House Republicans seek IRS probe of AARP

By Ricardo Alonso-Zaldivar and Stephen Ohlemacher
Associated Press / March 30, 2011

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WASHINGTON—AARP lobbied for the new health care law and now it stands to profit, Republican lawmakers charged Wednesday as they called for the IRS to investigate whether the powerful interest group representing older Americans should be stripped of its federal tax exemption.

Three veteran GOP representatives released a report that estimates the seniors lobby could make an additional $1 billion over 10 years on health insurance plans whose sales are expected to pick up under the new law. They also questioned seven-figure compensation for some AARP executives.

"Based on the available evidence, substantial questions remain about whether AARP should maintain its tax-exempt status," said the report, released by Reps. Wally Herger of California, Charles Boustany of Louisiana and Dave Reichert of Washington.

AARP said profit had nothing to do with its support for President Barack Obama's health care overhaul, which expands coverage to nearly all Americans, a longstanding goal of the organization.

"We are very disappointed in the report and reject its conclusions," said AARP President Lee Hammond. "AARP is no more an insurance company than we are an online travel company ... the royalties we receive allow us to keep member dues low."

The three Republican lawmakers are members of the influential Ways and Means Committee, which writes tax law. Boustany chairs the oversight subcommittee, and Herger is in charge of the health panel responsible for Medicare.

"We believe AARP operates in direct opposition to their senior membership," Herger said at a Capitol Hill press conference.

Scoffing at the report, Rep. Sander Levin of Michigan, the senior Ways and Means Democrat, called it a "witch hunt" to punish supporters of Obama's law.

The dual nature of AARP has raised questions before.

The business side of the organization runs money-making enterprises. The most lucrative involves "branding" a series of health insurance plans for seniors and older adults with the AARP name, akin to the Good Housekeeping seal of approval.

The public policy side is a civic organization that acts as a watchdog over Social Security and Medicare, representing 37million members and consumers generally. Boards overseeing the business and tax-exempt social policy branches have overlapping directors.

Royalties from licensing the use of AARP's name earned $657 million for the organization in 2009, or nearly half its total revenue, according to publicly available records. Health insurance plans accounted for most of that.

"During this investigation it became very clear that despite its privileged tax-exempt status, in many cases, AARP represents a for-profit entity, in fact, an insurance company," Boustany said.

Hammond responded that AARP has a good relationship with the IRS, and does not anticipate any problems. Citing taxpayer confidentiality laws, the IRS declined to comment.

In the past, AARP angered Democrats when it supported former President George W. Bush in creating a Medicare prescription drug benefit offered through private insurers rather than through the government. After that program was launched, the plan sponsored by AARP became the most popular in the nation.

Now Republicans are the ones raising questions. The lawmakers' report, 18 months in the making, looked at publicly available federal and state records on AARP's business. An IRS specialist on tax-exempt organizations assisted with the research and helped interpret results. The lawmakers say AARP refused to provide some documentation.

The report found that insurance sales are AARP's single largest source of revenue, far eclipsing member dues. AARP-brand offerings are the market leaders for Medicare prescription coverage, private Medicare Advantage insurance plans, and Medigap supplemental coverage that fills in benefit gaps in traditional Medicare.

UnitedHealthcare, which operates the AARP plans, paid the organization $427 million in 2009 for the use of its name, according to the report.

The report said an important difference in how AARP makes money on the various insurance plans creates an opportunity for profit from the health care overhaul.

AARP gets a flat rate for the use of its name on prescription drug plans and Medicare Advantage plans.

However, it receives a per-member fee for every Medigap enrollee, 4.95 percent of the premium. AARP collects the full premium directly before remitting United's share. That allows it to invest the money and earn interest. It also requires that seniors purchasing an AARP Medigap plan become dues-paying members of the organization. The arrangement is potentially more lucrative than a flat rate.

That's where the new health care law comes in, the report said.

Medicare Advantage membership is projected to decline under the law because of cuts in federal payments to the private insurers. Previously the companies were receiving more than it cost the government, on average, to provide care for seniors in traditional Medicare.

If Medicare Advantage shrinks, that would create a bigger demand for Medigap supplemental insurance. Seniors returning to traditional Medicare will need protection from coverage gaps. And AARP sponsors the largest Medigap plan.

The report says AARP could make a "windfall," conservatively estimated at $1 billion over ten years. The estimate, however, comes with assumptions that may or may not pan out.

"The real overarching question here that I think that seniors across this country should be asking AARP is, who are you working for?" Reichert said. "Are you with the seniors of America?" Or are you out to make money for AARP?"

AARP questioned the scenario in the report, saying it was on record as opposing overpayments to the private Medicare Advantage insurance plans well before the recent health care debate. But Hammond refused to say one way or another whether AARP will sponsor medical plans in new health insurance markets being set up under the law, another way the organization could earn royalties.

The report was also critical of AARP's executive compensation and travel policies. In 2009, then-CEO William Novelli received $1,647,419 in total compensation, including $350,000 in severance.

The Ways and Means Committee has scheduled a hearing Friday on AARP's structure and finances.


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