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AARP: Backlash Over Medicare Bill

When Congress passed the Medicare bill in November, nearly 300 concerned national and state organizations — including AFSCME — voiced strong opposition. But in a dramatic reversal from earlier positions, AARP broke ranks and gave the bill its endorsement.  The organization also mounted a $7 million advertising campaign to encourage congressional approval.

     The support of AARP came as a surprise to many of its fellow senior citizen organizations. In a July 2003 letter to Congress, AARP CEO Bill Novelli laid out numerous problems with the bill and said "if the final conference agreement does more harm than good ... we will not hesitate to oppose it." As it turns out, many of AARP's concerns ended up in the final bill, which AARP endorsed anyway.

     COVER FOR LAWMAKERS. AARP's seal of approval provided welcome cover for conservative lawmakers, many of whom have long desired a Medicare overhaul but were afraid to risk the wrath of seniors. Now they could vote for a bad bill and tell older constituents that it was okay with the nation's largest organization of older people.

     Why would AARP, with 35 million members over 50 years old, support Medicare legislation that does more harm than good? In its defense, AARP denies that the law threatens the traditional Medicare program in any way. The organization believes it was "important to establish a Medicare drug benefit," even if the law isn't "perfect."

      The watchdog group Public Citizen thinks there may be other reasons for AARP's support. After doing some research, it found that, in many ways, AARP is more of a business than an organization of and for seniors.

     INSURANCE REVENUE. According to Public Citizen, AARP derives about 60 percent of its annual revenue from the sale of health care products (membership dues make up only 29 percent of AARP's income). It sells insurance plans underwritten by such companies as UnitedHealthcare and MetLife, markets them to members under AARP's name, and is paid royalties for each policy sold. 

      In addition to health insurance, AARP sells mail-order prescription drugs and offers prescription drug discount cards. AARP also sells its membership lists and advertising space in its magazines to pharmaceutical and health insurance companies.

     Consider AARP's 1997 deal with UnitedHealthcare, in which AARP agreed to market the company's managed care plans over a 10-year period. As one of the nation's largest insurers, UnitedHealthcare and its divisions are expected to do very well under the new Medicare law, which heavily subsidizes managed care plans. If so, AARP's royalities are sure to rise. The same is true if AARP decides to market the new drug-only plans, designed for seniors who want to stay in traditional Medicare.

     MILLIONS IN ROYALTIES. A study by Harvard Medical School indicates just how much AARP stands to gain. It estimates that companies with AARP contracts will likely get 10 percent of the new insurance market. With its royalty rate of 3.9 percent of premiums collected, AARP could receive $1.56 billion in additional royalties over the next decade.

     ANGRY MEMBERS. AARP members across the country have expressed outrage over AARP's endorsement. Dozens of newspapers have described seniors destroying their AARP cards. The organization's phone lines and Internet message boards have been overloaded by concerned members. 

     AARP admits that a majority of callers oppose its endorsement of the prescription drug legislation. At least 15,000 AARP members have resigned.

     BACK TO THE DRAWING BOARD. According to AARP surveys, 75 percent of its members support the bill in general. Only 2 percent, however, "were very familiar with the specifics of the plan." These results correspond with a survey recently conducted by the Peter Hart Research Group. It found that Americans over 55 had an initial positive reaction. But once people heard the details of the legislation, 65 percent viewed it unfavorably and wanted Congress to go back to the drawing board.

     By endorsing the prescription drug legislation, AARP can claim much of the credit for its passage. But the endorsement could easily backfire, as was the case in 1988, when AARP took a similar action. At that time, AARP favored a bill to provide Medicare coverage for catastrophic hospital and doctor bills, despite the fact that it would have cost many retirees who already had the coverage from former employers hundreds of dollars a year in added premiums. A senior backlash resulted and Congress decided to repeal the bill shortly after it was passed. The debacle cost AARP thousands of members.

     NO SURPRISE. "Many people would be surprised to know that AARP did not support Medicare at its creation," said Roger Hickey, Co-Director of the Campaign for America's Future, and one of those who destroyed his AARP membership card at a rally at the organization's headquarters.

      "Along with the American Medical Association and the insurance industry, AARP was one of the most vocal opponents of Medicare's enactment in 1965, largely because of AARP's close ties to Colonial Penn insurance company. For those who remember AARP's checkered history, its recent action doesn't come as a total shock," he said.

     To contact AARP with your personal views, call the AARP Executive Offices at (202) 434-2300 or write AARP at 601 E Street, N.W., Washington, D.C. 20049.

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