Is AARP a Business?

The organization supported Obamacare to line its own pockets, a report suggests.


From Robert Verbruggen at NRO:
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.

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.

AARP almost certainly was aware of this revenue boost when it decided to support Obamacare — and also when it supported the Children’s Health and Medicare Protection Act of 2007, which similarly would have cut Medicare Advantage to pay for other health-care programs not targeted toward the elderly. Whether the money played a role in these decisions is unknowable — the organization denies it, of course — but the situation is suspicious.

The report also provides convincing evidence that AARP overpays its executives. It relies on data from Charity Navigator, which found that among the non-profits that it surveys with expenses above $500 million a year, the median CEO compensation was $695,379 in 2008. AARP’s CEO, William Novelli, made 45 percent more, taking in over a million dollars. The next year, he made $1.6 million, more than twice the 2008 average. (Charity Navigator does not have 2009 survey data.)

AARP executives also enjoy a generous travel policy: Spouses can come along to AARP functions at the expense of the organization. Last year, a three-day conference was held at the Hotel Del Coronado in San Diego, a luxury resort where rooms cost $300‒1,400 a night.

Furthermore, there’s the question of transparency. While AARP complied with the congressmen’s request to the degree it was required to — providing “hundreds of pages of documents” — the organization withheld some information that members might be interested in. For example, AARP refused to disclose how much its Medicare Advantage deal with United is worth, and the investigators managed to find out AARP’s rate for United Medigap plans (again, 4.95 percent) only by combing through data from state insurance commissioners.

The ultimate goal here — to revoke AARP’s tax-exempt status — will be difficult to achieve, and similar efforts have failed in the past. But this report does accomplish something that’s very important: It lays bare some of the inner workings of AARP, so that potential members can see what they’re signing up for.