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Con: AARP’s tacit endorsement of Medicare cuts line its pockets, but shortchanges seniors

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Grace-Marie Turner
November 5, 2009
EDITOR’S NOTE: The writer is addressing the question, Is AARP doing a good job for its members in the health-care debate?

Clearly something must be up with AARP.


Why else would the nation’s largest lobbying organization, sworn to protect the interests of senior citizens, watch silently as Congress plans to cut Medicare spending by $400 billion to pay for its health reform legislation? Could it be that the interests of seniors and AARP are not exactly aligned?


Let’s follow the money. AARP takes in more than half of its $1.1 billion budget in royalty fees from health insurers and other vendors that market services with the organization’s name. Medicare supplementary policies, called “Medigap” plans, make up the biggest share of this royalty revenue.


AARP has an interest in selling more, not fewer, Medigap plans, of course. But there is a competitor on the block.


A growing number of seniors are enrolling in a new form of Medicare coverage—Medicare Advantage—where they don’t need Medigap.


Medicare Advantage was created in 2003 to give seniors the option of joining private plans that are paid up to 12 percent more to provide better health benefits than traditional Medicare.


These private plans compete with each other by offering seniors such services as lower premiums, better drug coverage, dental care and eyeglasses, and more comprehensive coverage for major medical expenses. Nearly 11 million of Medicare’s 45-million beneficiaries are in the program.


Congress’ health reform bills would cut spending for Medicare Advantage by at least $150 billion. President Obama has singled out Medicare Advantage, saying it is a giveaway to private insurance companies. But virtually all of the extra money goes back to seniors in the form of better benefits, so it’s seniors who have the most to lose.


A Washington Post front-page story Oct. 27 questioned whether AARP has a conflict of interest in appearing to represent seniors while watching Congress cut Medicare.


“Democratic proposals to slash reimbursements for … Medicare Advantage are widely expected to drive up demand for private Medigap policies like the ones offered by AARP, according to health-care experts, legislative aides and documents,” the Post reported.


Medigap plans are a cash cow for AARP. And if people don’t need them because they can enroll in Medicare Advantage plans, that’s a revenue loss for AARP.


While the organization has some partnering arrangements with Medicare Advantage plans, they provide a fraction of the revenues to the organization that Medigap does.


Second, if Medicare’s benefits are cut by $400 billion or more, seniors will have an ever greater need for Medigap coverage.


“There’s an inherent conflict of interest,” former AARP executive Marilyn Moon says of AARP’s royalty arrangements. “They’re ending up becoming very dependent on sources of income.”


Tens of thousands of seniors have resigned from AARP, many of them cutting up their membership cards to protest the organization’s promotion of health reform.


The new chief executive officer of AARP, Barry Rand, who was a strong supporter of President Obama during last year’s presidential campaign, says AARP is not protesting the Medicare cuts because reducing waste and fraud in Medicare will make the program stronger over the long term.


Medicare is in dire need of modernization to make it more efficient, but savings should go back in to making it more solvent. But instead of contributing any savings to the $38 trillion in long-term debt the program is facing, the bills before Congress would use Medicare funds to expand health insurance coverage to working Americans.


While expanding coverage also is a worthy goal, if AARP were representing its members well, it would argue that the money should come from other sources.


It’s no wonder seniors are upset. Clearly, the interests of AARP and the 40 million seniors it purports to represent are not aligned in the health reform debate.


Grace-Marie Turner is president and founder of the Galen Institute, which is funded in part by the pharmaceutical and medical industries. Readers may write to her at Galen Institute, 128 S. Royal St., Alexandria, VA 22314; Web site: www.galen.org; e-mail: GraceMarie@galen.org.

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