Does AARP Have A Conflict of Interest?
(4/25/07)- AARP announced that it would become more involved in the insurance market both as a health maintenance organization to Medicare recipients and several other products to people 50 to 64 years of age.
The products for people under 65 include a managed care plan, known as a preferred provider organization, and a high-deductible insurance policy that could be used with a health savings account (HSA). The various programs will not commence until 2008, but when they do come into operation it will make AARP the largest provider of private insurance to Medicare recipients.
The organization has 38 million members making it by far-and-away the largest senior citizen organization in this country. The new Medicare product will be marketed with the UnitedHealth Group, while policies for people under 65 will carry the AARP name and will be marketed by Aetna.
AARP makes about $300 million (39% of its total income) annually from insurance royalties. (Alonso-Zaldivar, LA Times, 06/08/05). Judith A. Stein, director of the Center for Medicare Advocacy, a nonprofit group that counsels people on Medicare said: "AARP will not be perceived as a truly independent advocate on Medicare if it's making hefty profits by selling insurance products that provide Medicare coverage… AARP's role in this market could give a big boost to the privatization of Medicare.
Up till now, AARP has opposed efforts to privatize Medicare and/or Social Security. Please see our item dated 2/10/06 for the business tie in between AARP and UnitedHealth.
(2/10/06)- We at therubins can not attest to the veracity of the figures contained in the January 26th article in the Wall St. Journal written by Sarah Lueck and Vanessa Fuhrman entitled, " New Medicare Benefit Sparks an Industry Land Grab", but they sure make for interesting numbers.
As many of us well remember, AARP was quite influential in getting the Medicare Prescription Drug law passed in 2003. When the organization threw its support behind the proposed legislation the Bush administration used this endorsement to help get the law passed. Many people "burned" their AARP membership cards in protest against this approval by the organization.
The article goes on to point out the relationship that has been carved out between AARP and UnitedHealthcare, which co-market one of the 10 nationwide plans that are available for beneficiaries to join. The article goes on to state that AARP has 36 million members UnitedHealthcare won, in open competition with other insurers, a 10-year contract to sell Medigap plans to AARP members in 1998.
The article goes on to state: "In 2004, UnitedHealth collected $4.5 billion in premiums from AARP-related products. Currently nearly three million people buy the AARP/UnitedHealth Medigap plans, making the duo the biggest Medigap vendor. The AARP based drug plan has generated at least 95% of UnitedHealth's overall Medicare drug enrollments so far."
"The partnership has been lucrative for AARP, too. In 2004 AARP earned $197 million in insurance-related royalties and an additional $23 million from investment insurance premiums, in both cases mostly from Medigap. In total, 40% of the organizations $878 million in 2004 revenue came from various royalties and service provider fees. That compares to $224 million, or 26%, from membership dues.
(1/20/05)-The following is an email that we at therubins received on Sunday, January 16th. Herb Wild, the author of the email gave his approval to post the text on our site, and to use his name. We can not attest to the accuracy of what he writes. We would like to know if any other of our viewers have run into similar situations with AARP. If you have please email us. At the same time we would like to hear from any of our viewers who have had favorable dealings with AARP to tell us about these occurrences. If AARP has a rejoinder to Mr. Wild's email, we will of course print that response.
Email from Herb Wild dated Sunday January 16, 2005
I would like to inform you of an incident I had with AARP after joining and calling for an Auto Insurance quote. I am 63 years old and had held off since my first contact with AARP at age ( 25 ) " Just a little humor since my 26 year old daughter just got her first invitation to join AARP the other day ".
But back to the story ; I called the toll free number in the brochure sent by AARP for a quote and allegedly HUGE savings on my auto Insurance. I was connedted(sic) to the Hartford Insurance Company and gave the information needed. After about 15 minutes on the phone I got my quote for 3 vehicles which I was currently paying approximately $800.00 a half to insure.
The quote;
Now get this ; $ 1700.00 a Half !!!! I immediately made them aware that I was currently paying less than half this amount for the exact same coverage. To this they replied that since I was a Senior Citizen I had to be qrouped in a different category of risk. Needless to say I did not take the offer and immediately resigned myself to NOT renew my AARP membership. ( I also notified AARP of this rip-off ).
No reply was forthcoming from them.
Now for the other half of the story. " Upon renewing my auto insurance through my agent I was told that they could get my a better rate through the " Hartford " . I told them to run the numbers ( which they did ) and the quote was approximately $100.00 less than I was currently paying for Insurance through Atlanta Casualty and $900.00 less than what I was quoted from an AARP authorized company that was suppose to save me mucho dinaro's ! Namely " The Hartford ".
I would caution anyone even thinking about joining AARP with the thought of massive savings because of their age and Senior title . In my opinion ( and everyone has one ) I would not join AARP and would actively advise anyone thinking of doing so to do their homework before spending a dime with this Organization.
Thanks
Herb Wild
(3/16/04)-In a letter to 16 major drug companies, AARP called on them to limit price increases for drugs to a pace that should not exceed the Consumer Price Index (CPI). The CPI is the basis for the annual increases in Social Security benefits. At the same time John C. Rother, policy director of AARP, said the organization had begun to monitor price changes for about 200 commonly prescribed drugs. AARP said it would periodically publicize its findings.
William D. Novelli, chief executive of AARP said that drug manufacturers should also "constrain the prices of new drugs". He also called on the manufacturers of drugs to use their influence to prevent undue markups throughout the distribution chain. We at therubins feel that this is a positive step that AARP is taking towards remedying all the unfavorable publicity that the organization has garnered lately in connection with the enactment of the prescription drug bill.
In fairness to AARP we have extracted some of the comments that appeared in their magazine which is distributed to all members entitled: "Conflict of Interest? AARP Could Lose Revenue Under New Drug Benefit in Medicare." The article stated: "AARP could be hurt financially rather than helped by the new law"." We could actually lose revenue when this legislation goes into effect, because fewer people will need medigap health policies and drug discounts that AARP makes available to members, says John Rother, AARP's director of policy."…."He also rejects accusations that AARP accepted contributions from drug companies and HMOs."
"AARP received royalties of $107 million from these endorsed providers last year, according to its annual report….AARP Services Inc. (ASI), the for-profit subsidiary that manages endorsed product and services, has a separate and independent stand and board of directors. From our perspective we do not interfere in AARP's public policy positions, says ASI president Dawn Sweeney, even if they do away with the need for AARP products."
AARP is the official name for the organization that we always knew as the American Association of Retired People. The new name became effective January 1,2000. AARP was founded in 1958, and was originally founded for individuals over 55 years of age. The age for eligibility was lowered to 50 in 1984. At last count it has 33 million members and the organization states that "more than a third" of the members are in the work force. Furthermore the organization stated that "We decided we needed a name that reflects the full diversity of our membership".
The organization and the IRS have settled a long pending tax dispute over AARP's tax-exempt status. Under the terms of the settlement AARP created a taxable subsidiary, AARP Services, Inc. to handle all of the income generating business for the organization. There are many critics of AARP who allege that because of the large amount of business generated by their insurance division a conflict of interest arises within the organization. The annual membership fee for AARP is now $ 12.50.
About 25% of their operating income of $635.8 million comes from the sale of activities related to its health insurance business. Can AARP be truly representative of its members in such issues as prescription drug coverage for Medicare beneficiaries when a good portion of its income is derived from the sale of health insurance? According to Steve Hahn, a spokesman for AARP, the main source of this income was royalties on Medicare supplement policies, and mail order drug sales. UnitedHealth Group, the nation's largest health insurance company, markets both of these under the AARP banner. AARP may set up a discount drug program card membership club, if Congress adopts this provision of the pending proposals.
The tax question goes back to a dispute between the IRS and AARP from the early eighties over the matter of business income generated by the then fully tax exempt organization. AARP paid the IRS $135 million to resolve the matter for the period of time from 1985-1993. AARP has paid in $15 million a year since 1994 "in lieu of taxes" pending resolution of the dispute. In settling the matter it was agreed that $23 million of the $75 million paid in, would be refunded to AARP. In furtherance of the settlement the taxable subsidiary AARP Services Inc. was set up. It is headed by Steve Zaleznick, who was the association's general counsel from 1990 to 1997.
Under the terms of the settlement anyone using the association's logo in marketing their services or products would pay a royalty to the association which would be tax exempt. All other business related income would be taxable. Incidentally the association does sell its mailing list of members for a fee.
The question still remains however in that we feel that an organization that has a business interest in selling a product and making a profit to senior citizens may have a conflict of interest in supposedly defending the rights of these same seniors. What do you think?
FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "Selecting a Nursing Home"
By Allan Rubin
Updated April 25, 2007
To e-mail: hrubin12@nyc.rr.com or rubin@brainlink.com