- Associated Press - Wednesday, March 30, 2011

WASHINGTON (AP) — AARP lobbied for the new health care law, and now it stands to profit, Republican lawmakers charged Wednesday as they called for the Internal Revenue Service to investigate whether the powerful interest group deserves to keep 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 Republican Reps. Wally Herger of California, Charles Boustany Jr. of Louisiana and Dave Reichert of Washington.

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

AARP said profit had nothing to do with its support for President Obama’s health care overhaul, which expands coverage to nearly all Americans, a goal that the organization long has pursued.

“Our decision to support health care reform was in no way, shape or form influenced by revenue considerations,” AARP spokesman Jim Dau said.

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 the interests of some 40 million members and consumers generally. Boards overseeing the business branch and the tax-exempt social policy side have overlapping directors.

Royalties from licensing the use of AARP’s name earned $657 million for the organization in 2009, or 46 percent of its total revenue, according to publicly available records. Health insurance plans with the AARP brand accounted for most of that.

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 the program was launched, the plan sponsored by AARP became the most popular in the nation.

Now it is Republicans who are raising questions. The lawmakers’ report, 18 months in the making, looked extensively at publicly available federal and state records on AARP’s business dealings. An IRS specialist on tax-exempt organizations was brought in to assist with the research and help interpret results. The lawmakers say AARP refused to provide some documentation they were seeking.

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

UnitedHealthcare, which operates the AARP plans, paid the organization $427 million in 2009, 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, who previously were receiving more, on average, than it cost the government to provide care for seniors in traditional Medicare.

That would create a bigger demand for Medigap insurance, as seniors returning to traditional Medicare look for protection from its coverage gaps. AARP sponsors the largest Medigap plan.

The report says AARP could stand to make a “windfall,” conservatively estimated at $1 billion over ten years. That estimate, however, comes with several assumptions which may or may not pan out.

AARP questioned the scenario laid out 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.

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 lawmakers are asking the IRS to investigate whether AARP’s activities are “primarily motivated by political or profit interests, instead of benefits to its members.” They called for an examination of whether AARP’s executive compensation is reasonable for a not-for-profit group.

AARP also could earn royalties under the health care overhaul by sponsoring medical plans in new state-based insurance markets that are still in the works. A spokesman said no decision on that has been made.

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

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