By Jerry Markon
As Washington debates whether to cut federal retirement programs as part of a deal to tackle the nation’s debt, one of the most powerful advocates for preserving them could have millions of dollars riding on the outcome.
AARP, the highly influential lobby for older Americans, is fiercely opposing any Medicare or Social Security cuts and emphasizes that it is fighting for the good of its members. But the proposals for changing Medicare also could affect AARP’s bottom line. AARP has long played a dual role. It advocates for the interests of seniors, and it makes money allowing its name to be used in selling them private insurance, including coverage known as Medigap, which supplements government-provided Medicare.
The group gets a 4.95 percent royalty each time someone buys Medigap insurance with the AARP brand. The Medigap insurance policies bring in hundreds of millions of dollars a year and are among an array of AARP-endorsed products that generate slightly more than half of the group’s $1.4 billion in revenue, according to tax records and people familiar with the group’s operations. But in last year’s negotiations over the federal debt ceiling, President Obama and top Republicans discussed proposals to change Medicare that could have reduced AARP’s revenue from Medigap. At the time, AARP lobbied against the proposals, congressional aides say. Now, political observers predict that those measures will be back on the table in the coming weeks as Democrats and Republicans wrangle over a deal aimed at avoiding the “fiscal cliff” of dramatic tax increases and spending cuts set to kick in at the end of the year.“There is a potential conflict of interest,” said Marilyn Moon, a former senior AARP official who runs the health-care program at the nonprofit American Institutes for Research. “Any way you look at changes in Medigap that people are talking about, I think it’s good for beneficiaries, and anybody who is opposing that who claims they are looking out for beneficiaries, you have to wonder why.”
The smaller Medigap premiums could reduce AARP’s revenue by shrinking its royalties. A report released in September by Sen. Jim DeMint (R-S.C.) estimated that the group could lose $1.8 billion over 10 years. AARP officials said they do not understand how that number was calculated and declined to comment further.
AARP executives declined to answer a reporter’s questions about the fees, but chief executive A. Barry Rand confirmed the figures in testimony last year before the House Ways and Means Committee. The Medigap market is competitive, but UnitedHealth Group, AARP’s partner, controls about 25 percent, nearly three times the share of its closest competitor, according to the House report.
Medigap is among a variety of products branded through an AARP for-profit subsidiary, ranging from insurance and restaurant discounts to credit cards. The contribution of these products to AARP’s bottom line has grown dramatically in recent years, reaching 52 percent of revenue last year, according to federal tax records.
AARP executives have a personal financial incentive to boost the group’s revenue because annual bonuses for employees are determined in part by AARP’s “gross revenues,” according to federal tax records. They show, for example, that Rand received $140,156 in “bonus and incentive compensation” last year, about 15 percent of his total compensation of $938,553.
AARP officials said that revenue accounts for only about 5 percent of the bonus calculation and that other factors, such as serving members and promoting social change, are far more important. A person familiar with the group’s operations said the percentage was higher in the recent past. “Revenues are very important. You have to make your numbers,” said the person, who spoke on the condition of anonymity to discuss internal matters.
Not a new fight
Proposals to revise Medigap were seriously discussed during 2011 negotiations between Obama and Boehner over the debt ceiling and the federal deficit, according to people familiar with the talks. A White House document, recently reported by The Washington Post’s Bob Woodward, shows that Obama’s final offer included a willingness to make a number of Medicare cuts, including “limitations” to supplemental insurance coverage such as Medigap.
Those talks collapsed, resulting in a more limited deal to raise the debt ceiling. As part of that bipartisan agreement, Congress created a “supercommittee” charged with creating a plan to rein in the debt.
Writing in October 2011 to the supercommittee, Rand argued against changes to Medicare and Medigap. “These proposals fail to take into account that people choose these policies because they provide certainty and health security — the peace of mind that even if they have a health crisis or frequent, ongoing health care needs that they will be able to manage financially,” he wrote. He did not mention AARP’s dominant role in the Medigap market.
Lobbying records show that during the same period in 2011, AARP was lobbying Congress and several federal agencies on Medigap changes, along with a variety of other “health issues.”
AARP said Medigap proposals accounted for a very small part of its lobbying effort.
“This was one paragraph in one letter among dozens of pieces of correspondence we send to Congress every year,” said Jim Dau, an AARP spokesman. “There were no phone calls, e-mails or robo-calls generated on Medigap proposals. It is not and was not a lobbying priority.’’
this article appeared on the Washington Post on 12/3/12