AARP Accused of Conflict of Interest

Group stands to profit from Medicare bill

By Jim Drinkard and William M. Welch
November 21, 2003


WASHINGTON -- AARP, the nation's leading lobbying force for retirees, has a major conflict of interest in its backing for a new Medicare prescription drug plan, opponents charge.

The organization receives millions of dollars a year in royalties for insurance marketed under its name. It stands to reap a windfall from the plan, which would pump $400 billion into a new drug benefit and open Medicare to private insurance competition.

AARP's annual reports show it has received about $608 million in insurance-related income over the four most recent years for which data are available. That's 30% of its total income, roughly equal to what it collects in membership dues.

''It's almost unimaginable that they wouldn't stand to gain'' if the new benefit is passed, says David Himmelstein of Harvard Medical School. He is a proponent of national health insurance.

Much of AARP's insurance business is in policies that pay costs not covered by Medicare -- so-called Medigap insurance. UnitedHealth Group signed a 10-year contract with AARP in 1998 to provide health coverage to its 35 million members. The business was worth $3.7 billion last year to the insurance company.

''The same folks who are in the Medigap market would want to get into this, and the best route in is through the AARP membership list,'' Himmelstein says.

AARP also collects millions of dollars a year from insurance and drug companies that advertise in the magazine it mails to members. It also makes money -- $10.8 million last year -- by selling its member list to insurance companies.

From its earliest roots in the 1950s, AARP has been closely tied to the insurance business. It grew out of a retired teachers group that sought to provide health insurance to its members. ''They have always had this commercial identity,'' says Jonathan Oberlander, a political scientist at the University of North Carolina who has studied the politics of Medicare.

The breadth of AARP's business activities -- which include not only insurance but credit cards, travel packages and prescription drugs -- has drawn unwanted attention before. In 1995, Sen. Alan Simpson, R-Wyo., convened hearings that alleged the group was abusing its non-profit status. AARP was forced to pay back taxes on its earnings from those commercial ventures. And the group has faced periodic questioning about whether its business interests at times overshadow the interests of its members.

Simpson, now retired from the Senate, remains one of the group's sharpest critics. ''If there was a sublime definition of conflict of interest, it would be AARP from morning to night,'' he says.

AARP is tax exempt and officially non-partisan. ''We make public policy decisions without regard to business considerations,'' says the group's policy director, John Rother. Spokesman Steve Hahn says some of its Medigap policies and mail-order pharmaceutical sales are likely to be hurt by passage of the Medicare bill because it will increase competition.

Democrats in Congress seemed stunned this week when AARP announced it would support the Republican-drafted Medicare compromise and pour $7 million into a TV ad campaign urging passage.

Senate Minority Leader Tom Daschle, D-S.D., and House Minority Leader Nancy Pelosi, D-Calif., say the legislation would sell out the interests of senior citizens. It ''undermines Medicare and serves the agendas of big drug and insurance companies,'' they wrote in a letter to AARP head William Novelli. They asked Novelli to pledge not to profit from any program that might be created.

Rep. Pete Stark, D-Calif., called the legislation a ''special-interest boondoggle'' that will split AARP's leaders from its grass roots. On Thursday, a message board on the group's Web site was peppered with angry postings from members, including 839 new missives under the title, ''AARP sellout.''

For a decade, AARP has been a sleeping giant. The organization felt burned after its support for a catastrophic insurance benefit in 1988 backfired with seniors and had to be repealed. It had since been reluctant to take positions on hot political issues. Its membership is evenly divided among Democrats, Republicans and independents, making it hard to take sides in policy fights.

But when the group does decide to engage, its clout is unmatched. ''They are the most important and well-organized association in Washington,'' says James Thurber, who teaches lobbying at American University in Washington.