One Billion Possible Reasons AARP Supports Obamacare Despite Medicare Cuts for Seniors

The love of money is the root of all kinds of evil, as the saying goes, and a new report suggests that AARP—a nonprofit organization widely regarded as a protector and advocate of the nation’s senior community—might not actually have its members’ best interests in mind in its support for the Affordable Care Act. 

AARP may have a $1 billion ulterior motive for its strong support of the Obama Administration’s healthcare reform law, according to an investigative report prepared by House Representatives Wally Herger (R-Calif.) and Dave Reichert (R-Wash.), despite the law’s “significant cuts” to Medicare Advantage.

The nonprofit membership organization is allegedly increasingly reliant on the for-profit sale of insurance—particularly health insurance—but the representatives’ report questions why AARP would “aggressively advocate for the Democrats’ health care law last year which contained nearly one half-trillion dollars in cuts” that, according to independent analysts, would negatively impact seniors’ access to affordable healthcare services.

Advertisement

About 91% of Medicare beneficiaries choose to enroll in some form of supplemental coverage beyond traditional fee-for-service Medicare alone, the report says. In 2010, about 25% of Medicare beneficiaries were enrolled in a Medicare Advantage (MA) plan, while about 20% were enrolled in a Medigap plan (they can’t be enrolled in both). Medigap plans bear an additional monthly premium for policy holders, the representatives note.

Obamacare includes “unprecedented cuts” to MA, they continue, and thus will likely spur an increase in Medigap insurance policy sales. “This will have a direct, significant, and positive impact on future profits at AARP,” the report says. “The Democrat’s health care law, which AARP strongly endorsed, could result in a windfall for AARP that exceeds over $1 billion during the next 10 years.” 

Under healthcare reform, funding for MA plans will be reduced by $206 billion between 2010 and 2019, according to the Congressional Budget Office. In turn, enrollment in those plans will decline, which is widely expected to “drive up demand for private Medigap policies like the ones offered by AARP,” the report says, citing a Washington Post article. 

Advertisement

“I think that if our projection ends up being correct, as I have every reason to expect, and something like 6 to 7 million beneficiaries leave Medicare Advantage plans, many of them—perhaps most of them—will want auxiliary coverage, and Medigap will be the most straightforward way to get it,” Rick Foster, chief actuary for the Centers for Medicare & Medicaid Services (CMS), said at a recent Committee on Ways and Means hearing.

In addition to what it would already receive from United, AARP’s largest business partner, the organization could potentially gain between $55 million and $166 million in 2014 alone thanks to new Medigap enrollees stemming from cuts to MA plans, based on low, mid, and high-range estimates.

“Under the midrange estimate and under their current contract, AARP’s financial gain from the health care law could exceed $1 billion during the next 10 years,” the report says.  “[T]his is because AARP will see their royalty payments increase as seniors are forced out of MA plans and buy AARP Medigap plans instead.” 

Recommended SHN+ Exclusives

AARP’s agreement with United has a structure through which the organization financially benefits as Medigap enrollment increases, Herger and Reichert note, while enrollment in AARP’s MA insurance plan has “no impact” on its bottom line.

“During the health care debate in 2009 and 2010, we engaged in an energetic and detailed discussion regarding AARP’s support of legislative proposals cutting Medicare by hundreds of billions of dollars to pay for a new entitlement our country could not afford and many of your members would not benefit from,” wrote Herger and Reichert in a letter to AARP’s CEO, Barry Rand, dated June 25, asking the organization for an explanation of its position on the reform bill. 

Read the full report to get more background on the implications of the healthcare law for AARP’s members—and its bottom line.

Written by Alyssa Gerace

Companies featured in this article:

,