Tag Archives: Jim DeMint

AARP’s Own “Age Tax”

Over the past few weeks, AARP—an organization that purportedly advocates on behalf of seniors—has been running advertisements claiming that the House health-care bill would impose an “age tax” on seniors by allowing for greater variation in premiums. It knows of which it speaks: AARP has literally made billions of dollars by imposing its own “tax” on seniors buying health insurance policies, not to mention denying care to individuals with disabilities.

While the public may think of AARP as a membership organization that advocates for liberal causes or gives seniors discounts at restaurants and hotels, most of its money comes from selling the AARP name. In 2015, the organization received nearly three times as much revenue from “royalty fees” than it did from member dues. Most of those royalty fees come from selling insurance products issued by UnitedHealthGroup.

Only We Can Profit On the Elderly

As documented on its tax returns and in congressional oversight reports, AARP royalty fees from UnitedHealthGroup come largely from the sale of Medigap supplemental insurance plans. As the House Ways and Means Committee noted in 2011, while AARP receives a flat-sum licensing fee for branding its Medicare Advantage plans, the organization has a much sweeter deal with respect to Medigap: “State insurance rate filings show that, in 2010, AARP retained 4.95% of seniors’ premiums for every Medigap policy sold under its name. Therefore, the more seniors enroll in the AARP-branded Medigap plan, the more money AARP receives from United.”

So in the sale of Medigap plans, AARP imposes—you guessed it!—a 4.95 percent age tax on seniors. AARP not only makes more money the more people enroll in its Medigap plans, it makes more money if individuals buy more expensive insurance.

Even worse, AARP refused good governance practices that would disclose the existence of that tax to seniors at the time they apply for Medigap insurance. While working for Sen. Jim DeMint in 2012, I helped write a letter to AARP that referenced the National Association of Insurance Commissioners’ Producer Model Licensing Act.

Specifically, Section 18 of that act recommends that states require explicit disclosure to consumers of percentage-based compensation arrangements at the time of sale, due to the potential for abuse. DeMint’s letter asked AARP to “outline the steps [it] has taken to ensure that your Medigap percentage-based compensation model is in full compliance with the letter and spirit of” those requirements. AARP never gave a substantive reply to this congressional oversight request.

Don’t Screw With Obamacare, It’s Making Us Billions

AARP’s silence might stem from the fact that its hidden taxes have made the organization billions. Between 2010—the year Obamacare was signed into law—and 2015, the most recent year for which financial information is available, AARP received $2.96 billion in “royalty fees” from UnitedHealthGroup. During that same period, AARP made an additional $195.6 million in investment income from its grantor trust.

Essentially, AARP makes money off other people’s money—perhaps receiving insurance premium payments on the 1st of the month, transferring them to UnitedHealth or its other insurance affiliates on the 15th of the month, and pocketing the interest accrued over the intervening two weeks. That’s nearly $3.2 billion in profit over six years, just from selling insurance plans. AARP received much of that $3.2 billion in part because Medigap coverage received multiple exemptions in Obamacare. The law exempted Medigap plans from the health insurer tax, and medical loss ratio requirements.

Most importantly, Medigap plans are exempt from the law’s myriad insurance regulations, including Obamacare’s pre-existing condition exclusions—which means AARP can continue its prior practice of imposing waiting periods on Medigap applicants. You read that right: Not only did Obamacare not end the denial of care for pre-existing conditions, the law allowed AARP to continue to deny care for individuals with disabilities, as insurers can and do reject Medigap applications when individuals qualify for Medicare early due to a disability.

The Obama administration helped AARP in other important ways. Regulators at the Department of Health and Human Services (HHS) exempted Medigap policies from insurance rate review of “excessive” premium increases, an exemption that particularly benefited AARP. Because the organization imposes its 4.95 percent “age tax” on individuals applying for coverage, AARP has a clear financial incentive to raise premiums, sell seniors more insurance than they require, and sell seniors policies that they don’t need. Yet rather than addressing these inherent conflicts, HHS decided to look the other way and allow AARP to continue its shady practices.

The Cronyism Stinks to High Heaven

Obama administration officials not only did not scrutinize AARP’s insurance abuses, they praised the organization as a model corporate citizen. Then-HHS Secretary Kathleen Sebelius, when speaking to its 2010 convention, called AARP the “gold standard” in providing seniors with “accurate information”—even though the organization declined requests to disclose the conflicts arising from its percentage-based Medigap “royalties.” However, Sebelius’ tone is perhaps not surprising from an administration whose officials plotted with AARP executives to enact Obamacare over AARP members’ strong objections.

AARP will claim in its defense that it’s not an insurance company, which is true. Insurance companies must risk capital to pay claims, and face losses if claims exceed premiums charged. By contrast, AARP need never risk one dime. It can just sit back, license its brand, and watch the profits roll in. Its $561.9 million received from UnitedHealthGroup in 2015 exceeded the profits of many large insurers that year, including multi-billion dollar carriers like Centene, Health Net, and Molina Healthcare.

But if the AARP now suddenly cares about “taxing” the aged so much, Washington should grant them their wish. The Trump administration and Congress should investigate and crack down on AARP’s insurance shenanigans. Congress should subpoena Sebelius and Sylvia Mathews Burwell, her successor, and ask why each turned a blind eye to its sordid business practices. HHS should write to state insurance commissioners, and ask them to enforce existing best practices that require greater disclosure from entities (like AARP) operating on a percentage-based commission.

And both Congress and the administration should ask why, if AARP cares about its members as much as it claims, the organization somehow “forgot” to lobby for Medigap reforms—not just prior to Obamacare’s passage, but now. AARP’s fourth quarter lobbying report showed that the organization contacted Congress on 77 separate bills, including issues as minor as the cost of lifetime National Parks passes, yet failed to discuss Medigap reform at all.

Given that AARP made more than $3 billion in profits from the status quo—denying care to individuals with pre-existing conditions, and earning more money by generating more, and higher, premiums—its silence makes sense on one level. But if AARP really wants to make insurance markets fair, and stop “taxing” the aged, all it has to do is look in the mirror.

This post was originally published at The Federalist.

Thank You, Jim DeMint

As someone born in mid-August, I’m used to low-key birthdays. In my childhood, big birthday celebrations always seemed out of place when half of my friends and classmates were on vacation. Perhaps because of that, I’ve never advertised my birthday, or made much of a fuss about it.

Which is why it was so noteworthy that, four years ago, I received a grand total of two cards for my birthday. The first came from my mother.

The second came from James Warren DeMint.

The card came with a handwritten note, thanking me for joining the Heritage Foundation and congratulating me for my work there. It’s the kind of thoughtful gesture totally unseen by the public that a person—particularly a person with a prominent position and no small amount of fame—doesn’t have to make, but rather one they want to make.

I still have that note—and I’ve read it several times the past few days. For while the press and people outside the Beltway naturally focus on Jim DeMint’s policy views and political actions, that’s not what I most remember about him.

Yes, Jim DeMint is a committed conservative, but more important, Jim DeMint is at his core a fundamentally humble and decent human being. If character is what you do when no one is looking—like sending handwritten notes to your staff to recognize and thank them—then Jim DeMint’s rich character has its roots in both his southern gentility and his deep and abiding faith.

I’ve worked in several congressional offices, and in each case it truly has been a privilege to do so. I’ve been very lucky during my career—I haven’t worked for any Members who screamed at their staff, asked their staff to do favors for them, or succumbed to scandal.

But of all the offices in which I worked, the DeMint team in the Senate was by far the best working environment I had—and probably ever will have—on or off Capitol Hill. Sen. DeMint empowered his staff, creating a warm, nurturing culture that permeated all levels of the organization.

When I wrote in March of the need for humble servant leadership among congressional leaders, I specifically referred to my first interview with Sen. DeMint’s team in 2012, for creating a team atmosphere where I knew from the outset I would feel at home. In their attitude, the staff took cues from the senator himself.

Modest to a fault, Jim DeMint never sought to impose himself on his staff. He would often give us wide berth, not wanting to intrude unduly and create situations where staff had to be “on” in front of their boss. But by the same token, he was always there for us. I know of specific instances where Sen. DeMint mentored and counseled staff going through tough times, in a manner and to an extent few would expect of a man with so many other obligations.

Lone among the Members I worked for, Sen. DeMint once reached out to me to offer me an apology. He didn’t even need to apologize—he himself had done me no wrong. But he felt that I had been wronged by others, and wanted to do what little he could to help make it right. Several years later, I can’t help but experience a similar feeling.

Monday evening, I received a letter in the mail—an incongruously timed fundraising solicitation from the Heritage Foundation, with Jim DeMint’s name prominently displayed in the top-right corner. The message written on the envelope: “I cannot begin to tell you how much we are indebted to you for your support.”

No, Senator—it is we who are indebted to you, for all that you have done to support, sustain, and enrich our lives. All we can give back to you is our gratitude.

This post was originally published at The Federalist.

Past as Prologue? A Review of “The System”

A young president promising hope and change takes over the White House. Immediately embarking upon a major health-care initiative, he becomes trapped amidst warring factions in his party in Congress, bickering interest groups, and an angry public, all laying the groundwork for a resounding electoral defeat.

Barack Obama, circa 2009-10? Most definitely. But the same story also applies to Bill Clinton’s first two years in office, a period marked by a health-care debate in 1993-94 that paved the way for the Republican takeover of both houses of Congress.

In their seminal work “The System,” Haynes Johnson and David Broder recount the events of 1993-94 in detail—explaining not just how the Clinton health initiative failed, but also why. Anyone following the debate on Obamacare repeal should take time over the holidays to read “The System” to better understand what may await Congress and Washington next year. After all, why spend time arguing with your in-laws at the holiday table when you can read about people arguing in Congress two decades ago?

Echoes of History

For those following events of the past few years, the Clinton health debate as profiled in “The System” provides interesting echoes between past and present. Here is Karen Ignani of the AFL-CIO, viewed as a single-payer supporter and complaining that insurance companies could still “game the system” under some proposed reforms. Ironic sentiments indeed, as Ignani went on to chair the health insurance industry’s trade association during the Obamacare debate.

There are references to health care becoming a president’s Waterloo—Johnson and Broder attribute that quote to Grover Norquist, years before Sen. Jim DeMint uttered it in 2009. Max Baucus makes an appearance—he opposed in 1994 the employer mandate he included in Obamacare in 2009—as do raucous rallies in the summer of 1994, presaging the Obamacare town halls 15 years later.

Then there are the bigger lessons and themes that helped define the larger debate:

“Events, Dear Boy, Events:” The axiom attributed to Harold Macmillan about leaders being cast adrift by crises out of their control applied to the Clintons’ health-care debate. Foreign crises in Somalia (see “Black Hawk Down”) and Haiti sapped time on the presidential calendar and press attention, and distracted messaging. During the second half of 2009, Obama spent most of his time and energy focused on health care, leading some to conclude he had turned away from solving the economic crisis.

Old Bulls and Power Centers: “The System “spends much more time profiling the chairs of the respective congressional committees—including Dan Rostenkowski at House Ways and Means, John Dingell at House Energy and Commerce, and Patrick Moynihan at Senate Finance—than would have been warranted in 2009-10. While committee chairs held great power in the early 1990s, 15 years later House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid called most of the legislative shots from their leadership offices.

Whereas the House marked up three very different versions of health-care legislation in 1993-94, all three committees started from the same chairman’s mark in 2009. With Speaker Paul Ryan, like John Boehner before him, running a much more diffuse leadership operation than Pelosi’s tightly controlled ship, it remains to be seen whether congressional leaders can drive consensus on both policy strategy and legislative tactics.

The Filibuster: At the beginning of the legislative debate in 1993, Robert Byrd—a guardian of Senate rules and procedures—pleaded for Democrats not to try and enact their health agenda using budget reconciliation procedures to avoid a filibuster. Democrats (begrudgingly) followed his advice in 1993, only to ignore his pleadings 16 years later, using reconciliation to ram through changes to Obamacare. Likewise, what and how Republicans use reconciliation, and Democrats use the filibuster, on health care will doubtless define next year’s Senate debate.

Many Obama White House operatives such as Rahm Emanuel, having lived through the Clinton debate, followed the exact opposite playbook to pass Obamacare.

They used the time between 1993 and 2009 to narrow their policy differences as a party. Rather than debating between a single-payer system and managed competition, most of the political wrangling focused on the narrower issue of a government-run “public option.” Rather than writing a massive, 1,300-page bill and dropping it on Capitol Hill’s lap, they deferred to congressional leaders early on. Rather than bashing special interest groups publicly, they cut “rock-solid deals” behind closed doors to win industry support. While their strategy ultimately led to legislative success, the electoral consequences proved eerily similar.

Lack of Institutional Knowledge

The example of Team Obama aside, Washington and Washingtonians sometimes have short memories. Recently a reporter e-mailed asking me if I knew of someone who used to work on health care issues for Vice President-elect Mike Pence. (Um, have you read my bio…?) Likewise, reporters consider “longtime advisers” those who have worked the issue since the last presidential election. While there is no substitute for experience itself, a robust knowledge of history would come in a close second.

Those who underestimate the task facing congressional Republicans would do well to read “The System.” Having read it for the first time the week of President Obama’s 2009 inauguration, I was less surprised by how that year played out on Capitol Hill than I was surprised by the eerie similarities.

George Santayana’s saying that “Those who cannot remember the past are condemned to repeat it” bears more than a grain of truth. History may not repeat itself exactly, but it does run in cycles. Those who read “The System” now will better understand the cycle about to unfold before us in the year ahead.

This post was originally published at The Federalist.

Hospital Finds Obamacare Harmful to Its Health

Last night the Newark Star-Ledger reported that Obamacare is causing one large New Jersey hospital to lay off workers:

Barnabas Health, the second-largest private employer in the state, said today it was forced to lay off employees because of pressures brought about by healthcare reform….“Healthcare reform, in combination with Medicare cuts, more patients seeking outpatient care and decreasing patient volumes,” a spokeswoman for Barnabas said in a statement. “As a result, we have made the difficult decision to reduce our workforce.”

This move was both predictable and predicted. Even though hospital industry lobbyists supported Obamacare three years ago, the law contains Medicare provisions that will decimate the industry over the long term. As Heritage Foundation President Jim DeMint wrote earlier this week:

ObamaCare’s reductions in Medicare spending could undermine the health system for millions of seniors. According to the non-partisan Medicare actuary, the law’s arbitrary spending reductions could cause 15% of hospitals to become unprofitable by 2019, and as many as 40% of hospitals to become unprofitable in the long term. These hospitals could face the choice between shutting out seniors or shutting their doors for good.

Nancy Pelosi famously said we had to pass the bill to find out what’s in it. Hospitals, whose Washington lobbyists endorsed the law, are now finding out that Obamacare will harm them significantly—and hospital workers are finding out Obamacare could cost them their jobs.

Expanding health insurance coverage even as hospitals lay off staff—potentially reducing, not increasing, access to care—isn’t reform. For this and many other reasons, Congress needs to stop Obamacare now and focus on creating health care solutions that work.

This post was originally published at the Daily Signal.

The IRS, Obamacare, and You: The Taxes

With the IRS under fire for its improper targeting of tea party groups, many Americans have also raised concerns about the agency’s activities relating to Obamacare. This week, we’ll be taking a look at just some of the many ways in which the IRS will be intimately involved with implementing the massive law.

It starts with taxes. According to the Congressional Budget Office, Obamacare raises over $1 trillion in revenue in its first 10 years—and more after that. You name it, Obamacare taxes it. As Heritage Foundation President Jim DeMint recently stated:

Obamacare taxes most people with health insurance, and most people without health insurance. Likewise, the law taxes many employers who provide health insurance, and most employers who don’t provide health insurance.

Obamacare contains no fewer than 18 tax increases. What’s more, 12 of these taxes will be borne by the middle class, directly breaking President Obama’s 2008 “firm pledge” to those making under $250,000 per year that he would not “raise any of your taxes.” For instance, many seniors will end up paying the 2.3 percent tax on medical devices as the price of wheelchairs, defibrillators, and other needed medical equipment will rise.

Here’s a list of all the Obamacare taxes to be administered by the IRS.

This post was originally published at the Daily Signal.

DeMint Letter to Obama Asks President to Hold AARP Accountable

This afternoon Senator DeMint sent a letter to the President, asking him to hold AARP to account for its questionable insurance practices. Key excerpt:

During your debate with Governor Romney last night, you criticized Medicare premium support proposals as leaving seniors “at the mercy of insurance companies,” while trumpeting AARP’s endorsement of Obamacare… The evidence is clear that Obamacare places seniors at the mercy of one organization — AARP itself… .If you want to ensure seniors are not at the mercy of insurance companies, I encourage you to stop defending AARP’s abusive insurance practices, and instead stand up to the organization when it takes advantage of seniors.

Sen. Jim DeMint Op-Ed: AARP Sells Out Seniors

Originally published in Politico, September 21, 2012

President Barack Obama is scheduled to speak Friday via satellite to a convention sponsored by AARP. His speech will likely extol the virtues of “Obamacare,” and engage in scare tactics about conservative proposals to make Medicare sustainable. But here are five facts you’re unlikely to hear from the president, or AARP, about how each treats seniors:

First, while AARP poses as a disinterested senior advocate, it functions as an insurance conglomerate, with a liberal lobbying arm on the side. AARP depends on profits, royalties and commissions to make up more than 50 percent of its annual revenues. Membership dues from seniors account for only about 20 percent. The sums involved aren’t chump change: AARP’s $458 million in health insurance revenue in 2011 would rank it as the nation’s sixth most profitable health insurer.

Second, AARP wins when seniors lose. Because AARP receives a “royalty fee” of 4.95 percent of every premium dollar paid by seniors buying Medigap insurance from the organization, AARP earns more profit when seniors pay more in premiums. Even former AARP executives admitLINK that the billions of dollars raised from these business enterprises have compromised the organization’s mission and independence.

Third, AARP’s policy positions just happen to coincide with its financial interests. “Obamacare,” which AARP lobbied heavily for, could yield the group windfall profits of more than $1 billion over the next decade by forcing seniors off Medicare Advantage plans and into Medigap supplemental coverage. Conversely, AARP engaged in a secret lobbying campaign to block Medigap reforms last year that by one estimate would have saved nearly 80 percent of seniors an average of $415 per year – but cost AARP billions in profits.

Fourth, AARP knows it can protect its financial interests by aligning with Democrats, no matter what its members think. That’s one reason why AARP endorsed “Obamacare,” though the organization’s call response logs indicate opponents outnumbered supporters by more than 50 to 1.

Consider: One senior AARP executive wrote the White House in November 2009, saying “we will try to keep a little space between us” on health care – because AARP’s “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.”

“The cause” in this case is liberalism, the Obama agenda and “Obamacare” in particular.

Fifth, the Obama administration has reciprocated AARP’s support by giving the group preferential treatment. “Obamacare” exempted Medigap insurance – a market AARP dominates – from virtually all its new mandates, including the ban on preexisting condition discrimination. The Department of Health and Human Services exempted Medigap plans from insurance rate review, though AARP, whose plan is the most popular form of Medigap coverage, makes more in profit the higher premiums rise. Though the administration has publicly attacked other insurance companies with much smaller profit margins, it has not openly criticized AARP’s business practices.

It’s not that AARP and the administration don’t know better – they do. The AARP executive who wrote White House officials knew that AARP had to be “seen as independent.” He wasn’t independent, of course – comments about “serv[ing] the cause” make that clear. But he knew he had to appear impartial to AARP’s members.

And as a former state insurance commissioner, Health and Human Services Secretary Kathleen Sebelius must know that percentage-based “royalty” payments create a strong incentive for abuse. Nonetheless, Sebelius called AARP the “gold standard” for “accurate information” – though AARP makes more profits the higher the Medigap premiums rise for seniors.

As much as Obama claims to eschew Chicago-style politics, this administration’s crony relationship with AARP gives every appearance of being an old-fashioned protection racket. The administration lets AARP make billions of dollars in profits off seniors, as long as they continue to support “the cause” and funnel those profits toward supporting Obama’s liberal agenda.

That’s why the administration won’t speak out against AARP’s abuses; why Democrats who said they ended “the worst insurance industry abuses” in “Obamacare” exempted Medigap insurance from virtually the entire law, and why the Obama campaign is so willing to use AARP as a political shield in running negative attack ads against his opponent.

The president recently said, “no American should have to spend their golden years at the mercy of insurance companies.” What he won’t tell seniors today is that, thanks to his administration’s protection racket, that isn’t true.

Millions of seniors have been — and will continue to be — taken advantage of, because this administration’s protection racket turns a blind eye toward the insurance industry abuses of the AARP.

Sen. Jim DeMint (R-S.C.) is serves on the Senate Commerce, Science and Transportation Committee, which has oversight over AARP, as well as the Joint Economic Committee.

Profits Before Principles: How AARP Wins When Seniors Lose

A staff report compiled for U.S. Senator Jim DeMint

REPORT HIGHLIGHTS

  • AARP functions as an insurance conglomerate with a liberal lobbying arm on the side.  Independent experts and former AARP executives admit that the organization’s billions of dollars raised from its business enterprises – most notably the sale of health insurance plans – have compromised the organization’s mission and independence.
  • AARP depends on profits, royalties, and commissions to make up over 50% of its annual budget.  Membership dues from seniors account for only about 20% of AARP’s revenue.
  • AARP’s $458 million in health insurance revenue in 2011 would rank it as the nation’s sixth-most profitable health insurer.
  • The health care law, which AARP lobbied heavily for, could lead to over $1 billion in new AARP health insurance profits over the next decade by forcing seniors off Medicare Advantage plans into Medigap supplemental coverage.
  • AARP earns more profit the higher premiums rise on seniors in Medigap plans, charging a “royalty fee” of 4.95% of every premium dollar paid by seniors on these plans.
  • In 2011, AARP failed to disclose to its senior membership that it lobbied Congress to oppose Medigap reform, legislation that could lower senior premiums by as much as 60%, and save seniors $415 per year on average.
  • AARP could lose as much as $1.8 billion in revenue over ten years if Medigap reforms pass and successfully lower senior premiums.
  • Documents show close coordination between Obama Administration and AARP, including efforts to deceive the public.  In November 2009, a senior AARP executive wrote to the White House saying “we will try to keep a little space between us” on health care – because AARP’s “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.”
  • AARP has benefitted by supporting the Obama Administration’s unpopular health care law.  Unlike other forms of insurance, AARP’s Medigap insurance plans were exempted from many of the health care law’s mandates, including the ban on pre-existing condition discrimination.
  • The Obama Administration has not publicly criticized AARP’s business practices, even though it has publicly attacked other insurance companies with much smaller profit margins than those generated by AARP’s Medigap insurance.
  • Democrats continue to praise AARP – HHS Secretary Sebelius called them the “gold standard” for “accurate information” – even though AARP earns more profit the higher Medigap premiums rise for seniors.
  • Even though President Obama has criticized Republicans for placing seniors at the mercy of insurance companies, the health care law he signed allows organizations like AARP to continue discriminating against Medigap applicants with pre-existing conditions.

Introduction

The AARP bills itself as the nation’s premier senior advocacy group, but has opposed important reforms to Medigap supplemental insurance that would save seniors, on average, hundreds of dollars a year.

Why? There are $1.8 billion reasons.

The reforms currently being proposed to Medigap would drastically reduce the “royalty fees” AARP generates by peddling insurance to its members by an estimated $1.8 billion over ten years. If AARP supported these reforms, which are sure to save seniors money, the lobbying group would lose billions.

This report shows how the AARP has a history of being compromised by its lucrative insurance businesses.  The pressure group’s opposition to Medigap reform is just the latest instance where its financial enterprises have trumped the well-being of its members.

AARP is mounting a “You’ve Earned a Say” campaign to solicit member viewpoints about how to reform entitlements, but our examination of the organization’s actions over the years shows AARP executives, who seek to boost their bottom lines, always have the biggest say.

The AARP Empire

Founded in 1958, AARP is now an organization with an annual budget exceeding $1 billion.  The organization spent $206 million to acquire its headquarters building in Washington, DC more than a decade ago.[1]  According to its most recently filed tax returns, AARP spent more than $246 million on postage, and over $280 million on compensation in 2010.[2]  In that same year, AARP provided compensation of over $100,000 to 543 separate employees, including one senior executive who received nearly $1.2 million in compensation.[3]

While AARP claims to be a membership-driven organization, in reality most of its revenue comes not from member dues but from “royalty fees” generated from the sale of other products, namely health insurance.  “Royalty fees” are payments AARP receives for putting its brand name on certain products and services.  So while insurance companies provide a tangible product and service in exchange for the premiums they charge, AARP receives more than half a billion dollars per year for essentially playing the middle man.

According to its 2011 financial statements, more than half of AARP’s revenue came from royalty fees – over $704 million of its $1.35 billion in total revenue last year.[4]  Revenues from health insurer United Health Group comprised nearly two-thirds of AARP’s total “royalty fee” revenue, or $457.6 million.[5]  By comparison, in 2011 AARP generated only $265.8 million from membership dues – just over half the amount received from the sale of AARP-branded insurance products.[6]

AARP’s royalty fees have risen significantly in recent years, making the organization ever more dependent on the sale of insurance policies to fund AARP’s massive payroll.  Between 2001 and 2011, AARP’s total royalty fees rose by more than 350% – from $196.7 million in 2001 to over $704 million last year.[7]  Much of this increase comes from additional health insurance-related revenue.  Over the past five years, AARP has generated over $2 billion in revenue from United Health Group alone – $284 million in 2007,[8] $414 million in 2008,[9] $427 million in 2009,[10] $441 million in 2010,[11] and $458 million in 2011.[12]

AARP’s $458 million in insurance revenue in 2011 would rank it as the nation’s sixth-most profitable insurer, based on data collected by Fortune magazine.[13]  For instance, insurer Health Net generated only $204 million in net revenue last year – on over $13.6 billion in total revenue.[14]  By contrast, AARP’s $458 million in insurance-based “royalty fees” go directly to the organization’s bottom line.

AARP’s Questionable Insurance Practices

Even as it claims to be a non-profit advocacy organization, AARP has received criticism from many quarters for its heavy reliance on revenue from insurance sales.  Marilyn Moon, a former AARP executive, said “there’s an inherent conflict of interest” because AARP is “very dependent on sources of income.”[15]

AARP’s dependence on “royalty fee” income has resulted in numerous controversies over the years.  For instance, in 2008 a congressional inquiry[16] found that AARP was using potentially misleading language in its marketing materials; seniors thought they were buying comprehensive health insurance, but in reality purchased policies covering only a limited amount of health costs.  Following a public outcry, AARP ordered an investigation,[17] and eventually stopped selling these types of limited benefit plans.[18]

More recently, the tax implications of AARP’s significant “royalty fees” have come under scrutiny.  An investigation by several members of the House Ways and Means Committee last year raised questions about whether or not AARP’s licensing revenue should be considered “royalty fees” or “commissions.”[19]  If the revenue in question should in fact be classified as “commissions,” then AARP could owe significant amounts of back taxes on billions of dollars in revenue.  The Ways and Means members referred the matter to the Internal Revenue Service, and requested an IRS investigation.[20]

The Medigap Cash Cow

The Ways and Means member investigation also made clear that one of AARP’s prime sources of revenue is the sale of Medigap-branded supplemental insurance plans.  AARP does license Medicare Advantage plans, along with a Medicare Part D prescription drug plan.  However, AARP receives a flat financial payment from United Health Group for its Medicare Advantage and Part D plans, regardless of the number of people enrolled in each plan.  Conversely, AARP receives a percentage of total Medigap premiums paid – meaning that while AARP receives no financial benefits if its Medicare Advantage or Part D plan enrollment rises, it will receive a windfall if its Medigap plan generates additional customers, or those customers pay higher premiums.

The health care law includes more than $300 billion in cuts to Medicare Advantage.[21]  As a result of these payment reductions, enrollment in Medicare Advantage plans will be cut in half, with 7.4 million fewer seniors enrolled.[22]  Many of these 7.4 million seniors will need supplemental coverage through Medigap, to fund catastrophic expenses not covered by Medicare.

Because the health care law will have the effect of migrating millions of seniors from Medicare Advantage plans – which are less lucrative financially to AARP – to more-lucrative Medigap supplemental coverage, the Ways and Means member report concluded that the organization could receive a windfall exceeding $1 billion over the next ten years thanks to the law.[23]

Medigap Reform with Bipartisan Appeal

The potential Medigap-related windfall for AARP resulting from the health care law is not the only instance in which the organization’s financial interests have coincided with its policy positions.  In recent months, a renewed focus on reforming entitlements, and making Medicare more sustainable, has prompted new attention to various proposals to reform Medigap plans.  While these plans would benefit most seniors financially, they would harm AARP’s financial interests – so perhaps not surprisingly, AARP has decided to oppose them.

Under the proposals being discussed, the traditional Medicare program would be reformed to provide catastrophic coverage, while Medigap would provide limited supplemental coverage.  For the first time in the program’s history, seniors would know their Medicare costs would not exceed a set amount.  In exchange, Medigap supplemental coverage, which covers co-payments and deductibles, would also be reformed, so that seniors would face an out-of-pocket deductible not covered by insurance.

Reform to Medigap insurance plans has generated bipartisan appeal.  Versions of this reform have been proposed by the Simpson-Bowles Commission,[24] the Rivlin-Domenici commission on debt and deficits, [25] Sens. Tom Coburn (R-OK) and Joe Lieberman (D-CT),[26] and even President Obama’s most recent budget.[27]  Policy-makers in both parties believe that, by limiting first-dollar coverage of medical expenses through Medigap, seniors would serve as smarter purchasers of health insurance, such that overall spending in Medicare might decline modestly.

Although some seniors might pay slightly more out-of-pocket under these changes, a study from the Kaiser Family Foundation said that “the savings for the average beneficiary” under Medigap reform “would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing.”[28]  According to Kaiser, nearly four in five Medigap policy-holders would receive a net financial benefit from this reform – with those savings averaging $415 per senior each year – because creating a new deductible for all Medigap plans will cause premiums to fall.[29]

Under Medigap reform, seniors would spend much less money on premiums.  Just as with automobile insurance, or with Health Savings Account policies for individuals under age 65, adopting a higher deductible would yield significant premium savings for Medigap policies.  The Kaiser study found that under one proposed reform, Medigap premiums would plummet by an average of over 60%, from nearly $2,000 per year to only $731.[30]  Because less money from Medigap policy-holders would be diverted to administrative overhead, seniors would be able to keep their own money to finance their own health care.

AARP Wins When Seniors Lose

The overall premise of Medigap reform is simple: Less money going to insurance companies means greater financial savings for most seniors.

Unfortunately for AARP, things are not that simple.  As one independent financial adviser has said, AARP’s sales tactics are a “dirty little secret” that are “all about fattening the coffers of the organization.”  And the biggest “dirty little secret” of all is that AARP has a major financial incentive to keep premiums high for seniors.[31]

The House Ways and Means Committee members’ investigation last year found that AARP receives a percentage of each senior’s Medigap premium dollar.[32]  The organization’s “royalty fee” totals 4.95% of every premium dollar paid.  So, similar to a salesman pushing the most expensive product in order to receive a higher commission, regardless of the customer’s needs,  AARP has an incentive to sell more Medigap policies – and to sell the most expensive Medigap policies – even if seniors do not need the insurance.  The higher the cost of seniors’ Medigap policies, the more money AARP makes.

Based on AARP’s existing contractual arrangements and the Kaiser Family Foundation study projections, it is relatively simple to calculate the projected financial loss to AARP under Medigap reform.[33]   If premiums decline by more than $1,200 per year, as the Kaiser study predicted, AARP stands to lose an average of $62 in “royalty fees” for every senior enrolled in its Medigap insurance.  With nearly 3 million seniors enrolled in AARP’s Medigap plan, those numbers add up – over $181 million in one year, and $1.8 billion over the course of a decade.[34]  With the organization generating total revenue of $1.35 billion in 2011, Medigap reform would result in an immediate loss of over 13% of AARP’s annual revenue.[35]

AARP’s Covert Campaign to Kill Medigap Reform

Given its financial interest in keeping Medigap premiums high, it is perhaps unsurprising that AARP engaged in a covert lobbying campaign designed to kill Medigap reform, and keep its existing “royalty fee” regime in place.  Last year AARP wrote to members of the congressional “supercommittee” on deficit reduction, asking them not to include Medigap reforms – which, as noted above, would benefit four out of five Medigap policy-holders, but significantly harm AARP’s financial interests.

AARP published excerpts of their letter to the “supercommittee” on its website.[36]  But AARP has yet to put anything on its website indicating that the organization has been privately contacting Members of Congress, asking them not to reform Medigap – and preserve AARP’s lucrative Medigap commissions.

Two years ago, an AARP spokesman told CNN that the organization doesn’t lobby Congress on Medigap issues “at all.”[37]  While the organization is apparently trying to keep its actions secret, the fact remains that AARP is lobbying Congress against Medigap reform, opposing changes that will just so happen to save AARP members tens of billions, but that would also cost AARP billions.

AARP Works Against Its Members

Whereas last year AARP actively lobbied against Medigap reforms that would help its members but hurt AARP financially, three years ago the organization did NOT lobby for Medigap reforms that would help its members but could hurt AARP financially.  Specifically, even after enactment of the health care law, Medigap plans are still permitted to impose waiting periods on senior citizen applicants with pre-existing conditions.  AARP, despite its stated support for ending pre-existing condition restrictions,[38] imposes waiting periods on its own members applying for Medigap coverage[39] – and stood idly by as an attempt to end this practice within Medigap was stricken from the health care bill before it became law.

Section 1234 of House Democrats’ June 2009 health care discussion draft would have prohibited pre-existing condition discrimination for certain Medigap applicants – achieving one of AARP’s chief goals.[40]  However, last year the Washington Post claimed that the Medigap provision “was dropped from the legislation during congressional negotiations because it would have increased Medicare costs, according to a House Democratic congressional aide.”[41]

The Congressional Budget Office scored provisions eliminating pre-existing condition discrimination in Medigap as costing about $400 million per year.[42]  However, AARP had previously stated that the organization “would gladly forego every dime of revenue to fix the health care system.”[43]  As noted above, its $700 million in “royalty fees” last year far exceeds the $400 million annual cost of ending Medigap pre-existing condition discrimination.  It remains unclear why this provision was dropped from the bill, if AARP was so interested in foregoing profits in order to help its members.

In addition to allowing AARP to continue imposing waiting periods on Medigap applicants, the law enacted in March 2010 also exempted AARP’s lucrative Medigap policies from several other new insurance regulations.[44]  At a December 2009 hearing,[45] AARP’s Board Chair claimed to have no idea that legislation that she and the AARP had previously endorsed included numerous exemptions for Medigap plans, including an exemption from the ban on pre-existing condition discrimination.[46]

After the numerous Medigap-related exemptions included in the health care law were publicly exposed, AARP eventually endorsed legislative changes to end some of the exemptions.[47]  However, despite this public turn-around, AARP has yet to explain to the public why it allowed these exemptions to be enacted in the first place – if the organization is not motivated by its own financial interests, as it claims.  Moreover, the organization has not apologized to its members for failing to act and end pre-existing condition discrimination in Medigap plans two years ago, and the impact such failure has had on AARP’s own members.

Members Revolt

Documents released by a House Energy and Commerce Committee oversight investigation reveal just how strongly AARP members opposed their organization’s behavior during the health care debate three years ago.  The files show overwhelming opposition from AARP members to the legislation, based on summaries of AARP call center activity:

July 23, 2009 – 77 members support; 1,031 oppose

July 28, 2009 – 36 members support; 4,174 oppose

July 29, 2009 – 23 members support; 2,656 oppose[48]

On a single day (July 28, 2009) during the height of the debate, 1,897 individuals cancelled their membership in AARP to protest its position on the health care bill.[49]

The documents also reveal that AARP members were well aware of the organization’s financial conflicts, and believed that these conflicts were influencing AARP policy.  One member from Oklahoma called in and complained that:

AARP has a conflict of interest between selling insurance and helping senior citizens.  Until it decides which one is more important, the $$$ or the people, it is deceiving old folks into thinking it works for their benefit.  Actually it works for the insurance companies [sic] benefit and interests, which is why it is so gung-ho on the health care reform bill….Not OK with me.[50]

Members also complained about “perceived partisanship on AARP’s part” – and the documents reveal this to be an accurate concern.  In November 2009, a senior AARP executive wrote to the White House saying “we will try to keep a little space between us” on health care – because AARP’s “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.”[51]  In other words, the organization was attempting to protect its image by publicly deceiving its members – acting detached in public, even as AARP was frantically lobbying behind the scenes to ram the legislation through for the good of the liberal cause.

AARP’s Misguided Political Focus

It is perhaps unsurprising that AARP would focus on “serv[ing] the cause” of liberalism, because many of its senior executives have strong liberal connections.  When the organization hired its current CEO, Barry Rand, one Capitol Hill publication noted that “New AARP Chief Gave Big to Obama.”[52]  Indeed, Mr. Rand has given tens of thousands of dollars in contributions to liberal Democrats over the years.[53]  Many other members of AARP’s executive team also have strong connections to liberal causes; the head of AARP’s government relations and advocacy program was a senior adviser in the Clinton Administration,[54] while other AARP key executives have worked for Sen. Ted Kennedy,[55] Rep. Geraldine Ferraro,[56] and the National Wildlife Federation, a liberal environmental group.[57]

The political philosophy of the organization’s leadership results in AARP mounting advocacy campaigns trumpeting liberal talking points that frequently have little basis in fact.  For instance, in September 2011 AARP released an advertisement with seniors claiming that “I paid into my Medicare,” and decrying any efforts to “cut our benefits.”[58]  However, the ad did not acknowledge what an Urban Institute study makes clear: Most seniors receive more in Social Security and Medicare benefits than they paid in taxes during their lifetime.[59]  An Associated Press story based on the Urban Institute study – “What You Pay for Medicare Won’t Cover Your Costs” – was initially placed on aarp.org, but was later removed from the website, perhaps because its conclusions represent inconvenient truths to AARP.[60]

Other ads run by the AARP during last year’s debt limit debate were also debunked as false and misleading.  In June 2011, the Washington Post’s “Fact Checker” column awarded an AARP ad four “Pinocchios” for “perpetuat[ing] the worse stereotypes about how easy it would be to balance the budget.  At a time when the nation’s fiscal crisis – amid the looming retirement of the baby-boom generation – demands informed and reasoned debate, the AARP misinforms its members about the choices the nation faces.”[61]

Of course, AARP has a financial interest in misinforming its members – because the organization derives much of its revenue from preserving the status quo.  In launching a “multi-million dollar” ad campaign featuring misleading claims, AARP made clear it wanted no changes to the existing Medicare benefit structure.[62]  As outlined above, changes to the Medicare benefit – such as Medigap reform – would cost AARP billions, while saving many seniors hundreds of dollars per year.  By blocking reforms that would dent its profits, AARP hurts seniors two ways – first, by preventing seniors from saving hundreds of dollars in Medigap premiums, and second, by leaving the Medicare program less solvent for future generations.

Democrats Encourage AARP’s Abuses

Even as AARP racks up billions of dollars in insurance profits by overcharging seniors for Medigap plans, Democrats encourage these abuses by giving AARP special favors, and ignoring its questionable sales tactics.  As noted above, the health care law exempted AARP’s lucrative Medigap insurance plans from the ban on pre-existing condition discrimination, thus allowing AARP to continue to impose waiting periods on individuals applying for coverage.  However, that’s not the only exemption that Medigap coverage received in the law; Medigap insurance was also exempted from:

  • The law’s $500,000 cap on executive compensation for insurance industry executives. [63]  Thanks to this exemption, AARP can continue to pay its senior executives more than $1 million in annual compensation.[64]
  • The tax on insurance companies that will total more than $14 billion per year.[65]   Medigap insurance received this exemption even though AARP generates more money from insurance industry “royalty fees” than it received from membership dues, grant revenues, and private contributions combined.[66]
  • The requirement imposed on other health insurance plans to spend at least 85 percent of their premium dollars on medical claims.[67]  Medigap policies are currently held to a far less restrictive 65 percent standard, and the difference can be used to fund higher profits to AARP paid out of the pockets of its senior citizen members.[68]

In addition to these numerous exemptions for Medigap insurance provided in law, the Administration provided a further exemption for Medigap coverage during the rulemaking process.  The Department of Health and Human Services’ rule on insurance rate review exempted Medigap plans from further scrutiny of their premium increases.[69]  In arriving at this determination, HHS concluded that insurance plans like Medigap coverage “do not appear to be a principal focus of the Affordable Care Act” – meaning that because Medigap plans were exempted from the law’s other regulatory requirements, they should be exempted from rate review as well.[70]

Obama Administration Hypocrisy

The frequent exemptions given to Medigap insurance – a product line where AARP holds the largest market share – directly contradict the claims made by Democrats about the 2,700 page health care law.  For instance, Department of Health and Human Services Secretary Kathleen Sebelius’ official biography claims that she “is implementing reforms that end many of the insurance industry’s worst abuses.”[71]  However, with respect to Medigap insurance, that claim is entirely false.  Because Medigap plans were exempted from the law’s new requirements, organizations like AARP can continue to discriminate against applicants with pre-existing conditions, and overcharge seniors in order to generate greater profits.

Even as the Obama Administration fails to acknowledge that the health care law exempts Medigap insurance from all of its new requirements, it has attacked conservatives’ Medicare reform proposals for granting too much power to insurers.  In her speech to the 2012 Democratic National Convention, Secretary Sebelius criticized Republicans for “let[ting] insurance companies continue to cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market.”[72]  And in his speech to the same convention, President Obama said that “no American should have to spend their golden years at the mercy of insurance companies.”[73]  Given that the legislation President Obama signed into law exempted Medigap coverage for seniors from virtually all of its new regulatory requirements, it is more than a little hypocritical for his Administration to criticize others for leaving seniors to the mercy of insurers.

The Administration has yet to answer a basic question at the heart of the numerous exemptions granted to Medigap insurers in their 2,700 page health care law: If the law’s protections are so good, then why are seniors left out of its supposed benefits when it comes to their supplemental insurance?  Unfortunately, the answer could be that AARP has been unwilling to forfeit its profits, and so the Obama Administration has looked the other way as the organization continues to take advantage of seniors.

Kathleen Sebelius: Watchdog or Lapdog?

Even as it has been willing to politically strong-arm insurance companies with whom it disagrees, the Obama Administration’s Department of Health and Human Services has failed to confront AARP about its questionable business practices.  In March 2010, as the Administration was gearing up to ram through its health care law, Secretary Sebelius asked other insurers to “give up some short-term profits” for the nation’s good.[74]  At the time, estimates by Fortune magazine indicated that health insurer profits averaged about 2.2 percent.[75]  Yet Secretary Sebelius made no such request of AARP to give up some of its revenues – even though its Medigap profit margin was 4.95 percent, more than double that of the insurance industry as a whole.

Shortly after the health law passed, Secretary Sebelius undertook a publicity campaign to “encourage” insurance companies to ban rescissions and extend coverage to young adults under age 26 earlier than was required under the law.  While the Secretary made very public efforts to have insurance companies “abandon…efforts to rescind health insurance coverage from patients who need it most,” she made no attempt to encourage AARP and other Medigap insurers to stop discriminating against applicants with pre-existing conditions.[76]  At an implementation briefing to Congress shortly after the law passed, Senate Republican staff asked HHS officials why the Department was asking other insurers voluntarily to change their business practices, but was not asking AARP to stop discriminating against Medigap applicants.  While Jeanne Lambrew, head of the Department’s Office of Health Reform, promised to look into the matter, the Department never took action.

Rather than ask AARP to reform its business practices, Secretary Sebelius instead has blindly offered the organization praise.  In an October 2010 speech to the AARP convention, she hailed the organization as “the gold standard in cutting through spin and complexity to give people the accurate information they need to make the best choices.”[77]  Even though AARP has a strong financial conflict-of-interest in its Medigap insurance – because the organization earns more profit when seniors pay more in premiums – Secretary Sebelius still claimed that AARP constituted “the gold standard” in giving “accurate information.”

The National Association of Insurance Commissioners (NAIC) has previously expressed strong concerns about the percentage-based compensation model under which AARP receives much of its revenue.  In fact, Section 18 of NAIC’s Producer Model Licensing Act recommends that states require explicit disclosure by insurers, and clear written acknowledgement by consumers, of any percentage-based compensation arrangement, due to the potential for abuse.  As a former insurance commissioner, Secretary Sebelius should be well aware of the financial conflicts inherent when an organization like AARP receives a percentage of every Medigap dollar paid by seniors.  Yet the Secretary apparently ignored these concerns, and went on to praise AARP as a source of impartial advice, even though even former AARP executives have criticized the organization as hopelessly compromised by financial conflicts-of-interest.

In her time heading HHS, Secretary Sebelius has undertaken clearly political actions, including those that violated the law.  Just last week, the Office of the Special Counsel publicly released a report concluding that the Secretary engaged in political activity that violated the Hatch Act prohibitions on federal officials campaigning for partisan political causes.[78]  It is therefore quite reasonable to ask whether Secretary Sebelius has also engaged in a pattern of politically-motivated selective enforcement – attacking other insurers when convenient, but failing to examine AARP’s questionable business practices, because AARP supports the President’s liberal causes.

As noted above, AARP executives e-mailed the White House in November 2009 stating that “the larger issue is how best to serve the cause.”  It would thus appear that both AARP and the Administration recognize their political interests are aligned.  Certainly the Administration’s actions – exemptions for Medigap coverage included both in statute and in rulemaking; attacks on insurers with smaller profit margins than AARP; failure to criticize AARP’s percentage-based compensation model – are consistent with a governing philosophy that permits AARP to engage in questionable and abusive behavior towards seniors, so long as AARP funnels the profits from said behavior back into supporting the Administration’s liberal causes.

In April 2010, Secretary Sebelius wrote to insurers to stop rescinding insurance policies earlier than required under the law, encouraging them “not to wait until the fall to do the right thing.”[79]  America’s seniors have been waiting for years for Secretary Sebelius, and the entire Obama Administration, to do the right thing – to apply the law fairly, without regard to political persuasion.  Unfortunately, the facts suggest that the Administration has knowingly looked the other way, and failed to take on AARP over its business practices – because political advantage outweighs the need for impartial enforcement, or extending the supposed benefits of the health care law to senior citizens.

Conclusion

Though it purports to be a seniors advocacy organization, AARP functions in many respects as an insurance conglomerate with a liberal lobbying arm on the side.  Independent experts and even former AARP executives have admitted that the organization’s billions of dollars raised from its business enterprises – most notably the sale of health insurance plans – have compromised the organization’s mission and independence.  As one consultant put it: “Either you’re a voice for the elderly or you’re an insurance company – choose one.”[80]

As this report has demonstrated, AARP has acted against its members’ interest, but in its own financial interests, on several occasions during the major health care debates of the past several years.  First AARP endorsed a health care law that gave its most lucrative product offering – Medigap insurance – a major opportunity to solicit new members, exempted those Medigap plans from the law’s regulatory regime, and allowed AARP to continue imposing waiting periods on the sickest seniors looking to buy Medigap coverage.  More recently, AARP has engaged in a covert lobbying campaign designed to kill Medigap reforms that would benefit nearly four in five policy-holders and improve Medicare’s solvency – but could cost AARP billions.

This year, AARP has embarked upon a “You’ve Earned a Say” campaign, purportedly designed to solicit members’ opinions on ways to reduce the deficit.  However, the organization has yet to solicit members’ viewpoints about its own actions.  For instance:

  1. How many members know that senior AARP executives have received over $1 million in compensation from the organization – and that 543 individuals received over $100,000 in compensation last year?
  2. How many members know that AARP has generated over $2 billion in revenue from selling health insurance plans in the past five years?
  3. How many members know that AARP imposes waiting periods on Medigap applicants with pre-existing conditions – and stood idly by as provisions to eliminate Medigap pre-existing condition discrimination were stricken from the health care law?
  4. How many members know that nearly four in five Medigap plan holders would financially benefit from reforms, to the tune of several hundred dollars per year?
  5. How many members know that Medigap reforms that would help seniors could cost AARP billions of dollars in lost revenue?

At the very least, AARP should be up-front and honest with its members about the massive financial stake it has in this debate.  Better yet, the organization should start thinking less about its bottom line and more about its members, and endorse reforms that will help the vast majority of Medigap policy-holders.

 


[1]Behind the Veil: The AARP America Doesn’t Know, report by Reps. Wally Herger and Dave Reichert, March 29, 2011,  http://herger.house.gov/images/stories/pdf/20110329aarpreport.pdf, p. 6.

[2]AARP Inc., 2010 Internal Revenue Service Form 990, http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2010_990_aarp.pdf, p. 1.

[3] Ibid., pp. 8-9.

[5] Page 9 of the AARP 2011 financial statements notes that “the service provider United Healthcare Corporation accounted for 65% of total royalties earned in 2011 and 2010.”  65% of the total $704 million in royalties equates to $457.6 million received from United Healthcare.

[6] Ibid., p. 3.

[7] Letter from AARP Chief Operating Officer Thomas Nelson to Rep. Dave Reichert, November 2, 2009, pp. 3-4.

[9]Ibid., pp. 3-9.

[12] AARP Inc., 2011 Consolidated Financial Statements.

[13] Fortune 500, Health Care: Insurance and Managed Care, May 23, 2011, http://money.cnn.com/magazines/fortune/fortune500/2011/industries/223/index.html.

[14] Ibid.

[15] Gary Cohn and Darrell Preston, “AARP’s Stealth Fees Often Sting Seniors With Costlier Insurance,” Bloomberg December 4, 2008,  http://www.bloomberg.com/apps/news?pid=newsarchive&refer=&sid=a4OkPQIPF6Kg.

[16] Letter from Senate Finance Committee Ranking Member Chuck Grassley to AARP CEO William Novelli, November 3, 2008, http://www.grassley.senate.gov/news/upload/110320081.pdf.

[17] Robert Pear, “AARP Orders Investigation Concerning Its Marketing,” New York Times November 18, 2008,   http://www.nytimes.com/2008/11/19/us/19insure.html?_r=1.

[18] Emily Berry, “United Stops Selling AARP Limited-Benefit Insurance,” Amednews.com May 28, 2009,  http://www.ama-assn.org/amednews/2009/05/25/bisd0528.htm.

[19] Behind the Veil: The AARP America Doesn’t Know.

[20] Letter from House Ways and Means Committee Members Wally Herger, Charles Boustany, and Dave Reichert to Internal Revenue Service Commissioner Douglas Shulman, December 21, 2011,  http://waysandmeans.house.gov/uploadedfiles/letter_to_irs-shulman_12-15-11.pdf.

[21] Congressional Budget Office, score of H.R. 6079, Repeal of Obamacare Act, July 24, 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf.

[22] Robert Book and Michael Ramlet, What Changes will Health Care Reform Bring to Medicare Advantage Plan Benefits and Enrollment?, Medical Industry Leadership Institute- Carlson School of Management, October 2011, http://americanactionforum.org/sites/default/files/Embargoed_Book+Ramlet_MILI-Working-Paper_2011-10-13_Final.pdf.

[23] Behind the Veil: The AARP America Doesn’t Know, Table 4, p. 16.

[24] The Moment of Truth, report of the National Commission on Fiscal Responsibility and Reform, December 2010,

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf, p. 39.

[25] Restoring America’s Future, report of the Bipartisan Policy Center’s Debt Reduction Tax Force, November 2010, http://bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf, pp. 52-53.

[27] White House Fiscal Year 2013 budget submission to Congress, February 2012, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf, p. 35.

[28] Kaiser Family Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” July 2011, http://www.kff.org/medicare/upload/8208.pdf, p. 8.

[29] Ibid.

[30] Ibid., Exhibit 2, p. 6.

[31] “AARP’s Stealth Fees Often Sting Seniors With Costlier Insurance.”

[32] Behind the Veil: The AARP America Doesn’t Know.

[33] Kaiser Family Foundation, “Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” Exhibit 2, p. 6.

[34] Behind the Veil: The AARP America Doesn’t Know, Table 2, p. 9.

[35] AARP Inc., 2011 Consolidated Financial Statements, p. 3.

[36] AARP Press Release, “AARP to Super Committee: Don’t Cut Medicare, Social Security Benefits,” October 19, 2011, http://www.aarp.org/about-aarp/press-center/info-10-2011/aarp-to-super-committee-dont-cut-medicare-social-security-benefits.html.

[37] Carol Costello, “150,000 Seniors In Revolt,” CNN American Morning January 6, 2010, http://www.cnn.com/video/?/video/politics/2010/01/06/costello.aarp.health.care.cnn.

[38] AARP Press Release, “AARP Thanks Senate for Passing Health Care Reform,” December 24, 2009,  http://www.aarp.org/about-aarp/press-center/info-03-2010/aarp_thanks_senateforpassinghealthcarereform.html.

[39] New York State Department of Financial Services, list of insurers offering Medicare supplemental coverage, http://www.dfs.ny.gov/insurance/caremain.htm#insurer.

[40] House Tri-Committee Health Reform Discussion Draft, June 19, 2009, http://democrats.energycommerce.house.gov/Press_111/20090619/healthcarereform_discussiondraft.pdf, p. 358.

[41] Susan Jaffe, “Medigap Supplemental Coverage Can Be Too Pricey for Younger Medicare Beneficiaries,” Kaiser Health News March 7, 2011,  http://www.washingtonpost.com/wp-dyn/content/article/2011/03/07/AR2011030703978.html.

[42] Congressional Budget Office, preliminary estimate of House Tri-Committee Health Reform Discussion Draft, July 7, 2009, http://democrats.energycommerce.house.gov/Press_111/20090708/cbomedicare.pdf, p. 4.

[43] Letter from AARP Chief Operating Officer Thomas Nelson to Rep. Dave Reichert, November 2, 2009, p. 4.

[44] Karl Rove, “ObamaCare Rewards Friends, Punishes Enemies,” Wall Street Journal January 6, 2011, http://online.wsj.com/article/SB10001424052748704405704576063892468779556.html.

[45] House Energy and Commerce Subcommittee on Health hearing, “Prescription Drug Price Inflation: Are Prices Rising Too Fast?” December 8, 2009, http://energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=7588.

[46] AARP Press Release, “AARP Endorses Affordable Health Care for America Act,” November 5, 2009, http://www.aarp.org/about-aarp/press-center/info-11-2009/affordable_health_care_act_endorsement.html.

[47] Letter to the Editor, Wall Street Journal, by AARP President Lee Hammond, January 11, 2011, http://www.aarp.org/about-aarp/press-center/info-01-2011/aarp_letter_to_theeditor.html.

[48] House Energy and Commerce Committee, investigation into closed-door Obamacare negotiations, supplemental materials for June 8, 2012 memorandum, http://archives.republicans.energycommerce.house.gov/Media/file/PDFs/060812relevantdocsmemoIII.pdf, pp. 63-68.

[49] Ibid., p. 73.

[50] Ibid., p. 79.

[51] Ibid., p. 88.

[52] Jeffrey Young, “New AARP Chief Gave Big to Obama,” The Hill March 12, 2009, http://thehill.com/business-a-lobbying/3963-new-aarp-chief-gave-big-to-obama.

[53] Ibid.

[55] “AARP Leadership Profile: Debra Whitman,” http://www.aarp.org/about-aarp/executive-team/debra_whitman/.

[58] Michael Muskal, “AARP Ads: Hands Off Social Security and Medicare,” Los Angeles Times September 21, 2011, http://www.standard.net/stories/2011/09/21/aarp-ads-hands-social-security-and-medicare.

[59] Gene Steuerle and Stephanie Rennane, “Social Security and Medicare Taxes and Benefits Over a Lifetime,” Tax Policy Center, June 2011, http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf.

[60] While the Associated Press story from December 30, 2010 has been removed from the AARP website, it can still be found at http://www.cbsnews.com/2100-204_162-7197847.html.

[61] Glenn Kessler, “AARP’s Misleading Ad about Balancing the Budget,” Washington Post June 20, 2011, http://www.washingtonpost.com/blogs/fact-checker/post/aarps-misleading-ad-about-balancing-the-budget/2011/06/17/AGQKRsYH_blog.html.

[62] AARP Press Release, “AARP Launches New TV Ad Calling on Congress to Protect Medicare and Social Security from Harmful Cuts,” June 16, 2011, http://www.aarp.org/about-aarp/press-center/info-06-2011/aarp-launches-new-tv-ad-calling-on-congress-to-protect-medicare-and-social-security-from-harmful-cuts.html.

[63] Section 9014 of the Patient Protection and Affordable Care Act (PPACA) as amended, http://housedocs.house.gov/energycommerce/ppacacon.pdf, pp. 816-18.

[64] AARP Inc., 2010 Internal Revenue Service Form 990, pp. 8-9.

[65] PPACA, Section 9010(h)(3)(C) as amended, p. 815.

[66] AARP Inc., 2011 Consolidated Financial Statements,  p. 3.

[67] PPACA, Section 1001, p. 22.

[68] Section 1882(r)(1) of the Social Security Act, 42 U.S.C. 1395ss(r)(1).

[69] Department of Health and Human Services, Rate Increase Disclosure and Review, Final Rule, Federal Register May 23, 2011, http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/2011-12631.pdf, pp. 29966-67, 29985.

[70] Department of Health and Human Services, Rate Increase Disclosure and Review, Proposed Rule, Federal Register 23 December 2010, http://www.gpo.gov/fdsys/pkg/FR-2010-12-23/pdf/2010-32143.pdf, pp. 81007, 81009, 81026.

[71] Official HHS Biography of Secretary Kathleen Sebelius, http://www.hhs.gov/secretary/about/biography/index.html.

[72] Remarks by HHS Secretary Kathleen Sebelius at the Democratic National Convention, September 4, 2012, http://dyn.politico.com/printstory.cfm?uuid=CB187143-9624-3760-BC9CC2DBE9C60BD7.

[73] Remarks by the President at the Democratic National Convention, September 6, 2012, http://www.whitehouse.gov/the-press-office/2012/09/07/remarks-president-democratic-national-convention.

[74] Jane Norman, “Sebelius Urges Health Care Insurers to Trim Their Profits,” CQ HealthBeat March 10, 2010, http://www.commonwealthfund.org/Newsletters/Washington-Health-Policy-in-Review/2010/Mar/March-15-2010/Sebelius-Urges-Health-Insurers-to-Trim-Their-Profits.aspx.

[75] “Top Industries: Most Profitable,” 2009 Fortune 500, http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/.

[76] HHS Press Release, “HHS Secretary Kathleen Sebelius Urges Wellpoint to Immediately Stop Dropping Coverage for Women with Breast Cancer,” April 23, 2010, http://www.hhs.gov/news/press/2010pres/04/20100423a.html.

[77] Remarks of HHS Secretary Kathleen Sebelius at AARP Orlando@50+ Conference, October 1, 2010, http://www.hhs.gov/secretary/about/speeches/sp20101001.html.

[78] Office of Special Counsel, File No. HA-12-1989 (Kathleen G. Sebelius), September 12, 2012, http://www.osc.gov/documents/hatchact/Hatch%20Act%20Report%20on%20HHS%20Secretary%20Kathleen%20Sebelius.pdf.

[79] HHS News Release, “Momentum Building on Sebelius’ Challenge to Insurers to Ban Rescission Before Law Takes Effect in September,” April 28, 2010, http://www.hhs.gov/news/press/2010pres/04/20100428a.html.

[80] Cited in Dan Eggen, “AARP: Reform Advocate and Insurance Salesman,” Washington Post October 27, 2009,  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102603392_pf.html.

Updated JEC Member Viewpoint: The $840 Billion Price Tag of Obama’s Broken Promise on Premiums

When campaigning for the presidency, then-candidate Barack Obama repeatedly promised that under his health care reform proposal, health insurance premiums would go down by $2,500 by the end of his first term. 1 The end of President Obama’s first term is now approaching, and the change in average family premiums is surprisingly close to candidate Obama’s promise: the problem is, that change is in the wrong direction. Instead of falling $2,500, the average employer-sponsored family premium has increased $3,065. 2

The difference, then, between candidate Obama’s promise and President Obama’s record is $5,565. 3 But that is just the difference for 2012. If the promised $2,500 decline is allocated proportionally over four years and across different plan types, the cumulative gap between actual and promised premiums for private employer-based health insurance equals $12,832 for the average family and $4,331 for the average individual (excluding any rebates). 4

 Premium Promise Broken

Of course, to be fair, the Medical Loss Ratio (MLR) provision of Obamacare will result in some health insurance enrollees receiving rebate checks from their insurance providers. This provision is Obamacare’s attempt at driving down insurance costs by dictating how insurance companies can spend money freely given to them by employers and individuals who wish to purchase their services. For the 2011 plan year, an estimated $1.3 billion in rebate checks will be sent to about 16 million enrollees, for an average rebate amount of $85. 5 Assuming a similar level of rebates go out in 2013 for the 2012 plan year, the MLR rebates reduce the gap between promised premiums and actual premiums by only three-tenths of one percent, to a cumulative difference of $12,791 for the average family and $4,318 for the average individual. That is $12,791 less money that was spent (on something other than health insurance), saved, or invested by the average family and $4,318 less by the average individual.

When you add up all the extra money – beyond the level promised by candidate Obama – Americans have spent on health insurance over the past four years, the economy-wide impact is an astounding $840 billion. 6 That’s as much as the President’s failed stimulus package, and not so far off from the initially reported $940 billion ten-year cost of Obamacare (the updated ten-year cost is $1.76 trillion, not including the costs of implementation). 7 What’s worse though is that this figure will only rise over time as Obamacare’s many taxes and regulations continue to drive up the cost of health insurance.

In terms of full-time jobs, the $840 billion difference is equivalent to the cost of private-sector employers supporting an average of 3.2 million jobs each year between 2009 and 2012, and a total of 5.2 million jobs in 2012 alone. 8

Difference in Premium Costs

With more than $840 billion less in Americans’ pockets than Obama promised, it’s no wonder our economy continues to struggle. It is the government-knows-best view of the Obama Administration and Democrats in Congress that has contributed to the American economy stalling out. His promise to reduce premiums by $2,500 and his administration’s estimate that the stimulus would cut the unemployment rate to 5.6% (by August 2012) show President Obama’s conviction that government is the solution to driving down costs and creating jobs. 9 Unfortunately, that conviction has proven unfounded. Excessive government spending and intervention have not driven down health insurance premiums by $2,500, but rather contributed to a $3,065 increase. And unprecedented deficit-financed stimulus spending has not brought the unemployment rate down to 5.6%, but rather kept it up above 8%, with employers and investors holding back as Obamacare and other regulations have increased their costs and as unsustainable deficit spending has given rise to fear over coming tax hikes.

 

Analytical Appendix

Population and Insurance Coverage

The Census Bureau publishes data on the number of people in the United States with health insurance coverage. These data are broken down into private insurance coverage and government insurance coverage. Within private coverage, the data are segmented into individuals with employment based health insurance and direct purchase health insurance. The data from the Census Bureau are available through 2011. Data for 2012 are estimated based on the average annual percentage increase in each category of insurance from 1995-2011.

For allocation of insured individuals between individual or self-only plans and family plans, data were taken from the 2011 Medical Expenditure Panel Survey (MEPS). These data show that individual or self-only plans made up 50.2% of all private sector employer health plans while family plans comprised the remaining 49.8%. This breakdown was also applied to the direct purchase market and across all years. The resulting allocation of individuals across private plan types is shown below.

Coverage Type

For each family plan, there are assumed to be 3.05 members. This statistic is based on a breakdown of direct purchase family policies by size from ehealthinsurance.com, and it assumes an average of eight members per plan within the category of 6+ members.

Breakdown of Family Policies

Premium Costs

Data on average annual premium costs for employment based health insurance come from the Kaiser Family Foundation Annual Employer Health Benefits Survey. Data on premium costs for direct purchase health insurance come from the ehealthinsurance.com Annual Cost and Benefit Reports. As of this updated publication, the data on direct purchase plans from ehealthinsurance.com were only available through 2011. The analysis conservatively assumes no rise in direct purchase premiums from 2011 to 2012.

Actual Private Premium Costs

 

Promised Reductions

The promise of a $2,500 reduction in the average family premium by the end of President Obama’s first term is applied as a $625 per year reduction in costs for the average family premium (-$625 in 2009, -$1,250 in 2010, -$1,875 in 2011, and $-2,500 in 2012). The applicable promised reduction for the average individual or self only premium is $927 for employer based health insurance and $1,077 for direct purchase health insurance. These individual premium promised reduction amounts are based on the ratio of individual to family premium costs in 2008, when the promise was made. At that time, the average employment based individual premium was equal to 37.1% of the average family premium (.371*-$2,500 = -$927) while the average direct purchase individual premium was 43.1% of the average direct purchase family premium (.431*-$2,500 = -$1,077).

Promised Private Premium Costs

Aggregate Estimates of the Broken Promise

For aggregate estimates of amounts paid for health insurance vs. those promised, the number of people in each insured group (individual employment based, individual direct purchase, family employment based, and family direct purchase) was multiplied by the difference between the promised premium cost and the actual premium cost in each year from 2009 to 2012. The sum of additional premium costs across these privately-insured individuals and families from 2009 to 2012 amounts to $843 billion ($843,135,995,165). The new Medical Loss Ratio (MLR) component of the Affordable Care Act is estimated to result in roughly $1.3 billion ($1,343,496,719) in rebates to be paid by insurers to enrollees (beginning in August 2012) for the 2011 plan year. In keeping with the conservative estimate that direct purchase premiums did not rise from 2011 to 2012, MLR rebates in 2013 (for the 2012 plan year) are also assumed to hold steady at $1.3 billion. Excluding the $2.6 billion of cost-reducing MLR rebates, the total gap between promised and actual premium costs equals $840 billion ($840,449,001,727).

Additional Premium Costs

Jobs Equivalent Cost Estimates

Estimates translating the annual cost differences between promised and actual premiums into the cost of private-sector job creation were obtained by dividing the total economy-wide cost difference for each year by the average employee compensation for full-time, private-sector employees in that year. Compensation data come from the Bureau of Labor Statistics Employer Costs for Employee Compensation Survey (data were available through the second quarter of 2012). The table below shows the annual jobs equivalent costs estimates.

Jobs Cost Equivalent

1 Freedom Eden, “Obama: 20 Promises for $2,500,” March 22, 2010, http://freedomeden.blogspot.com/2010/03/obama-20- promises-for-2500.html.

2 Kaiser Family Foundation, Annual Employer Health Benefits Surveys 2008-2011, http://www.kff.org/insurance/index.cfm

3 Data on 2012 premiums costs for direct purchase premiums were not yet available. This analysis relies on a conservative estimate that direct purchase premiums will not rise in 2012, but will remain constant at their 2011 level.

4 Data on private, direct purchase health insurance premiums for 2008-2011 come from ehealthinsurance.com. See Analytical Appendix for a detailed analysis of estimates.

5 Kaiser Family Foundation, “Insurer Rebates under the Medical Loss Ratio: 2012 Estimates,” April 2012, http://www.kff.org/healthreform/upload/8305.pdf.

6 See Analytical Appendix.

7 Congressional Budget Office, “Estimate of direct spending and revenue effects for the amendment in the nature of a substitute released on March 18, 2010,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr4872_0.pdf and “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” March 13, 2012, http://cbo.gov/publication/43076.

8 Estimates based on data from the Bureau of Labor Statistics Employer Costs for Employee Compensation Survey (quarterly data through the 2nd quarter of 2012) and private-sector, full-time employee compensation. In the first two quarters of 2012, the average cost of employee compensation was $67,020.

9 Unemployment estimate comes from Christina Romer and Jared Bernstein, “The Job Impact of the American Recovery and Reinvestment Plan,” January 9, 2009, http://www.politico.com/pdf/PPM116_obamadoc.pdf.

An earlier version of this document in PDF form can be found on the Joint Economic Committee’s website.

JEC Member Viewpoint: Sen. Jim DeMint on Obamacare’s $805 Billion Broken Promise

When campaigning for the presidency, then-candidate Barack Obama repeatedly promised that under his health care reform proposal, health insurance premiums would go down by $2,500 by the end of his first term. The end of President Obama’s first term is now approaching, and the change in average family premiums is surprisingly close to candidate Obama’s promise: the problem is, that change is in the wrong direction. Instead of falling $2,500, the average employer-sponsored family premium has increased $2,393.

The difference, then, between candidate Obama’s promise and President Obama’s record is $4,893. But that is just the difference for 2012. If the promised $2,500 decline is allocated proportionally over four years and across different plan types, the cumulative gap between actual and promised premiums for private health insurance equals $12,271 for the average family and $4,177 for the average individual.

See the entire JEC Republican study in pdf format here.

805 Billion