SECTION TWO
sm
COLUMN
101, JANUARY
1, 2004
(Copyright © 2004 The Blacklisted Journalist)
WOLF
TAKES OFF SHEEPSKIN:
AARP IS JUST A BIG CON!
HOW AARP SPENDS OUR MONEY: A LAVISH, FANCY
-SCHMANCEY CORPORATE-LIKE CONTROL ROOM
FELLOW
OLD-TIMERS! WE?VE LET OURSELVES BE CONNED AGAIN!
Well, maybe
you was, but not me. I never joined AARP. I refused to believe in something that
looked too good to be true. Somebody who'd stand up in Washington and speak
for senior citizens. That's what AARP claimed to do, but never did it.
Because AARP never was the advocacy organization it pretended to be. It turns
out that AARP is not the mouthpiece with a megaphone speaking out for old-timers
like you and me. It turns out that
AARP is nothing but another INSURANCE COMPANY. AARP was nothing but a con from
the start.
I never paid
attention who the AARP founders were and I'm not even going to bother looking
up their names and backgrounds. But having lived long enough to know temptation
lurks in all of us, I wouldn't be at all surprised to learn that the founders
(if they're still around) are happy, proud and profiting from the successful
business AARP has become.
The AARP
sold itself to us as a DC lobbyist who would look after our interests. Like a
wolf that has taken off its sheep's clothing, AARP has looked after not our
interests but after its own.
A much more
reliable advocacy group known as PUBLIC CITIZEN has determined the following:
●In many ways, AARP
has become a business, deriving a large portion-about 60 percent-of its annual
revenue from selling insurance products, such as Medigap supplemental drug
insurance policies; selling mail-order prescription drugs; and offering
prescription drug discount cards. It also sells its membership list to
corporations, such as health insurers, and sells advertising space in its
magazine to customers that include pharmaceutical and insurance companies. It
also temporarily invests insurance premiums paid by its members before they are
due to the insurer. At this point in time membership dues represent only 29
percent of AARP's total revenues.
The insurance-related
portion of the non-member income streams totals at least $161.6 million a year.
Much of this income is derived from health insurance-related activities, from
which AARP would stand to gain many millions of dollars in new income under the
new Republican Medicare bill. Maximizing corporate-related income and profits
poses a significant conflict of interest for an organization trying to represent
the best interests of its members. An examination of AARP's financial statements
and other public documents reveals the following conflicts of interest:
● Royalty Income from
Health Insurance Policies: $107.8 million in 2002; 17 percent of operating
revenues.
AARP endorses and lends its
logo and name to products, namely insurance and investment plans, in return for
royalties. The royalties, which are based on how much
A large portion of this
royalty income likely was derived from insurance policies administered by the
UnitedHealth Group, the principle health care plan approved by AARP. In 1997,
AARP signed a ten-year deal to sell managed-care services of
UnitedHealth Group to its members. 2 Ovations---a subsidiary of
UnitedHealth
Effect of the Republican Medicare Bill: The legislation will result in most Medicare beneficiaries getting their drug coverage either by signing up for drug-only plans or by joining managed care organizations that provide a full range of services. UnitedHealth Group, one of the nation's
AARP's self-interest as an insurance company vs. as an advocacy group for seniors
leading health plans, can be expected to
make a major push for a share of this new market. UnitedHealth Group's
AARP-approved plans already are marketed to AARP's 35 million members through
member lists and its 22 million-circulation magazine. This arrangement should
dramatically accelerate AARP's future royalty income, which is based on how much
AARP members pay in AARP-affiliated program premiums.
Assuming that AARP, with 35
million members, captured just 5 percent of the new $400 billion Medicare
prescription drug market over the next 10 years, it would collect an additional
$20 billion in insurance premiums. At AARP's average royalty rate of 2.9 percent
(over the past three years), 3 its royalties would raise $58.4 million a year
from the Medicare drug entitlement alone.
● Investment Income
from Insurance Products: $26.7 million in 2002; 4.2 percent of operating
revenues
AARP earned $26.7 million
in 2002 by temporarily investing the $4.2 billion in insurance premiums that it
collected from its members before forwarding those premiums to UnitedHealth
Group and other insurers.
Effect of the Republican
Medicare Bill: Assuming that AARP, with 35 million members, captured just 5
percent of the new $400 billion Medicare prescription drug market over the next
10 years, it would collect an additional $20 billion in insurance premiums. At
AARP's average return rate of 0.83 percent on member premiums (2000-2002), it
would make $167 million over the next 10 years (or $17 million a year) off the
new market alone.
● List Access Fees:
$10.8 million from insurance companies in 2002; 1.7 percent of operating
revenues.
In 2002, AARP earned $10.8
million, 1.7 percent of its income, from selling its membership lists to
insurance companies. Essentially, insurance companies rent AARP's membership
list to promote products. AARP earned an additional $7.1 million selling its
list to other industries.
Effect of the Republican
Medicare Bill: This income should increase significantly as new drug insurance
products would be marketed to seniors who would be subsidized by the federal
government to purchase these products.
● Drug Discount
Cards: N/A
In 2001 Ovations began
managing the AARP Pharmacy Services program. Ovations negotiates discounts with
drug makers and pharmacies, and then passes on a portion of the savings to
clients. AARP licenses its name to Ovations so that the company can provide
discount cards to members.
AARP members who choose to
purchase discount cards can use them to shop at local pharmacies and through
mail order services. More than two years ago, a UnitedHealth
Based on AARP's current
financial statement, the percentage of AARP's revenue coming from these drug
discount cards cannot be calculated. However, it is likely that the discount
card revenues are accounted for under the "Royalties" category in
AARP's financial statement, since AARP licenses its name for UnitedHealth
Group's use in selling drug discount cards. Still, it is unclear whether this
licensing is included under the "Insurance Royalties" or "Other
Royalties" category. Insurance Royalties generated 19.4 percent of AARP's
revenue in 2002, and Other Royalties generated another 14.8 percent of AARP's
revenues.
Effect of the Republican
Medicare Bill: The legislation would introduce a major drug discount card
program for 2004 and 2005, before Medicare drug coverage begins in
Given AARP's close working
relationship with the Bush Administration in promoting this legislation, an
AARP-related application could be given favorable consideration by CMS.
● Advertising: $76.4 million in 2002; 12 percent of
operating revenues
AARP derives considerable
income from advertising sales. A major source of advertising is AARP- The
Magazine, which is sent to 21.5 million households six times a year. Advertising
also is sold on its Web site. Drug companies are major advertisers with AARP. A
review of the November/December 2003 issue of the magazine found that of the 24
full-page ads, five pages advertised prescription drug products, two pages
advertised over-the-counter drugs and one page was for an
Effect of the Republican
Medicare Bill: Advertising revenue should increase significantly as drug
discount cards get promoted, private plans competing for the new entitlement
program seek new business, and prescription drug companies promote their
products to a growing market as a result of the discount cards and expanded
prescription drug coverage.
● Mail Order Pharmacy
Business
It has not been possible to
determine whether or not AARP receives additional benefits when members with
AARP drug discount cards purchase medications through its mail order pharmacy.
In these cases customers order drugs through AARP, but it is cannot be
determined what kind of compensation AARP gains or where it is accounted. Effect
of the Republican Medicare Bill: If it is true that AARP receives more than
licensing fees but also fees for the use of its direct mail order services, AARP
will receive even more benefits from the drug discount card program created by
the bill.
November 20, 2003 ##
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IS AN INSURANCE COMPANY' BY PAUL KRUGMAN
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