A major player in health insurance is resisting a bipartisan Medicare bill that would hurt the company's bottom line. That's to be expected. Here's the odd part: The insurance giant is AARP.
AARP, formerly the American Association of Retired Persons, is most famous for its $16-a-year membership card that gets you discounts everywhere from the movie theater to the pharmacy. In Washington, AARP is known as the powerful seniors lobby — the organization has reported just under $200 million in lobbying expenses over the past 10 years.
But as AARP flexes its muscle on the current Medicare bill, it's worth recounting AARP's less public but more lucrative side: its insurance business. AARP officials insist that their lobbying agenda is solely in the interest of seniors, and not at all tied to its insurance business. Indeed, they point to past legislative fights where AARP opposed policies that could have helped its insurance business.
AARP boasts 38 million members, but that's not where the group's bread is buttered. Membership dues make up less than 20 percent of the group's revenues. About half of the money AARP pulls in, according to its tax filings, is through "royalties" it gains by allowing its name and logo to be used in marketing other companies' products. AARP's royalties revenue was more than $650 million in 2009.
The biggest chunk of this royalty income comes from Medicare products, most importantly the so-called Medigap insurance plans. AARP Medigap insurance, a United Healthcare product, covers the costs that Medicare doesn't cover, such as co-pays and deductibles. By buying a Medigap plan, a senior citizen can eliminate all out-of-pocket health-care expenses. This is called "first-dollar coverage."
That's problematic for health care reformers. Reform proposals from the Left and Right have aimed at "bending the cost curve," that is, slowing the increase of total spending on health-care by both government and the private sector.
One part of this struggle is to reduce unnecessary medical usage. When people are using doctors, hospitals, MRI machines, and prescription drugs more than they need to, this drives up the costs of all these things for everyone.
Many reformers say first-dollar coverage, by making patients completely price-insensitive, adds to health care over-utilization. That's why the Medicare bill currently before Congress would prohibit Medigap plans from offering first-dollar coverage starting in 2020. Proponents hope that reintroducing deductibles and copays for seniors will make them more discerning health care shoppers, driving down prices and reducing over-utilization.
Unable to offer first-dollar coverage, AARP Medigap plans would have to reduce their premiums. It's also possible that fewer plans would be sold.
AARP is lobbying against many provisions in the Medicare bill, including the Medigap provision. In a letter to Congress, AARP wrote that "46 percent of all [Medigap] policy holders had incomes of $30,000 or less. Asking these Americans to pay more for Medigap policies...amounts to a tax on seniors."
AARP officials say insurance revenues "don't even factor into the decision-making process....Our central mission drives every bit of our advocacy."
They point out that in past legislative battles, AARP opposed policies that could have enriched its insurance business. For instance, AARP opposes Paul Ryan's idea of "Medicare Premium Support" (sometimes called a voucher) even though that would boost the private Medicare business. They say premium support would be a bad deal for seniors, and so would new Medigap rules.
But the conflicts of interest are clear. The House Ways & Means Committee issued a report in 2011 studying "AARP The Insurance Company." They found that the board of directors for AARP Insurance Plan was entirely drawn from AARP's board. The Ways & Means report also quoted Marilyn Moon, a former AARP executive, saying: "The new arrangements with insurance companies create a tremendous number of potential conflicts for AARP, which is a powerhouse...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 came under this same type of criticism during the debate over Obamacare, because the law's cuts to Medicare Advantage were seen as raising costs for seniors while driving more people to Medigap products.
AARP's arguments on the Medicare bill ought to be considered on their merits. But powerful groups like AARP don't win arguments simply through pure logical force – they also leverage the authority of their name.
And whenever a group makes an argument that relies on authority, it's worth recalling how they pay their bills.Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at firstname.lastname@example.org. His column appears Sunday and Wednesday on washingtonexaminer.com.