Monthly Archives: November 2009

The Last Senate Debate on Health “Reform”

With the Senate about to embark on a debate regarding health care legislation, it’s important to recall the last time the upper chamber considered health “reform.”  Contrary to some press reports, the Senate DID in fact debate health care legislation in 1994 – a proposal was introduced by then-Majority Leader Mitchell as S. 2357, which the Senate considered in August of that year without the debate coming to a conclusion or final vote.

The CBO analysis of the Mitchell bill from 1994 is available online here.  CBO estimated that the bill would cover 95% of the population and leave 14 million individuals uninsured.  By comparison, CBO’s analysis of the Reid bill found that the bill would cover 94% of legal American residents, leaving 16 million uninsured.  In other words, the Reid bill would leave more uninsured in both percentage and absolute terms than George Mitchell’s 1994 bill – even before accounting for the fact that CBO’s models at that time did not exclude the impact of undocumented immigrants when calculating the number of remaining uninsured.

For these reasons, it’s particularly interesting to note the reaction from Democrats to the Mitchell bill.  Haynes Johnson and David Broder write in The System that President Clinton’s statement to the National Governors Association outlining Mitchell’s strategy to cover “somewhere in the ballpark of 95%” of Americans sparked “pandemonium” and “chaos.”  AARP’s John Rother called the strategy “f—ing unbelievable.”  Pete Stark said that “If there is a bill without universal coverage, I would leave and a lot of liberal members would say no.”  Jim McDermott noted that Clinton “just put in jeopardy all the single-payer votes.”  Remember, this bill that caused so much liberal angst covered MORE people in both absolute and relative terms than the Reid bill being considered today.

Finally, Lawrence O’Donnell, then the Chief of Staff to Finance Chairman Moynihan, discussed the impending Senate debate on MSNBC last Tuesday; his comments can be found here.  It’s worth highlighting O’Donnell’s suggestion that the Senate should spend three months debating amendments to the health care bill – which would put a vote on cloture and final passage no sooner than the President’s Day recess.  It will be interesting to see whether Leader Reid will follow the words of wisdom of a prominent fellow Democrat in the way the debate is structured…

Policy Brief: Will $210 Billion in New Deficit Spending Kill American Jobs?

“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

 — President Barack Obama, interview quoted by Reuters, November 18, 2009

While some may attempt to assert that Speaker Pelosi’s government takeover of health care is fiscally responsible, even President Obama has finally recognized that its provisions could put the health of the American economy at risk:

  • This week the House is expected to consider legislation providing for permanent increases in the Medicare Sustainable Growth Rate (SGR) mechanism for physician reimbursement.  Because the Democrat bill is not paid for, CBO scores H.R. 3961 as increasing the deficit by at least $210 billion.
  • In the longer term, an independent analysis of official data conducted by former Medicare public trustee Tom Saving found that a permanent reversal of these current-law reductions, if not paid for by appropriate offsets in spending, could increase Medicare’s unfunded obligations by up to $1.9 trillion over a 75-year period.
  • Despite offering a “responsible” budget that would more than double the national debt to over $24 trillion, President Obama has finally recognized that further increasing federal deficits—as H.R. 3961 would do—could erode economic confidence, resulting in unemployment levels even higher than the current rate of 10.2 percent, a 26-year high.
  • America’s largest foreign creditor has already expressed strong concern about runaway federal spending and deficits.  Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his visit to China earlier this year, and the New York Times ran a front-page article this Sunday noting significant Chinese skepticism about Democrats’ government takeover of health care, as “Chinese officials expect that they will help finance whatever Congress and the White House settle on.”  Many may wonder the extent to which passing an unpaid-for “doc fix” adding up to $1.9 trillion in long-term obligations to the federal fisc will further undermine international confidence in the dollar—jeopardizing the American economy and jobs.
  • Many may also note that passage of stand-alone SGR legislation is intended to ease the passage of Democrats’ government takeover of health care—which itself contains job-killing tax increases that could choke any nascent economic recovery.  According to a model developed by President Obama’s chief economic advisor, the tax increases in the Pelosi health care bill (H.R. 3962) would demolish or destroy up to 5 million jobs.

While many Members may support SGR reform that is fully paid for, many may also oppose any attempt to increase the deficit by hundreds of billions of dollars in a way that could jeopardize millions of American jobs as part of Democrats’ unpopular government takeover of health care.

Legislative Bulletin: H.R. 3961, Medicare Physician Payment Reform Act

FLOOR SITUATION

H.R. 3961 is being considered under a closed rule.  The rule provides that following its passage, the Clerk will be directed to append the text of H.R. 2920, the Statutory PAYGO bill that passed the House on July 22, 2009, to the legislation before sending it to the Senate.  The legislation was introduced by Rep. John Dingell (D-MI) on October 29, 2009.

EXECUTIVE SUMMARY

H.R. 3961 provides for an increase in Medicare physician reimbursements for 2010 equal to the increase in medical inflation, and recalibrates the Sustainable Growth Rate (SGR) mechanism such that year 2009 physician expenditures shall be used as the new baseline for computing whether total physician payments exceed the SGR targets.  The bill establishes two separate conversion factors-one for evaluation and management services, including primary care and preventive services, and one for all other services provided.  Thus evaluation and management services and all other specialist services would receive different annual payment rates, based on the growth of each service over time; the former would also receive a higher conversion factor under the bill-GDP growth plus two percent for evaluation and management services, as opposed to GDP growth plus one percent for all other services.  Finally, the bill allows accountable care organizations established to opt-out of the national expenditure targets created in the bill and establish their own organization-specific targets.

BACKGROUND

As part of spending reforms included in the Balanced Budget Act of 1997, Congress enacted a sustainable growth rate (SGR) mechanism for Medicare physician payment levels.  The SGR mechanism is designed to balance the previous year’s increase in physician spending with a decrease in the next year, in order to maintain aggregate growth targets.  In light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates.  While an imperfect formula, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs.

While Democrats claim Speaker Pelosi’s 1,990-page health “reform” bill (H.R. 3962) is “deficit-neutral,” the hundreds of billions of dollars in new spending in H.R. 3961 is not paid for.  While Members may support reform of the SGR mechanism, many may oppose what amounts to an obvious attempt to hide the apparent cost of health “reform” by introducing separate legislation to repeal the SGR mechanism without paying for this more than $200 billion increase in federal spending in its first ten years.  Moreover, H.R. 3961 would permanently alter the SGR mechanism, and an independent analysis of official data conducted by former Medicare public trustee Tom Saving found that a permanent reversal of these current-law reductions, if not paid for by appropriate offsets in spending, would increase Medicare’s unfunded obligations by nearly $2 trillion over a 75-year period.  Due to these significant concerns about rising deficits and higher federal spending, a bipartisan majority in the Senate recently rejected similar legislation (S. 1776) designed to increase physician payments over the next 10 years that did not include any offsetting spending reductions.

Press reports indicate that the Democrat majority desires to pass a stand-alone “doc fix” bill in order to help facilitate passage of its broader health “reform” initiative.  A CQ Today article noted that omitting an SGR “fix” from the Democrat health “reform” legislation “could free up billions of dollars that Democratic leaders could apply to make other changes in a health care plan”-making it easier for the majority to pass its government takeover of health care.  Therefore, some may view a vote for H.R. 3961 that is not paid for through appropriate spending reductions as helping to facilitate a government takeover of health care, with all its flaws: More than $700 billion in job-killing new taxes, regulations that will raise premiums for millions of Americans, and creation of a government-run health plan causing as many as 114 million Americans to lose their current coverage.

In its rollout of the Pelosi bill, the Democrat majority released a one-page document claiming that “a previous Congress established the policy for paying Medicare doctors, so the update for 2010 is not a new policy to be paid for.”  By this logic, future Congresses will not have to pay for any increases in federal deficits and spending associated with the Pelosi health “reform” bill-directly contradicting President Obama’s pledge that his bill would not increase the federal deficit by one dime.  Regardless, many may note that adding hundreds of billions in new spending will be paid for-by America’s children and grandchildren, through mountains of new federal debt.

COST

The Congressional Budget Office earlier this year estimated that a full SGR repeal would cost $285 billion over ten years.  However, the Administration has already begun the process of “reforming” the SGR by hiding approximately $80 billion of a repeal’s cost (the amount of the SGR attributed to physician-administered drugs) into the budgetary baseline as “current law”-even though some have questioned the Administration’s authority to do so.  Therefore, CBO scores H.R. 3961 as increasing the deficit by nearly $210 billion, though as stated earlier, the full impact of a long-term SGR “fix” approaches nearly $300 billion.

Members may particularly note that because seniors pay for one-quarter of total physician spending through their Medicare Part B premiums, CBO also notes that H.R. 3961 would raise seniors’ Medicare premiums by nearly $50 billion over ten years.   These premium increases would be on top of the 20 percent increase in Part D prescription drug premiums as a result of the Pelosi health care bill.

Policy Brief: Democrats’ Health Care “Ponzi Schemes”

“We have grave concerns that the real effect of the provisions would be to create a new federal entitlement program with large, long-term spending increases that far exceed revenues.  This is especially the case if savings from the first decade of the program are spent on other health reform priorities.”

 — Letter by seven Democratic Senators to Majority Leader Reid, October 23, 2009

While the majority may attempt to assert that Speaker Pelosi’s government takeover of health care is fiscally responsible, even Democrats themselves doubt the Speaker’s assertions:

  • In order to achieve deficit neutrality, the Pelosi bill (H.R. 3962) relies on more than $70 billion in revenue from a new program for long-term care services.  As the long-term care program requires individuals to pay premiums for five years before becoming eligible for benefits, the Pelosi bill diverts this initial program revenue to finance a government takeover of health care.
  • As noted above, moderate Democrats wrote to Majority Leader Reid objecting to this new entitlement’s inclusion in the health care legislation he continues to write behind closed doors.  Senate Budget Committee Chairman Kent Conrad (D-ND) went further, calling the program a “Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.”
  • In the letter quoted above, Democrats opposed the concept of using revenues from the long-term care program in order to finance a government takeover of health care—as doing so would be fiscally unsustainable.  By their own logic, these same Democrats should oppose using $400-500 billion in Medicare savings to create a new health care entitlement.
  • Speaker Pelosi’s government takeover of health care would lead to exactly the type of “large, long-term spending increases” the moderate Democrat senators most fear.  The Congressional Budget Office has already confirmed that the Pelosi bill would increase the federal budgetary commitment to health care by $598 billion in its first decade alone—and by greater sums in the years following 2019.

While many may welcome moderate Democrats’ fiscal rectitude with respect to the long-term care entitlement, many may similarly question why these same Democrats refuse to question the bigger “Ponzi scheme”—diverting hundreds of billions of dollars in Medicare savings to finance Speaker Pelosi’s $1.3 trillion government takeover of health care.

Policy Brief: What Every Member Needs to Know about a Long-Term “Doc Fix”

Background: As part of spending reforms included in the Balanced Budget Act of 1997, Congress enacted a sustainable growth rate (SGR) mechanism for Medicare physician payment levels.  The SGR mechanism is designed to maintain aggregate growth targets in physician spending.  Thus, in light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates.  While an imperfect formula, the SGR was designed as a cost-containment mechanism to help deal with Medicare’s exploding costs, forcing offsets in some years.  This week the Democrat majority will bring to the floor stand-alone legislation that is not paid for (H.R. 3961) to permanently re-set the SGR formula at higher 2009 spending levels.

The Cost: Due to significant concerns about rising deficits and higher federal spending, a bipartisan majority in the Senate recently rejected similar legislation (S. 1776) designed to increase physician payments over the next 10 years that did not include any offsetting spending reductions—meaning any House-passed legislation likely will not advance without curbs on spending.

The Congressional Budget Office earlier this year estimated that a full SGR “fix” would cost $285 billion over ten years.  However, the Administration has already begun the process of “reforming” the SGR by hiding approximately $80 billion of that cost into the budgetary baseline as “current law”—even though some have questioned the Administration’s authority to do so.  Therefore, CBO scores H.R. 3961 as increasing the deficit by nearly $210 billion, though as stated earlier, the full impact of a long-term SGR “fix” approaches nearly $300 billion.

Members may note that because seniors pay for one-quarter of total physician spending through Medicare Part B premiums, passing H.R. 3961 would raise seniors’ Medicare premiums by nearly $50 billion over ten years—on top of the up to 20 percent increase in Part D prescription drug premiums in the Pelosi bill (H.R. 3962) proper.

The Strategy: Press reports indicate that the Democrat majority intends to pass H.R. 3961 as a stand-alone bill in order to help facilitate passage of its broader health “reform” initiative.  A CQ Today article noted that omitting an SGR “fix” from the larger legislation “could free up billions of dollars that Democratic leaders could apply to make other changes in a health care plan.”  Therefore, some may view a vote for H.R. 3961 as paving the way for enactment of a government takeover of health care, with all its flaws: More than $700 billion in job-killing new taxes, regulations that will raise premiums for millions of Americans, and creation of a government-run health plan causing as many as 114 million Americans to lose their current coverage.

True Reform Instead: Many Members may support legislation to address potential future SGR shortfalls, provided the legislation is fully paid for.  For instance, a recent Congressional Budget Office report found that enactment of liability reform provisions—another top priority of physician groups—would reduce mandatory spending on Medicare and other federal entitlements by $41 billion over ten years.  These changes would represent sound fiscal policy and true entitlement reform.  Members may also note that the Administration has already proposed nearly $600 billion in savings from Medicare alone, and that less than half of this supposed “waste, fraud, and abuse” would easily finance SGR reform—if Democrats were not insistent that this money should be re-directed to fund its government takeover of health care.

Policy Brief: AARP on the Wrong Side of History — Again

Even as Speaker Pelosi and President Obama attempt to trump the endorsement of purported seniors’ advocacy organization AARP for the Pelosi health care bill as a monumental achievement, a look at past health care bill shows the AARP’s “seal of approval” has often functioned as the “kiss of death” for proposals unpopular with the American people.  Just as disturbing lies the fact that AARP’s endorsements of legislation often coincides with special favors being bestowed in those very bills:

  • In 1988, AARP endorsed the Medicare Catastrophic Coverage Act (P.L. 100-360)—so unpopular that it was repealed the following year.  As Haynes Johnson and David Broder write in their analysis of the Clinton health care debate, The System, “AARP had been badly burned by the failure of the Medicare catastrophic insurance legislation…It endorsed that bill early, saw it become law, and then watched rival organizations of senior citizens lead the battle to have it repealed.”
  • What Johnson and Broder refer to as the Medicare catastrophic “fiasco” occurred as the bill fell “victim [to] a loud protest from the very people it was supposed to help.”  While AARP claimed the catastrophic bill would help seniors—just as AARP alleges the Pelosi bill will provide untold benefits to Medicare beneficiaries—its own members did not agree.  Perhaps most worrisome for Democrats, the bill’s higher taxes began immediately, while the benefits did not take effect for several years—prompting rapid outcries from seniors that led to the bill’s repeal.  The exact same scenario faces the Pelosi health care bill.
  • The Medicare catastrophic debacle contains other parallels to the Pelosi bill 20 years later—out-of-touch politicians being accosted by angry constituents seeking to hold Members accountable for not representing their interests.  Most famously, then-House Ways and Means Committee Chairman Dan Rostenkowski (D-IL) was—despite his protests to the contrary—chased out of a meeting by angry seniors, who promptly surrounded his car as he attempted to escape.  The contrast between Rostenkowski and his constituents was stark; the latter shouted, “He’s supposed to represent the people—not himself!” while the Chairman alleged, “I don’t think they understand what the government’s trying to do for them…
  • Despite the cautionary tale of the Medicare catastrophic debacle, five years later Democrats waded back into health care, with another scheme to expand government-run insurance—this time to all Americans as part of President Clinton’s “reform” effort.  Despite the fact that the proposed new entitlement to government-run health care was financed by reductions in seniors’ Medicare benefits—as is the case today—AARP endorsed legislation written by then-Senate Majority Leader George Mitchell (D-ME).
  • The AARP-endorsed legislation also happened to contain provisions benefiting the organization.  For instance, one news article from 1994—headlined “AARP Endorsement of Reform May Be Financially Motivated”—pointed out that the Mitchell bill exempted mail-order pharmaceuticals from price controls imposed on Medicare prescription drugs—and “not coincidentally, AARP currently owns a stake in one of America’s oldest and largest mail-order prescription drug companies.”  As the article noted, “If the Mitchell bill becomes law, this clause could mean extra wealth for what’s already become a cash cow for America’s largest advocacy group.”
  • Similarly, passing the Pelosi health care bill would likely provide a significant benefit to AARP’s financial interests.  The Pelosi bill contains strict restrictions on all other forms of health insurance—banning pre-existing condition exclusions and limiting “excessive” price increases—except Medigap supplemental insurance plans purchased by seniors.  Perhaps not coincidentally, AARP plans dominate the Medigap market—meaning that under the Pelosi bill, AARP could continue its current practice of denying access to individuals with pre-existing conditions in order to increase its own “royalty fees.”  Indeed, AARP could benefit further from the Pelosi bill, by obtaining new Medigap customers when the legislation’s cuts to Medicare Advantage cause millions of seniors to lose their current coverage.

Even as the month of August demonstrated seniors’ concern about the impact of the Pelosi health care bill on them, AARP officials showed the same kind of disdain for their members’ concerns that Chairman Rostenkowski demonstrated to his constituents twenty years ago—attempting to quiet its members by telling them, “You are not running the meeting,” then running out of the meeting when members continued to raise concerns about Democrats’ government takeover of health care.  Both the organization’s past history and its present behavior raise questions about the entity’s very character and nature: How many more times will AARP need to support failed health care legislation before understanding that its members do not support a government takeover of health care?  And when will the organization stop endorsing legislation that benefits its financial interests rather than those of seniors?

Policy Brief: New Pelosi Bill Provision Would Allow Federal Bureaucrats to Ration Health Care

“The chronically ill and those toward the end of their lives are accounting for potentially 80 percent of the total health care bill out here….There is going to have to be a very difficult democratic conversation that takes place.”

— President Obama, interview with The New York Times

Buried within the 1,990 pages of Speaker Pelosi’s health care bill are new provisions that would allow federal bureaucrats to completely re-write existing regulations in a way that could deny patients access to effective but costly health treatments:

  • Sections 1159 and 1160 of the bill direct the Institute of Medicine to study ways to promote “high-value health care.”  The bill directs the Institute to complete a series of recommendations on changes that should be made to Medicare’s reimbursement system to accomplish such ends, and further directs the Secretary to draft a plan to implement these proposed changes.
  • Language on page 510 of the bill authorizes the Secretary to waive any requirements in the existing Medicare statute “in order to implement such changes.”  In other words, bureaucrats at the Centers for Medicare and Medicaid Services (CMS) would have blanket waiver authority to re-write existing statute and regulations unilaterally.
  • While the bill does provide for a process of review by Congress of CMS’ proposed changes, the federal bureaucrats’ recommendations would automatically take effect unless both Houses of Congress pass a joint resolution of disapproval by May 2012.  Given that President Obama will still be in office at that time and will have authority to veto such a joint resolution, the language effectively requires 2/3rds of each body of Congress to agree to override CMS’ recommendations—or otherwise federal bureaucrats will have virtual carte blanche to re-write the existing statute books.
  • Most disturbingly, the language does not prohibit federal bureaucrats from denying patients access to costly but effective treatments and services.  Because these sections contain no anti-rationing language, many may be concerned that federal bureaucrats could decide to create a “high-value” health care system by denying access to all treatments that, while effective, are too costly in the bureaucrats’ minds to warrant federal payment.
  • Many may believe that the study proposals resemble a concept advocated by former Senator Tom Daschle—a board of unelected bureaucrats making health care decisions, including decisions about which therapies and treatments the federal government will cover.  In his book Critical, Daschle wrote that, “We won’t be able to make a significant dent in health-care spending without getting into the nitty-gritty of which treatments are the most clinically valuable and cost-effective.”
  • Many of President Obama’s key advisers have echoed his comments above questioning the need for the federal government to finance costly but effective health treatments.  In addition to Sen. Daschle’s long-time advocacy of a federal health board to regulate treatments’ cost-effectiveness, a report released by the liberal Commonwealth Fund earlier this year argued that up to $634 billion could be saved by denying individuals access to treatments that are not “cost-effective.”

“In health care, waiting lines…can reduce the average cost of health capital, even while raising patient costs in terms of time and inconvenience.  Health care waiting lines represent a trade-off between patient costs and capital costs.”

— Senior Obama Administration Official Sherry Glied,
writing in Critical Condition: Why Health Reform Fails

Given comments by many key liberal groups—as well as the President himself—many may be concerned that the Pelosi bill’s $1.3 trillion in spending on a government takeover of health care will increase federal bureaucrats’ role in making patients’ personal health decisions—and lead to unacceptable delays in life-saving treatments for many Americans.

Policy Brief: Speaker Pelosi and AARP: Hypocrisy You Can Believe In

While Speaker Pelosi attempts to tout AARP’s endorsement of her government takeover of health care, some may view it as the latest in a long line of contradictory statements and actions by the purported senior advocacy group.  Quite often, AARP’s own words serve as the strongest argument against itself, as many may wonder what—and whom—the organization stands for:

Point:  “AARP believes that the best way to make coverage affordable for everyone is by guaranteeing that all individuals and groups wishing to purchase or renew coverage can do so regardless of age or pre-existing conditions.”

— AARP Executive Vice President John Rother, Senate HELP Committee testimony, June 11, 2009

Counter-Point:  “United HealthCare Insurance Company of New York(American Association of Retired Persons)—Pre-Ex wait (months): 6”

— Information on Medigap policies for seniors, New York State Insurance Commissioner’s website

Point:  “Strengthening Medicare: Rationalize spending by rewarding quality rather than quantity of care provided by physicians and managed care, and protection against premium increases when addressing physician payment reform.”

— AARP list of 2009 legislative priorities, December 2008

Counter-Point:  “Over the 2011-2019 period, CBO estimates that aggregate Part B premiums would increase by about $70 billion.”

—      Congressional Budget Office,
score of AARP-endorsed Medicare physician payment bill (S. 1776), October 26, 2009

Point:  “We’re a consumer advocacy organization; we’re not an insurance firm.”

—      AARP Director of Legislative Policy David Certner,
quoted in Washington Post expose about AARP business practices, October 27, 2009

Counter-Point:  “There’s an inherent conflict of interest….They’re ending up becoming very dependent on sources of income.”

—      Former AARP Executive Marilyn Moon, quoted in December Bloomberg article

Point:  “Our focus is on issues….Here, policy trumps everything.”

—      AARP Executive Vice President for Social Impact Nancy LeaMond,
quoted in Associated Press story, September 23, 2009

 Counter-Point:  “During 2008 and 2007, [AARP’s] service provider United HealthCare Corporation accounted for 63 percent and 57 percent, respectively, of [$1.2 billion in] total royalties earned.”

— AARP 2008 Financial Statements

Given all its conflicting positions, many may ask: What exactly does AARP stand for—and why does Speaker Pelosi want to stand beside an organization that so blithely casts aside its own principles to support a government takeover of health care?

Policy Brief: AARP: Just Another Greedy Insurance Company

“Either you’re a voice for the elderly or you’re an insurance company—choose one….They put themselves forward as non-biased observers, but they’re very swayed by business interests.”

 — Independent consultant Dean Zerbe, quoted in Washington Post expose

Press reports indicate that AARP may endorse Speaker Pelosi’s health care bill as soon as Thursday.  However, even as AARP teams up with Democrats to challenge a recent study demonstrating that premiums would rise under Democrats’ government takeover of health care as an “insurance industry hatchet job” that’s not “worth the paper it’s printed on,” an analysis of the organization’s operations reveals that it functions as a de facto insurance company—one that has participated in ethically questionable dealings:

  • A letter from AARP admits that during the years 1999-2008, AARP received an average $339.7 million dollars per year in “royalty fees” from licensing its brand name to various insurance products.  Extrapolating this average over the entire decade, AARP received nearly $3.4 billion in windfall profits from selling health insurance and other similar products.
  • Moreover, a review of its financial statements finds that relying on average “royalty fees” over the last decade significantly underestimates AARP’s existing revenue base, as the organization has focused heavily on increasing its “royalties” in the past few years.  In 2008 alone, AARP received more than half a billion dollars in revenue from selling products like Medigap supplemental insurance policies—$652.7 million in direct “royalties and fees,” an increase of more than 31 percent from $497.6 million in similar fees in 2007.  While royalty revenues now comprise more than half—60.3 percent—of all AARP revenues, a Bloomberg news analysis published in December found that in 1999, royalties comprised only 11 percent of the organization’s total revenues.
  • AARP’s financial statements also note that of the $657.2 million in “royalty fees” received in 2008, 63 percent—more than $414 million—came from United Health Group, an insurance company which markets AARP-branded Medigap and Medicare Advantage supplemental insurance policies.  Nearly 40 percent of AARP’s 2008 revenue came from United Health Group—more than it received in membership dues, grants, and private contributions combined.

Most concerningly, the growth in “royalty” revenues has resulted in a series of business practices and controversies which AARP members and independent outside observers questioning whether the organization is serving its members, or its own bottom line:

  • The Bloomberg article highlighted what one observer called AARP’s “dirty little secret”—overcharging its senior members, many of whom who felt betrayed after paying hundreds of dollars above market price for AARP-branded coverage.  One of its own members noted that “AARP has great buying power, and people should be able to get the best deal….This is unconscionable, what AARP has allowed to happen.”  Another disillusioned senior wrote to the organization’s leadership asking whether AARP had a “‘special relationship’ with [insurance carriers] by which it receives commissions, incentives, rebates, or dare I say ‘kickbacks?’”

“There’s an inherent conflict of interest….They’re ending up becoming very dependent on sources of income.”

 — Former AARP Executive Marilyn Moon, quoted in Bloomberg article

  • While the AARP website claims that the organization supports “guaranteeing that all individuals and groups wishing to purchase or renew coverage can do so regardless of age or pre-existing conditions,” a review of the New York State Insurance Commissioner’s website finds that AARP-branded Medigap coverage imposes a six-month waiting period for individuals with pre-existing conditions.  Some may therefore question whether the AARP’s desire to sell insurance coverage bringing the organization high “royalty fees” is interfering with its mission to serve seniors, including those in most need of medical coverage.
  • In November, news sources reported that AARP suspended the sale of “limited-benefit” health insurance policies, largely as a result of pressure from Republican Members of Congress concerned that the organization was selling policies advertised as a “smart option for the health care insurance you need,” even though the policies would only pay up to $10,000 for surgery costs.  However, the fate of the more than 1 million policy-holders who purchased limited-benefit coverage from AARP remains unclear—and the organization has made no public offers to return the “royalty fees” on the “bare bones” policies it sold under questionable pretenses.

While the Pelosi bill includes strict restrictions on virtually all other forms of insurance, it includes no additional restrictions on Medigap policies—thus allowing AARP to continue making billions of dollars in “kickbacks” by overcharging seniors for insurance policies and denying access to seniors with pre-existing conditions.  With Speaker Pelosi calling insurance companies “immoral villains,” and Sen. Jay Rockefeller deriding them as “rapacious,” many may question why Democrats are so quick to rely on an organization that has received billions of dollars in windfall profits from those same insurers as an “independent” source to support their government takeover of health care.   More importantly, a fundamental question presents itself: With its own members believing that AARP is “making money on the backs of old people,” who should believe that the organization is looking out for seniors’ interests and not its own?

Policy Brief: The Truth about Speaker Pelosi’s Tax Increases

Even as they attempt to enact a government takeover of health care, Democrats must face the facts about the scope of the tax increases in their own legislation—that according to official estimates from both the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), Speaker Pelosi’s health bill (H.R. 3962) would raise taxes by $729.5 billion:

  • The Joint Committee on Taxation (JCT), in its official score of the Democrat bill, found that the “surtax” on high-income filers—many of whom are small businesses—imposed in Section 551 would generate nearly half a trillion dollars in revenue—$460.5 billion over ten years.  While this tax is intended to target “high-income” filers, it is not indexed for inflation, meaning it will reach millions more Americans over time.
  • The bill includes taxes on individuals who do not purchase government-forced health insurance.  According to Section 501 of the bill, this tax increase would be applied to all individuals—including those with incomes under $250,000, thus breaking a central promise of then-Senator Obama’s campaign.  As the Joint Committee on Taxation previously confirmed, individuals would be subject to a jail sentence for not paying the tax penalty associated with the government-forced insurance requirement.  According to CBO and JCT, these provisions would raise taxes by $33 billion.
  • Section 512 of the bill would impose new taxes on businesses who cannot afford to fund government-forced health coverage for their workers, therefore violating the bill’s new employer mandate and triggering an additional 8 percent payroll tax.  According to CBO and JCT, these provisions would generate an additional $135 billion in revenue.
  • JCT also found that additional tax increases—including corporate reporting ($17.1 billion), worldwide interest penalties ($26.1 billion), treaty withholding ($7.5 billion), and codification of the economic substance doctrine ($5.7 billion)—included in pages 334-59 of the bill would raise taxes by an additional $56.4 billion.
  • The bill prohibits the reimbursement of over-the-counter pharmaceuticals from Health Savings Accounts (HSAs), Medical Savings Accounts, Flexible Spending Arrangements (FSAs), and Health Reimbursement Arrangements (HRAs), increases the penalties for non-qualified HSA withdrawals from 10 percent to 20 percent, and places a cap on FSA contributions.  Because these savings vehicles are tax-preferred, these three provisions would raise taxes by $19.6 billion over ten years, according to the Joint Committee on Taxation.  Moreover, because at least 8 million individuals hold insurance policies eligible for HSAs, and millions more participate in FSAs, all these individuals would not be able to keep the coverage they have without facing tax increases.
  • Section 1802 of the bill includes provisions imposing a tax on health benefits—breaking a promise by Speaker Pelosi that, “We will not be taxing [health] benefits in any bill that passes the House.”  This provision would raise taxes by an additional $2 billion over ten years.
  • The bill also repeals the current-law tax deductibility of subsidies provided to companies offering prescription drug companies to retirees, raising taxes by $3 billion.  Many may be concerned that this tax increase would lead to companies dropping their retiree health coverage.
  • H.R. 3962 would impose $20 billion in excise taxes on medical devices.  Many may echo the concerns of the Congressional Budget Office and other independent experts, who have confirmed that this tax would be passed on to consumers in the form of higher prices—and ultimately higher premiums.
  • Thus the total amount of tax increases included in the Democrat bill—according to official estimates—equals $729.5 billion over ten years.

Imposing these new tax increases in the middle of a recession—with unemployment at 26-year highs—will only harm the economy and kill jobs.  In fact, a study by Harvard Professor Kate Baicker indicates that a minimum of 5.5 million workers will be “at substantial risk of unemployment”—and that minority workers are twice as likely to lose their jobs as their white counterparts.  Given these facts, one may understand why Democrats would not want to admit the truth about the full scope of their harmful tax increases.