Special Report

The American Association for Retiree Plunder

The House Ways and Means Committee brings AARP to book for betraying its members.

By 3.30.11

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For those of us who toil in the vineyards of health care finance it has long been obvious that the American Association of Retired Persons (AARP) is, for all intents and purposes, an insurance company disguised as an advocacy group. Thus, it was something of surprise when AARP announced its support for ObamaCare in the fall of 2009. Why would a financial conglomerate so dependent on insurance-related revenue endorse a bill that promised to wreck the health insurance industry? Then, the penny dropped. One of the ways the Democrats proposed to "pay" for their health care law was by cutting the Medicare Advantage (MA) program by $200 billion. This would inevitably drive many carriers out of the MA market and herd millions of seniors back to the more expensive coverage of traditional Medicare.

How would that benefit AARP? Traditional Medicare imposes much higher deductibles and co-pays on its beneficiaries than does MA, and the vast majority of AARP's revenue derives from sales of "Medigap" policies that purport to cover those out-of-pocket expenses. In other words, the AARP endorsed a law that does real financial harm to seniors in order to reap a crop of new customers when ObamaCare guts Medicare Advantage. And it gets worse: Most of the victims of this cynical strategy will be low-income and minority seniors. According to the Centers for Medicare & Medicaid Services (CMS), nearly 60% of MA beneficiaries have annual incomes of $10,000 to $30,000. Moreover, nearly 30% of Medicare Advantage enrollees are minorities, compared to about 20% for traditional Medicare.

The unholy alliance between AARP and the Democrats on ObamaCare has not been lost on the new Republican majority in the House. Two members of the Ways and Means Committee, Rep. Wally Herger (R-CA) and Rep. Charles Boustany (R-LA) have announced a hearing to be held this Friday: "AARP is known for being the largest and most well known seniors' organization in the country. But what Americans don't know is… that the AARP brand dominates the private Medicare insurance market." As Rep. Boustany phrased it, "In light of AARP's dependence on its income from insurance products, there is good reason to question whether AARP is primarily looking out for seniors or just its own bottom line."

Indeed there is. Only about 20% of its $1.3 billion in annual revenue comes from membership dues. In other words, AARP earns nearly $1 billion per year by endorsing various products and services sold to its members. More than 65% of that tsunami of cash arrives in the coffers of this "seniors' lobby" in the form of royalty payments "for lending its name to policies sold to its members by private insurers." Thus, it seems reasonable for the members of the Ways and Means Committee to ascertain how AARP's financial interests affect its ostensible mission of "enhancing seniors' quality of life." Curiously, when Charlie Rangel (D-NY) was the Chairman of the committee, neither he nor his fellow Democrats showed any interest in such apparent conflicts of interest.

In fact, when they held the majority in the House, the Democrats were so sanguine about AARP's motives that they awarded the organization a huge grant in their infamous "porkulus" legislation. AARP received "an $18 million grant in the economic stimulus package for a job training program that has not created any jobs." More to the point, the Democrats granted AARP a long list of special dispensations from the most onerous features of ObamaCare. As Chris Jacobs of the Republican Policy Committee has noted, AARP received exemptions from the prohibition on pre-existing condition exclusions and the $500,000 cap on executive compensation for insurance industry executives.

Jacobs also points out that the Democrats exempted AARP from the tax they imposed on insurance companies in general, "even though according to its own financial statements AARP generated more money from insurance industry 'royalty fees' than it received from membership dues, grant revenues, and private contributions combined." And, although ObamaCare requires MA plans to spend 85 percent of premium revenue on medical claims, the Democrats lowered the bar for AARP's Medigap policies to a mere 65 percent. This is perhaps what the "advocacy group" was getting at when, in response to the announcement of the upcoming hearing, it posted the following statement on its website: "AARP has a long-standing and good working relationship with Congress."

AARP has also enjoyed a "good working relationship" with the "news" media. Stories about the organization almost invariably refer to AARP as "the nation's leading seniors' lobby," with no mention of its billion dollar endorsement racket. And, predictably, MSM coverage of the upcoming Ways and Means hearing portrays it as a partisan attack on a GOP enemy. The New Republic, for example, covers the story in an article subtly titled "Republicans to AARP: Payback Time." Its author implausibly claims to be unable to see "that the Affordable Care Act means better sales of AARP plans," then devotes the rest of his column to red herrings involving the U.S. Chamber of Commerce and President Bush's Medicare drug law.

But the usual progressive weapons of mass distraction won't be sufficient to obscure AARP's brazen conflicts of interest. The organization's press release says it is "committed to transparency," but it has historically resisted congressional attempts to acquire details about its multifarious insurance deals. And little wonder. If America's seniors ever figure out that AARP's endorsement of ObamaCare was a cynical strategy to bilk the elderly, the seniors' group will begin hemorrhaging members as quickly as its fellow Quisling, the AMA, has lost physicians. So, Friday's hearing should be an interesting study in evasion.

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About the Author

David Catron is a health care consultant. He has an MBA from the University of Georgia and blogs at Health Care BS.