How the AARP Made $2.8 Billion By Supporting Obamacare's Cuts to Medicare
As you know if you’ve been reading this blog, Obamacare cuts $716 billion from Medicare in order to pay for its $1.9 trillion expansion of coverage to low-income Americans. It’s one of the reasons why seniors are more opposed to the new health law than any other age group. So why is it that the group that purports to speak for seniors, the American Association of Retired Persons, so strongly supports a law that most seniors oppose? According to an explosive new report from Sen. Jim DeMint (R., S.C.), it’s because those very same Medicare cuts will give the AARP a windfall of $1 billion in insurance profits, and preserve another $1.8 billion that AARP already generates from its business interests.
(DISCLOSURE: I am an outside adviser to the Romney campaign on health-care issues. The opinions contained herein are mine alone, and do not necessarily correspond to those of the campaign.)
Here’s how it works. AARP isn’t your every-day citizens’ advocacy group. The AARP is also one of the largest private health insurers in America. In 2011, the AARP generated $458 million in royalty fees from so-called “Medigap” plans, nearly twice the $266 million the lobby receives in membership dues.
Medigap plans are private insurance plans that seniors buy to cover the things that traditional, government-run Medicare doesn’t, like catastrophic coverage. Medigap plans also help seniors eliminate the co-pays and deductibles that are designed to restrain wasteful Medicare spending.
AARP blocked Medigap reforms, saving the group $1.8 billion
Adding catastrophic coverage to Medicare, while restraining the ability of Medigap plans to waste money, is a key to Medicare reform, one that has been a big part of bipartisan plans in the past. According to the Kaiser Family Foundation, the Medigap reforms that AARP blocked would have saved the average senior as much as $415 in premiums per year.
But the AARP aggressively, and successfully, lobbied to keep Medigap reforms out of Obamacare, because AARP receives a 4.95 percent royalty on every dollar that seniors spend on its Medigap plans. Reform, DeMint estimates, would have cost AARP $1.8 billion over ten years.
Cuts to Medicare Advantage could earn AARP over $1 billion
Not only did AARP succeed in getting Democrats to balk at Medigap reform. Obamacare’s cuts to Medicare Advantage will drive many seniors out of that program, and into traditional government-run Medicare, which will increase the number of people who need Medigap insurance.
That means more royalty profits for the AARP. Reps. Wally Herger (R., Calif.) and Dave Reichert (R., Wash.) estimated that the change “could result in a windfall for AARP that exceeds over $1 billion during the next ten years.”
AARP Medigap plans exempted from Obamacare’s insurance mandates
It gets worse. AARP Medigap plans are exempted from most of Obamacare’s best-known insurance mandates. AARP Medigap plans are exempted from the ban that requires insurers to take all comers, regardless of pre-existing conditions. The plans are exempted from the $500,000 cap on insurance industry executive compensation; top AARP executives currently make more than $1 million. AARP plans are exempt from the premium tax levied on other private insurers. IPAB, Medicare’s rationing board, is explicitly barred from altering Medicare’s cost-sharing provisions, provisions that govern the existence of Medigap plans.
And AARP Medigap plans are allowed to have twice the administrative costs that other private insurers are allowed under Obamacare’s medical loss ratio regulations. This last point is key, because AARP’s 4.95 percent royalty is a significant administrative cost.
Democrats routinely excoriate private insurers for supposedly putting profits above people. “No American should ever spend their golden years at the mercy of insurance companies,” President Obama told the AARP yesterday. But the typical private insurer gets by on a profit margin of about 5 to 6 percent. AARP’s 4.95 percent royalty, on the other hand, doesn’t do anything to make a health plan operate more smoothly: it’s just pure profit for AARP.
Publicly, the AARP poses as an independent, non-partisan organization. But privately, the organization strongly favored Obamacare. “We will try to keep a little space between us,” one senior AARP executive told the White House in November 2009, according to records unearthed by DeMint. “[Our] polling shows we are more influential when we are seen as independent, so we want to reinforce that positioning…The larger issue is how best to serve the cause” of Obamacare.
Kim Strassel at the Wall Street Journal goes through 71 pages of emails uncovered by the House Energy and Commerce Committee, which “show an AARP leadership…that from the start worked to pass Obamacare, before crucial details pertaining to seniors had been addressed.” AARP had “long lambasted cuts in fees to Medicare doctors,” she notes, but the lobby reversed itself for Obamacare, claiming that Obamacare’s provider cuts were just fine.
AARP has a multibillion-dollar ‘conflict of interest’
This week, the AARP hosted a convention in New Orleans, at which President Obama and Paul Ryan spoke about Obamacare and Medicare. When Rep. Ryan spoke to the AARP about the importance of repealing Obamacare, he was booed. Small wonder, given the AARP’s extreme financial interest in the law. According to DeMint, during the Obamacare debate in Congress, the AARP’s phone logs from seniors registered more than 50 to 1 against the law.
Remember these issues the next time someone points out that the AARP supports Obamacare’s Medicare cuts, and opposes the Romney-Ryan plan. The Romney-Ryan plan would dramatically reduce the need for Medigap plans, because it would encourage the formation of comprehensive insurance plans within the Medicare program itself.
Obamacare, on the other hand, saved the AARP from $1.8 billion in Medigap reforms, while potentially earning the group an additional $1 billion in royalties from seniors who are forced out of Medicare Advantage. That’s a swing of $2.8 billion over ten years, all thanks to Obamacare.
“There’s an inherent conflict of interest,” says Marylin Moon, who served as director of AARP’s Public Policy Institute from 1986 to 1989. “A lot of people there are trying to do good, but they’re ending up becoming very dependent on [Medigap royalty] sources of income.”
It’s a testament to AARP’s political power—and our broken health-care system—that the lobby is allowed to carry on a half-billion-a-year business that’s based on increasing the premiums that seniors pay, and draining money from the taxpayers who get billed for wasteful Medicare spending. Sen. DeMint has done a public service by bringing these problems out into the open.