Last week, two Republican congressmen issued a report about AARP — the organization formerly known as the American Association of Retired Persons. The document questions AARP’s tax-exempt status, and in the process provides a slew of important information.
The issue of tax exemption is a thorny one — as the congressmen note, the IRS would need to conduct a full audit to sort out the group’s finances. But one thing is clear: Seniors should take the report into account before joining AARP.
Sure, everyday retirees might not care much about whether AARP’s various subdivisions have transferred money amongst themselves improperly, or whether their boards overlap to a suspicious degree. They might even be thrilled that AARP has managed to increase its revenue by slapping its name on insurance products, rather than by increasing dues or hounding members for donations. But they most certainly should be concerned about how AARP benefited when Obamacare gutted Medicare Advantage, about how much AARP is paying its executives, and about how AARP refused to fully cooperate with the committee’s investigators.
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During the recent health-care debate, AARP threw its full weight behind Obamacare. This confused many observers: One of the ways the health-care law (supposedly) paid for itself was by cutting Medicare, and in particular Medicare Advantage, a program that is popular with seniors. (About 25 percent of Medicare beneficiaries get Medicare Advantage plans.) Obamacare’s benefits to seniors, meanwhile, didn’t add up to much — those over 65 are already covered by Medicare, so they could not benefit from the law’s biggest selling point, which was that it helped the uninsured. AARP’s own fact sheets played up the benefits for the half of its membership that falls between the ages of 50 and 65 — such as the ban on discrimination against those with preexisting conditions — and selectively touted improvements to Medicare.
Some on the right suggested that AARP, while claiming to be nonpartisan, was acting as a Democratic-party operative. The report suggests a simpler explanation: AARP supported Obamacare, and specifically the cuts to Medicare Advantage, to line its own pockets. This was possible because of the endorsement deals it has with the insurance company UnitedHealthcare.
Bear in mind that AARP’s insurance-endorsement deals have become much more lucrative of late. The group’s royalties — of which United accounts for two-thirds — almost tripled between 2002 and 2009, and they are now two-and-a-half times its revenues from membership dues. Meanwhile, independent analyses make it clear that AARP is not picky about its endorsements: AARP plans are typically no better than other, similarly priced plans.
United and AARP have separate deals for Medicare Advantage plans (which replace, and offer more benefits than, standard Medicare coverage) and “Medigap” plans (which supplement standard Medicare coverage). For Medicare Advantage, United pays AARP a flat fee for the use of its name. For Medigap, United pays AARP 4.95 percent of the premiums. As a result, AARP doesn’t lose money when people leave its Medicare Advantage plans — but it gains money when people join its Medigap plans.
Enrollment in Medicare Advantage is expected to fall by 4.9 million in 2014, when the changes go into effect. If we assume that 50 percent of these folks will get Medigap plans, and if we assume that 34 percent of those folks will choose AARP plans (in keeping with AARP’s current market share), that’s $111 million in AARP’s pocket. If we assume instead that 25 or 75 percent of MA refugees will turn to Medigap, AARP’s gain is $55 million or $166 million respectively.
The report mentions that the Medicare Advantage deal expires after 2014, but unfortunately, it fails to mention the obvious consequence: When AARP and United renegotiate, the deal will be far less valuable, because there will be less money to be made in Medicare Advantage. After 2014, this will at least partially balance out the extra money AARP will pull in from Medigap — and therefore, the report probably exaggerates when it claims that AARP could net a billion dollars over ten years. But even if it arrives only once, $111 million is not pocket change, even for an organization of AARP’s size. AARP rakes in about a billion dollars a year, making this something like a 10 percent revenue increase for 2014.
Yes! I was saying this months ago... But there is no need for a study or a report to figure this out. You only had to be watching TV in the weeks leading up to Obamacare to figure out the quid pro quo. One minute, the evening news was cheering for Obamacare and noting the support of the AARP, the next minute those leeches were hawking their insurance products during a commerical break.
Of course AARP is a business. They have been an insurance agent since their beginning. Anyone who pays their fees, relies on their advice, or trusts their endorsements is a fool.
They're worse than a business--they're the equivalent of a network marketing business in that you pay a "membership fee" in order to then be eligible to be SOLD the company's products at even greater fees and prices. The "privilege" of membership gets you the right to be pitched to and profited from.
So AARP receives 4.95% of the premium dollars for every United policy sold? In insurance industry that's called a commission. AARP's endorsement of the United product and the fact that it receives commissions from the sale of United policies means that,in reality, AARP is an insurance broker.
Like I commented on another site, AARP has subsidiaries. You need to contextualize that they have a tax-paying business part. So the problem truely comes down to corporations that partition themselves to use the tax-exempt to benefit the tax-paying business side. It's similar to how the Unions have set up themselves with membership and then offering services to those members and being politically active, and I'm sure other companies as well would fit the bill.
I commented on this for another article, but the AARP riles me so much I have repeat myself.
I'm a recently retired hospital CFO. One of the things I did during my career was organize our hospital and its associated medical staff to contract for Medicare services under the Plus Choice program, precursor to Advantage.
At its peak, we were providing care to some 60% of the Medicare beneficiaries in our service area and everyone was winning. The beneficiaries, because the plan's premium was far lower than that for similar coverage under Medicare supplements had they been in traditional Medicare, the hospital and doctors, because our compensation, per capita, was higher than those we served in traditional Medicare and the gov't, because they funded the program at 95% of the per capita cost of the fee for service alternative. (These payments were appropriate age and health-risk adjusted.)
This sounds to good to be true, right? It nevertheless was, because our system washed out the unnecessary testing and procedures that are rampant in the fee for service system. We elected to take the financial risk locally, accepting a fixed per capita payment from the several private insurance companies that marketed the program. We put the doctors in charge of paying themselves. Now I have the absolutely greatest respect for physicians, but to think that their actions are not influenced by financial considerations is naive, to say the least. When payment is received from Medicare, an unnecessary lab test or marginally useful MRI is no big deal; when you're explaining to your fellow physicians why THEY should take money out of THEIR pockets to pay you, it's an entirely different manner.
Well, there was one loser in all of this -- AARP, which wasn't in the Plus Choice game. Next thing you know, the payment rates for this program are falling, never mind that they were already saving Medicare money. And what do you know, they fell to the point that the program wasn't financially viable -- fee for service paid more.
I hold the despicable rent-seekers at AARP and their toadies in congress, who value power and contributions above all else responsible.
I'd take the trouble to pull up AARP's latest 990 and see what they're compensating their executives, but I have the feeling I'd have a hard time holding down breakfast.
Thanks. Rant over. Feel better.
PS - does NRO's verification system screen out the color blind as well as the target bots?
ARegularGuy -- From the time postings, I assume you didn't read mine before you wrote yours. I hope you can understand that there's a world of difference between being pro free market and pro business. If you don't think my post illustrates the difference you're missing the point.
If you need further education on this, just listen to one of the many ready available videos by Milton Friedman on the distinction.
@Jim McSweeney - excellent post, very informative.
The component driving this crooked system is primarily the private health insurance industry. Get rid of them altogether as they add no value to health care.
If you talk solely about costs alone, you can't help but think that a single-payer system will be much, much cheaper to run AND guarantee universal coverage. That's right, fully government run health care. It works everywhere else in the world, despite the anecdotal arguments that suggest otherwise.
Jim McSweeney: yes, it was a timing issue with our postings. I'm very familiar with Milton Friedman and the Chicago School of old. I say this respectfully, that Friedman was proven wrong everywhere in the world his free enterprise approaches were enacted.
There is just too much empirical data out there to suggest Friedman's ideas were ever vindicated. I can think of the Pinochet regime for starters.
ARegularGuy - Thanks for keeping this respectful. I guess I just see things differently with regard to Friedman. Maybe that's because I had the pleasure of meeting him when I was in grad school at U of C. A bigger mensch I have never run across.
Anyway, with equal respect, I think you citing of the Pinochet episode, of all things, was unfortunate (with regard to your position). There are any number of articles on this, but I picked a short one from the Atlantic because as far as I can tell, it's neither hard right or left
With respect to single payer, first let me say that as someone who spent 20 years negotiating rates with insurance companies I doubt there are many people who dislike them as much as I. Having said that, I fear a single payer system even more.
First let's address the frequently cited differential in admin costs. 3% for Medicare and 20% for private insurance, right? But these percentages are denominated on the cost of care and the average cost of care for a Medicare beneficiary is 4 to 5 times that of the younger cohort that the private insurance companies deal with. Why does that make a difference? Because the insurance function is largely a fixed cost business. So if you measure on a per capita basis the comparison is essentially equal.
Beyond that, I'm not sure you fully took in what I wrote. Our Medicare Plus business involved an insurance company and their cut for admin and still managed to generate a larger margin than our fee-for-service Medicare business, despite being funded at a 5% lower rate. That 10%+ difference (our greater margin plus Medicare's lower funding) was generated entirely by running fewer procedures. As our group received the second highest quality scoring in the State (combination of customer satisfaction and direct health measurements) I can only assume that procedures we managed to eliminate were unnecessary in the first place. Those are the 'hidden admin' costs of a single payer. And as much as I despise them, there is no comparison in how much better a job insurance companies do in this regard than Medicare or Medicaid, the single payers with which I am familiar.
And none of this addresses outright fraud, which is much more prevalent in areas which are more 'target rich' than the northern California community where I worked, for the simple reason that the Medicare payment rates there are much lower, relative to the cost of care, than in areas such as Miami, where fraud is rampant.
Finally, there's an enormous but hidden tax in the system, which you rarely read about. Because Medicare paid our hospital below our average cost (as is the case for the vast majority of hospitals) we had to make it up on the private insurance side. That cross subsidy gets reflected in higher premiums and is a tax by any other name.
And don't forget that a single payer, run by the government, will get captured by providers who can afford the best lobbyists. That's why, in California, Medi-Cal pays for a number of questionable treatment modalities at the same time beneficiaries have a dickens of a time finding an orthopedist to follow up on their broker arm.
Not to say the system doesn't need fixing, because it does. But I'd start by allowing insurance sales across state lines, eliminating the distortion caused by allowing insurance to be acquired with pre-tax dollars and allowing true catastrophic-only coverage by not allowing the state insurance department to mandate every coverage under the sun before I'd put all my eggs in the single payer basket.
BTW, if you don't hear anything further from me, it's because I've got more important things to do now -- go visit my very pregnant daughter.
Of course AARP is a for-profit organization. It conceals this status by distributing profits, not as dividends to stockholders (of which it has none), but as compensation to its top executives. Here's a good question: Does AARP make any contributions to charitable or philanthropic causes? Answer: None of which I am aware. AARP is no more a non-profit than GE is and it pays the same in income taxes as GE -$0.00.
Jim McSweeney: so much superb detail, thanks for enlightening me (and everyone else on this thread). I too am constrained by my daughters as I'm headed out to their high school softball game. Congrats on your daughter and grandchild too!
I have a few questions but I won't be able to get them in until this evening if I'm lucky. Thanks again for taking the time, you've written some extremely thoughtful and fascinating information.
Once upon a time AARP was content to destroy the future of their children and grandchildren by using their political clout to keep Social Security on the status quo road to insolvency. Now they have moved on to destroying the future of their own members, because Medicare will go under even sooner than SS.
In a sane world AARP would be among the strongest supporters of the Ryan budget, because it would protect benefits for those at or near retirement. Without it (or something very much like it)their younger members will be left holding the bag when the system implodes. The leadership knows this, of course, but keeping silent about it ensures that they will have influence within the Democratic party and inflated paychecks from their sweetheart deals with the Evil Insurance Industry. Wealth and power for themselves vs. the interests of their members: not much of a dilemna.
All you baby boomers who are returning those AARP applications you got in the mail, enjoy that 10% hotel discount, because it is really going to cost you a few years down the road.
Follow the money! The AARP cares about its members like like the dentist who starts by innocently giving his young patients a lollypop when leaving his office. Soon, realizing how much they like candy, he opens a candy store next door. Eventually, the candy store's revenues dwarf his fees as a dentist. Even his now relatively paltry take as a dentist takes an upswing as numerous cavities ensue. Does he care about the children any longer? No, it's all about the candy, ugh, I mean money. Same with the AARP. Its members are only a means to an end, i.e.,the economic and political goals of its management and friends.
