger people, partly because the coverage for the uninsured will be financed by slowing the growth of Medicare spending.

The three Republican lawmakers are members of the influential Ways and Means Committee, which writes tax law. Boustany chairs the oversight subcommittee, and Herger is in charge of the health panel responsible for Medicare.

“We believe AARP operates in direct opposition to their senior membership,” Herger said at a Capitol Hill press conference.

The dual nature of AARP has raised questions before.

The business side of the organization runs money-making enterprises. The most lucrative involves “branding” a series of health insurance plans for seniors and older adults with the AARP name, akin to the Good Housekeeping seal of approval.

The public policy side is a civic organization that acts as a watchdog over Social Security and Medicare, representing the interests of some 40 million members and consumers generally. Boards overseeing the business branch and the tax-exempt social policy side have overlapping directors.

Royalties from licensing the use of AARP’s name earned $657 million for the organization in 2009, or 46 percent of its total revenue, according to publicly available records. Health insurance plans with the AARP brand accounted for most of that.

In the past, AARP angered Democrats when it supported former President George W. Bush in creating a Medicare prescription drug benefit offered through private insurers rather than through the government. After the program was launched, the plan sponsored by AARP became the most popular in the nation.

Now it is Republicans who are raising questions. The lawmakers’ report, 18 months in the making, looked extensively at publicly available federal and state records on AARP’s business dealings. An IRS specialist on tax-exempt organizations was brought in to assist with the research and help interpret results. The lawmakers say AARP refused to provide some documentation they were seeking.

The report found that insurance sales are AARP’s single largest source of revenue. AARP-brand offerings are the market leaders for Medicare prescription coverage, private Medicare Advantage insurance plans, and Medigap coverage that fills in benefit gaps for people with traditional Medicare.

UnitedHealthcare, which operates the AARP plans, paid the organization $427 million in 2009, according to the report.

The report said an important difference in how AARP makes money on the various insurance plans creates an opportunity for profit from the health care overhaul.

AARP gets a flat rate for the use of its name on prescription drug plans and Medicare Advantage plans.

However, it receives a per-member fee for every Medigap enrollee, 4.95 percent of the premium. AARP collects the full premium directly before remitting United’s share. That allows it to invest the money and earn interest. It also requires that seniors purchasing an AARP Medigap plan become dues-paying members of the organization. The arrangement is potentially more lucrative than a flat rate.

That’s where the new health care law comes in, the report said.

Medicare Advantage membership is projected to decline under the law because of cuts in federal payments to the private insurers, who were previously receiving more, on average, than it cost the government to provide care for seniors in traditional Medicare.

That would create a bigger demand for Medigap insurance, as seniors returning to traditional Medicare look for protection from its coverage gaps. And AARP sponsors the largest Medigap plan.

The report says AARP could stand to make a “windfall,” conservatively estimated at $1 billion over ten years. That estimate, however, comes with several assumptions which may or may not pan out.