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AARP lobbies against Medicare changes that could hurt its bottom line

By Jerry Markon,December 03, 2012

As Washington debates whether to cut federal retirement programs as part of a deal to tackle the nation’s debt, one of the most powerful advocates for preserving them could have millions of dollars riding on the outcome.

AARP, the highly influential lobby for older Americans, is fiercely opposing any Medicare or Social Security cuts and emphasizes that it is fighting for the good of its members. But the proposals for changing Medicare also could affect AARP’s bottom line.

AARP has long played a dual role. It advocates for the interests of seniors, and it makes money allowing its name to be used in selling them private insurance, including coverage known as Medigap, which supplements government-provided Medicare. The group gets a 4.95 percent royalty each time someone buys Medigap insurance with the AARP brand. The Medigap insurance policies bring in hundreds of millions of dollars a year and are among an array of AARP-endorsed products that generate slightly more than half of the group’s $1.4 billion in revenue, according to tax records and people familiar with the group’s operations.

But in last year’s negotiations over the federal debt ceiling, President Obama and top Republicans discussed proposals to change Medicare that could have reduced AARP’s revenue from Medigap. At the time, AARP lobbied against the proposals, congressional aides say. Now, political observers predict that those measures will be back on the table in the coming weeks as Democrats and Republicans wrangle over a deal aimed at avoiding the “fiscal cliff” of dramatic tax increases and spending cuts set to kick in at the end of the year.

“There is a potential conflict of interest,” said Marilyn Moon, a former senior AARP official who runs the health-care program at the nonprofit American Institutes for Research. “Any way you look at changes in Medigap that people are talking about, I think it’s good for beneficiaries, and anybody who is opposing that who claims they are looking out for beneficiaries, you have to wonder why.”

AARP executives dispute any financial motive, saying the group’s all-volunteer board considers only what is best for its membership.

“They stand to gain nothing from AARP’s financial success or failure,” said David Certner, the group’s legislative policy director. “They are motivated by nothing more than a heartfelt desire to ensure that every American can age with dignity. AARP does not calculate or consider any potential financial ‘impact’ of policy options on AARP because they are not relevant to our policy decision-making process.”

AARP officials point to other instances when they say they argued against their financial self-interest and on behalf of seniors — for example, opposing the privatization of Medicare and Social Security, even though the group could have profited by lending its name to new insurance products.

Limits on Medigap

Among the entitlement proposals being debated by policymakers is a change that would limit Medigap coverage, with the aim of lowering the overall cost of Medicare. The measure would move catastrophic coverage from Medigap to Medicare and force seniors who buy Medigap coverage to pay a deductible and co-pays.

By making them pay for more of their health care, policymakers seek to curb unnecessary medical visits and tests. These changes would probably reduce Medigap premiums, similar to how premiums for auto insurance tend to be lower if customers pay higher deductibles.

The smaller Medigap premiums could reduce AARP’s revenue by shrinking its royalties. A report released in September by Sen. Jim DeMint (R-S.C.) estimated that the group could lose $1.8 billion over 10 years. AARP officials said they do not understand how that number was calculated and declined to comment further.

AARP says it opposes the proposed change to Medigap because it would harm older Americans, even though they may pay lower premiums. The group warned that seniors would suffer because of the higher deductibles and co-pays, and it said seniors prefer the certainty associated with lower deductibles and co-pays.

A study by the Kaiser Family Foundation last year found that Medigap premiums would fall so drastically under some reform plans that most seniors would save up to hundreds of dollars per year.

A separate proposal for revising Medicare — and perhaps the most widely discussed — involves raising the eligibility age from 65 to 67. Obama discussed this idea with House Speaker John A. Boehner (R-Ohio) in the summer of 2011 during efforts to resolve the debt-ceiling crisis. More recently, GOP lawmakers have called for raising the eligibility age as part of a deal to avert the fiscal cliff. AARP objects to the idea.