AARP’s ties to United Healthcare – outlined here last week – may be behind its failure to effectively lobby Congress to repair our dismal Medicare program.
- Annual Medicare premiums alone cost seniors a minimum $1,778 per person.
- Catastrophic (5% of list price) prescription drug coverage doesn’t begin until Medicare patients pay $6,500 out-of-pocket in a year. That’s not the expense for a couple, but for each individual.
- There is no Medicare coverage for hearing aids, eyeglasses or dental.
- Nursing home coverage is free for only 20 days, $185.50 for each day 21-100, and no coverage after that – despite an annual median facility cost of $93,000 per person.
- A 20% co-pay is levied for most Medicare services if not admitted to a hospital.
- Minimum expense for each hospital admission is $1,484.
- There is no catastrophic coverage. Total medical charges to patients could be a million dollars or more.
In my opinion the insurance industry and Congress have weakened Medicare, forcing seniors to buy additional supplemental or other health care policies – if they can afford it!
And those programs are expensive. Checking prices today for a Part F (AARP) supplemental policy – male born in 1941 – requires an annual premium of $4,679 per person. With certain pre-existing conditions that jumps to $6,381.
The sum total of annual charges for a medical insurance program that covers most costs equals:
Medicare premium – $1,778
Drug co-pays at up to – $6,500
One hospital admittance – $1,484
Supplemental “F” premium – $4,679
Senior’s individual expense – $14,441
In November 2020 the average retired worker received a Social Security benefit of $18,276 before deduction of Medicare premiums. The average spouse received $9,444. Together, their total was $27,720.
How could an average couple afford annual medical out-of-pocket expenses of $28,882 ($14,441 X 2)?
While many seniors face poverty and bankruptcy from high medical costs and low retirement benefits, IRS filings in 2018 indicate more than half (1,128) of AARP’s total employees (2,015) received reported compensation from the organization exceeding $100,000, according to a recent Juniper Research study:
Dividing the organization’s total spending on employee compensation in 2018 ($347,536,725) by its number of employees (2,015) reveals that AARP employees received an average of $172,484.80 in salaries, benefits and other compensation.
That Part F supplemental coverage noted above (also known as Medigap) yields AARP a “royalty fee” from UnitedHealth equal to 4.95% of premium revenues paid. Juniper notes the conflict of interest this way:
This percentage-based “royalty fee” gives AARP a strong financial incentive to aggressively market, sell and renew as many Medigap policies as possible—and the most expensive policies at that—because AARP receives nearly five cents for every additional premium dollar its members pay to UnitedHealth.
Perhaps as a result, some of AARP’s own members have considered these revenues not so much “royalty fees” as “kickbacks.”
That 4.95% “royalty fee” represents a sizable share of premium dollars paid. To put the figure into perspective, it exceeds the 2018 profit margins of five major health insurers (Anthem, Centene, Humana, WellCare, and Molina).
AARP did not disclose the revenue it received from each UnitedHealth policy type in 2018, but Juniper concluded “that the majority of the more than $600 million it receives from UnitedHealth in royalty fees comes from the sale of Medigap plans.
It also suggests that AARP made far more money in 2018 selling Medigap insurance to its members than the $300 million it received in membership dues.
The percentage-based “royalty” formula gives AARP strong financial incentives to maximize enrollment in Medigap coverage. Whereas an additional participant in AARP-branded Part D plans or Medicare Advantage coverage provides no financial benefit to the organization, AARP’s bottom line benefits with every new person it can get to sign up for Medigap coverage.
Likewise, AARP also benefits financially when it can entice individuals to sign up for more expensive Medigap policies, because it receives a percentage of every additional premium dollar seniors pay.
Bill Novelli, AARP’s CEO from 2001 through 2009, said:
It’s fair to say that AARP does have a financial interest in Medigap insurance because it’s a significant revenue raiser for them. If Medigap were somehow reduced, then AARP would have a financial reduction.
Juniper reported that “financial conflict played out in 2011, when AARP secretly lobbied against changes to Medigap insurance—without disclosing its financial conflicts to Congress.”
At the time, lawmakers were considering changes to Medigap insurance that would have created a catastrophic cap on expenses in traditional Medicare, while requiring seniors purchasing Medigap coverage to pay deductibles and co-payments.
In total, these changes would have lowered Medigap premiums so dramatically that most seniors would have saved significant sums, even after paying the new co-payments out-of-pocket. A Kaiser Family Foundation analysis concluded that nearly four in five seniors (79%) would benefit financially, to the tune of an average savings of $415 per year.
That savings never came to fruition:
But if seniors win, saving money by paying smaller premiums, AARP loses—to be exact, it loses 4.95 cents out of every dollar seniors save by paying lower Medigap premiums.
Perhaps unsurprisingly, then CEO Barry Rand wrote to a congressional “super committee”, established to suggest changes to entitlement programs in October 2011, stating that AARP opposed any changes to Medicare or Medigap.
But in setting out AARP’s position on Medigap reform, Rand “did not mention AARP’s dominant role in the Medigap market,” or for that matter the organization’s financial incentive—to say nothing of the financial incentives associated with Rand’s own compensation—to keep Medigap premiums high and maximize AARP’s “royalties.”
With 38 million memberships, many including couples, AARP is the equivalent of a Facebook monopoly of the 54 million American seniors. It’s website, publications and lobbying power could be a force for good, not an instrument for marketing insurance.
Congress has investigated this organization before, and it’s time to do it again and finally break up an unholy alliance.
You can fool nearly all the people... 