AARP Conflicts Alleged in GOP Attack

Report claims seniors’ group puts insurance before member interests and seeks IRS review of its nonprofit status.

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AARP, the 37-million-member voice of older Americans, is being hammered by Republican members of the House Ways and Means Committee. In a report, "Behind the Veil: The AARP America Doesn't Know," Reps. Wally Herger of California, Charles Boustany of Louisiana, and Dave Reichert of Washington claim the organization has become a billion-dollar, for-profit entity whose lobbying efforts have placed its insurance interests above those of its public members.

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As such, the report calls upon the IRS to investigate whether AARP should retain its nonprofit status, which exempts nearly all of its operations from federal income taxes.

AARP denies that it has placed commercial interests above concerns for its members. It characterizes the report as old news that has been warmed over and distorted to attack the group and the national health reform law, which it strongly supported. Democratic House Ways and Means members said the report was a "witch hunt" to punish health reform supporters and to weaken opposition to Republican efforts to privatize Medicare and Social Security.

The growth of AARP's insurance business, particularly royalties from AARP-branded health insurance policies sold to Medicare recipients, has been occurring for many years. Working with UnitedHealth Group and other selected insurers, AARP has endorsed certain policies and branded them with the AARP name. It says it does not engage in insurance underwriting activities or employ insurance agents.

"Since 2002, income generated from AARP membership dues has increased 32 percent, or $60 million," the report says. "However, during this same period, income derived from AARP's business relationships, primarily with insurance companies, nearly tripled, increasing by $417 million. Royalty payments from for-profit companies comprised nearly 46 percent of AARP's revenue in 2009, while membership dues totaled just 17 percent of total revenues." AARP says this trend reflects its conscious effort to hold down member dues.

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"United is AARP's largest business partner," the report adds. "As part of the United and AARP business agreement, all three of the Medicare insurance product lines are marketed under the AARP brand name. From 2007 to 2009, United's royalty payments to AARP have grown from $284 million in 2007 to $427 million in 2009, a 50 percent increase."

AARP, in line with similar nonprofits, does not pay taxes on royalty revenues. In 2009, very little of its $1.4 billion in revenues was taxable income. Spokesman Drew Nannis said the organization paid about $14 million in income taxes that year, and that this was comparable to the percentages of revenue that were taxable at other nonprofits.

In supporting health reform, the report claims that AARP was also advocating for cuts in Medicare services that would hurt its members but enhance its insurance business interests. AARP denies this and notes many occasions when it strongly opposed insurance industry positions that it did not feel were in the best interests of its members.

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Specifically, the report says, the law cuts funding for Medicare Advantage policies and is likely to spur seniors to seek other insurance that supplements Medicare. These policies, known as Medigap coverage, are sold by UnitedHealth under the AARP brand. "AARP's financial gain from the health care law could exceed $1 billion during the next 10 years," the report claimed. AARP said it does not know if its branded health policies will benefit from the health reform law.

"The information contained in this report uncovers and confirms a pattern of AARP putting profits before the interests of the older Americans they are supposed to represent," Reichert said in a statement accompanying the report. "It's clear AARP appears to be operating much more like a big insurance company than a nonprofit seniors' advocacy group."

"Now that the information gathering phase has concluded, we are turning over this report to the IRS." Boustany said in the statement. "The IRS is best equipped to handle further investigation, and if it is determined AARP has abused its tax-exempt status, it will be up to the IRS to determine whether or not that privileged status ought to be revoked."

Twitter: @PhilMoeller