Monday, December 3, 2012

Washington Post Front Page: AARP Lobbies Against Medicare Changes That Could Hurt Its Bottom Line

A front-page story in tomorrow’s Washington Post talks about AARP’s financial conflicts of interest in the ongoing fiscal cliff debate.  The article references Sen. DeMint’s report into AARP’s business practices, including the report’s conclusion that Medigap reform could cost AARP $1.8 billion in “royalty fees” over the next ten years.  The article also includes some interesting new nuggets regarding AARP’s business practices:

  1. Former AARP executives admitted to the Post that the organization’s business model – in which AARP receives a percentage of every Medigap premium dollar paid by seniors – presents a financial conflict-of-interest, by giving AARP an incentive to keep premiums high.  Former AARP executive Marilyn Moon said: “There is a potential conflict of interest….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.”  And former AARP CEO Bill Novelli made a similar admission: “It’s fair to say that AARP does have a financial interest in Medigap insurance because it’s a significant revenue-raiser for them.  If Medigap were somehow reduced, then AARP would have a financial reduction.”
  2. AARP executives personally profit based on how much “royalty fee” revenue the organization generates.  According to the article:

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 [CEO Barry] 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.”

  1. AARP finally admitted publicly it lobbies on Medigap issues for which it has a financial conflict-of-interest, as noted above.  Two years after a senior AARP official told CNN the organization did not lobby on Medigap “at all,” the organization finally admitted to the Post that it HAS been lobbying against Medigap changes that could cost it financially.  Now it claims that Medigap “is not and was not a lobbying priority,” and that “there were no phone calls, e-mails, or robo-calls generated on Medigap proposals” – not yet anyway.  Finally, as the Post article notes, in writing about Medigap to the supercommittee last year, CEO Barry Rand “did not mention AARP’s dominant role in the Medigap market,” and the financial conflicts inherent in AARP’s business arrangements.