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Did AARP sell out seniors?
Three Republican congressmen are asking the IRS to investigate whether AARP, the powerful senior lobby and health care reform supporter, should be stripped of its tax-exempt status.
At issue is whether there’s a conflict of interest between the group's mission to advocate for seniors and the money it makes from endorsing insurance products.
As a result of provisions in the health care reform law, AARP stands to make an additional $1 billion through royalties on insurance products branded with the organization's name over the next 10 years, according to a 29-page report released March 30 by Republican members of the U.S. House Ways and Means Committee.
"AARP enjoys a privileged tax-exempt status, but in many cases AARP resembles a for-profit entity," said Ways and Means Oversight Subcommittee Chairman Charles Boustany of Lousiana in a statement.
Wally Herger of California, chairman of the Ways and Means Health Subcommittee, and Rep. Dave Reichert of Washington prepared the report.
AARP counters criticism
In an April 1 joint hearing of the Ways and Means Health and Oversight Subcommittees, AARP CEO Barry Rand said the organization was disappointed in the substance and title of the report, "Behind the Veil: The AARP America Doesn't Know."
"There is no veil," Rand told subcommittee members. "Quite frankly, we disagree with each of the conclusions drawn in this one-sided report."
Democrats said the report was politically motivated, noting that Republicans lauded AARP's endorsement of the Medicare Modernization Act of 2003, which created a private Medicare drug benefit.
"But now, since AARP worked to help enact health reform and will surely oppose Republican plans to convert Medicare to a voucher, privatize Social Security and block grant Medicaid, Republicans want to bring them down," said Health Subcommittee Ranking Member Pete Stark of California in a statement.
AARP, which had revenues of $1.4 billion in 2009, makes money from royalty payments for products it endorses, membership dues, publication advertising and grants, and uses the proceeds to support its lobbying efforts and programs, such as free tax counseling for seniors. The Republican report takes issue with the organization's reliance on royalty income from insurers, which it says comprised almost 46 percent of AARP's revenue in 2009, and its support of health care reform, which could add to profits for the group.
Insurance sales resulting from health care reform
Among many provisions, health care reform will cut government subsidies of Medicare Advantage plans, which provide Medicare coverage for hospital and outpatient care and additional services. The Obama administration projects the subsidy cut will prompt seniors to buy Medigap policies, which are supplemental health insurance plans that pay for costs not covered by Medicare Parts A and B.
AARP earns the largest portion of royalty income from Medicare-related insurance plans offered by UnitedHealthcare, including Medicare Advantage and Medigap policies. But financial agreements are structured differently for each, the report says. AARP earns a flat royalty fee for endorsing the insurer's Medicare Advantage plan and a per capita fee for each AARP-branded Medigap policy sold by UnitedHealthcare.
When seniors migrate to Medigap plans, the report estimates AARP will earn $55 million to $166 million in 2014 alone.
But in a conference call with reporters, AARP officials said revenues don't drive the group's policy positions, and that it had not studied how health care reform would impact demand for Medicare Advantage and Medigap plans. AARP supported the end of subsidies for Medicare Advantage plans to protect the long-term solvency of Medicare, said David Certner, the group's legal counsel and legislative policy director.
About three-fourths of Medicare beneficiaries pay higher premiums in order to subsidize the one-quarter of beneficiaries enrolled in Medicare Advantage plans, he said.
IRS investigation possible
It's difficult to project how long an investigation would take if the IRS launches an inquiry.
"It's certainly not something that will happen in a week," says New York University School of Law professor Jill Manny, who runs the National Center on Philanthropy and the Law.
Should the IRS take action, it could pursue an examination, which would involve requesting and reviewing information from AARP, or a full-blown audit. Regardless, stringent confidentiality rules will prevent the IRS from revealing if it's conducting an investigation.
"The public will not know anything about the investigation until it is complete, unless AARP reveals information," Manny says.
In testimony before the House Ways and Means Health Subcommittee, tax law expert William "Bill" Josephson said he would need more time to study the complex legal and accounting issues in the report to express an opinion, but he thinks further investigation is warranted by the committee, the IRS and the Government Accountability Office.
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