AARP Collects Royalties, Fees From Insurers For Endorsement

Main Category: Health Insurance / Medical Insurance
Article Date: 09 Dec 2008 - 3:00 PDT

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Insurance premiums for plans endorsed by AARP, which it claims in advertisements can save members money, often cost more than other plans, in part, because the insurers build into the cost of their plans hundreds of millions of dollars of royalties and fees paid to the advocacy group for its endorsement, Bloomberg/Boston Globe reports. Under AARP's insurance plans, the group collects premiums from its members and then pays the insurers. The insurers then return the royalties and fees given to AARP.

In 2007, the royalties and fees totaled $497.6 million, or 43% of AARP's $1.17 billion in revenue, compared with 11% in 1999. In addition, AARP generates income by holding members' premium payments for up to one month and investing the money before it pays the insurers. Bloomberg/Globe reports that those investments brought in $40.4 million in revenue in 2007. AARP's marketing has been expanded to include 17 types of insurance.

According to Bloomberg/Globe, AARP's expansion of its supplemental insurance provider contract after lobbying on behalf of the Medicare Modernization Act, which became law in 2003, shows its "conflicting roles." Marilyn Moon, former director of AARP's Public Policy Institute, said AARP's mission has been compromised by its reliance on the royalties and fees. Moon said, "There's an inherent conflict of interest," adding, "A lot of people there are trying to do good, but they're ending up becoming very dependent on sources of income." Thomas Orecchio, former chair of the National Association of Personal Financial Advisors, said, "At the end of the day, it's all about fattening the coffers of the organization," adding, "It's the dirty little secret."

Last month, Grassley sent letters to AARP CEO William Novelli and state insurance commissioners to inquire into whether the organization misrepresented what is covered in some of the health coverage plans it sold. Four days after the letter was sent, Novelli announced that AARP would review its marketing and suspend sales of those policies (Cohn/Preston, Bloomberg/Boston Globe, 12/5).

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