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AARP: Reform advocate and insurance salesman

Seniors group makes millions from royalties on health plans

George Sichel, left, and Harold Wright talk with Morie Smile of AARP's Colorado chapter.
George Sichel, left, and Harold Wright talk with Morie Smile of AARP's Colorado chapter. (Matt Mcclain)
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Washington Post Staff Writer
Tuesday, October 27, 2009

The nation's preeminent seniors group, AARP, has put the weight of its 40 million members behind health-care reform, saying many of the proposals will lower costs and increase the quality of care for older Americans.

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But not advertised in this lobbying campaign have been the group's substantial earnings from insurance royalties and the potential benefits that could come its way from many of the reform proposals.

The group and its subsidiaries collected more than $650 million in royalties and other fees last year from the sale of insurance policies, credit cards and other products that carry the AARP name, accounting for the majority of its $1.14 billion in revenue, according to federal tax records. It does not directly sell insurance policies but lends its name to plans in exchange for a tax-exempt cut of the premiums.

The organization, formerly known as the American Association of Retired Persons, also heavily markets the policies on its Web site, in mailings to its members and through ubiquitous advertising targeted at seniors.

The group's dual role as an insurance reformer and a broker has come under increasing scrutiny in recent weeks from congressional Republicans, who accuse it of having a conflict of interest in taking sides in the fierce debate over health insurance. Three House Republicans sent a letter to AARP on Monday complaining that the group was putting its "political self-interests" ahead of seniors.

GOP lawmakers point to AARP's thriving business in marketing branded Medigap policies, which provide supplemental coverage for standard Medicare plans available to the elderly. Democratic proposals to slash reimbursements for another program, called Medicare Advantage, are widely expected to drive up demand for private Medigap policies like the ones offered by AARP, according to health-care experts, legislative aides and documents.

Republicans also question the high salaries and other perks given to some top AARP executives, who would not be subject to limits on insurance executives' pay included in the Senate Finance Committee's health reform package. Former AARP chief executive William Novelli received more than $1 million in compensation last year.

"We are witnessing a disturbing trend of handouts to special interests like AARP," said House Republican spokesman Matt Lloyd, referring to Democratic negotiations over health reform. "In return, AARP is lobbying for a government-run health-care bill that will pad their own executives' pockets at the expense of its own members and other vulnerable seniors."

AARP officials strongly dispute such allegations, arguing that the group's heavy reliance on brand royalties allows it to offer members a wide range of benefits -- from lobbying for seniors in Washington to discount travel packages and financial advice. The organization notes that even though it offers a Medicare Advantage plan, it has long advocated curbing waste in that federal program.

"We're a consumer advocacy organization; we're not an insurance firm," said David Certner, AARP's director of legislative policy. "That drives everything we do. It's got to be good for our members, or we don't endorse it."

Added AARP spokesman Jim Dau: "We spend far more time at odds with private insurers than not."

AARP's ties to the insurance business date to its founding by former educator Ethel Percy Andrus, who started a group to help retired schoolteachers find health insurance in the years before Medicare; the effort led to the creation of AARP in 1958.

Now, the group relies more than ever on payments from auto, health and life insurers, according to financial statements. From 2007 to 2008, AARP royalties from insurance plans, credit cards and other branded products shot up 31 percent -- from less than $500 million to $652 million -- making such fees the primary source of revenue for the group last year, the records show. AARP's annual financial report shows that 63 percent of that, or about $400 million, came from the nation's largest health insurance carrier, UnitedHealth Group, which underwrites four major AARP Medigap policies. Other carriers with AARP-branded plans include Aetna Life Insurance, Genworth Life Insurance and Delta Dental.

AARP is also a major powerhouse in Washington, spending more than $37 million on lobbying since January 2008. The organization's close ties with insurers have long attracted criticism from politicians of both parties.

During the health-care debate of the early 1990s, then-Sen. Alan Simpson (R-Wyo.) held hearings lambasting the group's business operations. Some Democrats criticized the group for supporting the Bush administration's expensive Medicare prescription-drug legislation in 2003.

Earlier this year, AARP and UnitedHealth said they were halting the sale of "limited benefit" health insurance policies after complaints from Sen. Charles E. Grassley (R-Iowa) that the plans were marketed in a misleading way.

Dean A. Zerbe, a former Grassley senior counsel who is now national managing director at the corporate tax firm Alliant Group, argues that AARP's involvement in the sale of insurance plans "really hurts their credibility."

"Either you're a voice for the elderly or you're an insurance company; choose one," Zerbe said. "They put themselves forward in the public arena as nonbiased observers, but they're very swayed by business interests."

Republicans renewed their attacks on AARP this year after the group emerged as a vigorous defender of many of the reforms under consideration by the Democrat-controlled Congress. Nancy LeaMond, an AARP executive vice president, appeared at a press conference Friday alongside House Speaker Nancy Pelosi (D-Calif.) to announce a new proposal for plugging gaps in coverage of Medicare prescription benefits.

Rep. Dave Reichert (R-Wash.), who has asked AARP to provide him with more details about its insurance-related businesses, said he believes the group is "misleading" its members about the alleged benefits of Democratic reforms. "Right now there's a feeling among seniors that AARP may not be entirely forthcoming," he said.

AARP launched a "fact check" section on its Web site this year to counter GOP criticisms of reform, including the discredited "death panels" claim, and argues that wringing savings out of Medicare and closing gaps in prescription coverage will help older Americans.

Several top AARP officials also said they have no idea whether the group might gain insurance business as a result of the proposed reforms. "We wouldn't know it, and we wouldn't really care," Certner said. "The advocacy is what drives what we do here, and not the other way around."



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