Nov. 21, 2003

AARP Has Financial Conflict of Interest in Medicare Drug Bill

WASHINGTON, D.C. – An analysis by the national consumer group Public Citizen suggests that there were strong financial incentives for AARP to support the Republican-drafted Medicare prescription drug bill, because the organization is likely to realize significant profits from the programs to be established by the legislation. AARP has created shock waves within the political world by endorsing the prescription drug bill now before Congress, despite numerous provisions in the bill that violate the organization’s previously stated positions.

AARP has launched a $7 million ad campaign to support the bill, with TV and newspapers ads running in numerous major markets across the country.

Public Citizen’s analysis demonstrates that while AARP might be considered primarily a membership organization, it has in many ways become a business – one that derives approximately 60 percent of its revenues from a variety of insurance-related ventures, and only 29 percent of its revenues from membership dues.

The analysis shows that the majority of AARP’s annual revenue comes from selling such products as Medigap supplemental drug insurance policies and offering prescription drug discount cards. It also sells its membership list to corporations, such as health insurers, and sells advertising space in its magazine to customers that include pharmaceutical and insurance companies. Plus, it earns income by temporarily investing insurance premiums paid by its members before they are due to the insurer. Click here to read the analysis.

"Taking its business activities into account, AARP would stand to gain tens of millions of dollars each year in new income under the Republican Medicare bill, a finding that presents a significant conflict of interest for an organization trying to represent the best interests of its members," said Frank Clemente, director of Public Citizen’s Congress Watch.

Senate Democratic Leader Tom Daschle (D-S.D.) and House Democratic Leader Nancy Pelosi (D-Calif.) recently called on the AARP to "dispel any perception of a conflict of interest" by making "a commitment not to become a direct or indirect marketer of discount cards, pharmacy benefit drug plans, or any other managed care health plan offerings to Medicare beneficiaries called for in this bill."

Specific findings in Public Citizen’s analysis include:

  • AARP’s royalty income from health insurance policies amounted to $107.8 million in 2002, or 17 percent of its operating revenues. A large portion of this royalty income was derived from insurance policies administered by the UnitedHealth Group, one of the largest managed care companies in the country. Such health plans are a central feature of the Medicare drug bill before Congress.
  • AARP’s investment income from insurance products totaled $26.7 million in 2002, or 4.2 percent of income. This would dramatically increase if many more health premiums get written as a result of the legislation, which is likely.
  • AARP derives income from a prescription drug discount card marketed to its members, which is a program that would be offered in 2004 and 2005 before the prescription drug benefit becomes available if the Medicare bill becomes law.

"AARP has a fine history of representing senior citizens in this country," said Clemente. "We hope that considerations of financial profit played no role in its decision to endorse the bill that most national seniors groups oppose. The organization would do well to make a declaration to this effect and, given the many problems in the bill and the strongly voiced concerns of so many of its members, reconsider its support for the legislation."

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