AARP insurance plan leads in Medicare drug coverage

Nonprofit lobby for elderly could earn tens of millions in royalties


WASHINGTON -- In late 2003, when the Bush administration was struggling to get its Medicare prescription drug program through Congress, a timely endorsement by the AARP helped turn the tide in its favor.

But the program has become more than just a legislative victory for the influential lobbying group and its pro-senior citizen agenda.

The private insurance plan carrying the AARP's brand is emerging as the leading choice of Medicare beneficiaries signing up for drug coverage.

With at least 1.8 million members and counting, the AARP plan has the potential to generate royalty revenues amounting to tens of millions of dollars for the organization.

The success of the AARP plan is understandable in a market where seniors face new, often confusing, choices and many are unsure whom they can trust. But it has revived charges of a conflict of interest between the AARP's role as a public policy advocate and a private business enterprise.

"They can't have it both ways," said Rep. Pete Stark, a California Democrat. "It would be like Consumer Reports investing trust fund money in Chrysler and then promoting Chrysler cars. You can't claim to be a disinterested advocate if you're peddling insurance to make a profit and pay your overhead."

AARP spokesman Steve Hahn rejects such criticism. "There are no limos in the garage," Hahn said. "Any money AARP makes will get plowed back into the services our members want."

The AARP is a nonprofit organization that has become the largest, most influential body representing the elderly in Washington. It also provides a range of services to its members, including tax preparation assistance and driver education for the elderly.

To help finance its activities, the organization has long sold various types of insurance. It derives more income from its businesses than from the $12.50 annual dues paid by each of its 35 million members. A profit-making subsidiary, AARP Services Inc., manages the businesses. That venture is completely separate from the AARP's advocacy department, Hahn said.

Medicare has not released a breakdown of drug benefit enrollment by plan, but available evidence suggests that seniors have gravitated to a few plans - those bearing well-known names such as AARP and Blue Cross-Blue Shield, or plans with very low monthly premiums, such as those of Louisville-based Humana.

Thanks in no small part to its partnership with the AARP, Minnesota-based UnitedHealth has built a commanding lead in enrollment, according to preliminary figures from major insurers and an analysis by Lehman Brothers Equity Research.

The AARP MedicareRx plan has at least 1.8 million members, according to United and the AARP.

Humana, which ranks second in overall enrollment, has a total of at least 1.7 million members in its plans.

So strong does the AARP draw appear to be that, while United offers several plans in addition to MedicareRx, its total enrollment in all the plans is only about 3.2 million. After the 1.8 million AARP beneficiaries, the largest United contingent is made up of at least 840,000 enrolled under PacifiCare. United recently acquired the California-based insurer.

The success of the AARP MedicareRx plan "is something to be very proud of," said United spokesman Dominick Washington. "AARP is a brand and an organization that people trust."

However, neither United nor the AARP would disclose the terms of their deal. Hahn, the AARP spokesman, said no royalty checks have arrived because the government still has to approve the financial arrangements of the plan.

During the congressional debate about the Medicare drug benefit, the AARP said it had not decided whether it would sponsor a plan. The decision was announced last year, and Hahn said it reflected the wishes of AARP members.

United has a long-standing business relationship with the AARP, managing its mail-order pharmacy and underwriting so-called "Medigap" policies that supplement Medicare benefits.

The AARP charges the insurers it does business with annual fees; these amount to about 4 percent of the premiums collected, according to the organization's financial statements.

If that's also the case with the drug plan, the AARP's income could range well into the tens of millions of dollars, according to Robert Laszewski, a former insurance executive who is now a consultant on health policy.

"It ain't nickels and dimes," said Laszewski, adding that the deal could involve advertising fees and other payments in addition to royalties.

The AARP should make a full disclosure, said Larry Noble, executive director of the Center for Responsive Politics, which tracks the influence of money in the political system.

Ricardo Alonso-Zaldivar writes for the Los Angeles Times.

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