AARP May Get $1 Billion on Health Law, House Republicans Say

A group of House Republicans said seniors lobby AARP will gain as much $1 billion over the next decade from the 2010 health care overhaul it supported and should have its tax-exempt status investigated.

AARP represents 37 million people ages 50 and over in the U.S. Its gains will come from insurance products it endorses and that will attract customers under the health law, a group of Republicans on the House Ways and Means committee said in a report released today.

“AARP operates in direct opposition to the needs of their senior membership,” said Representative Wally Herger, a California Republican who chairs the House Ways and Means Health subcommittee. “We think they ought to know what we’ve uncovered.”

House Republicans are preparing an overhaul of Medicare and Social Security, the U.S. government health insurance and income security programs for the elderly. The AARP has been critical of past Republican attempts to change the programs, mobilizing its 37 million members to stop reductions in benefits.

The House Ways and Means Committee will hold a hearing on April 1 to discuss the report, co-written by Representative Dave Reichert of Washington, a Republican.

Tax Target

Representative Charles Boustany, a Louisiana Republican, said that the Internal Revenue Service should investigate AARP’s not-for-profit tax status, which exempts the group from corporate income taxes. “AARP’s non-profit tax status is now in question and the appropriate authorities, the IRS,” should investigate, he said at the press conference.

The report says that AARP’s activities aren’t in the best interests of members, citing executive salaries higher than other large nonprofits. AARP Chief Executive Officer Bill Novelli reported $1.6 million from the organization in 2009, according to tax documents.

The group also spent on first-class travel, a Nascar racing team sponsorship, and luxury resort stays, Herger said.

“These are very troubling findings,” he said at the press conference in the U.S. Capitol.

That doesn’t mean its nonprofit status is at risk. AARP’s structure is similar to that of other nonprofits, and its organization and operations is based on clear rules and court precedents, said Doug Varley, an attorney at Caplin & Drysdale in Washington who specializes in the taxation of not-for-profit organizations.

“From a tax point of view, from an IRS perspective, I think that the report describes some facts, but the facts don’t add up to a disqualification for their tax status,” said Varley, who reviewed the report at the request of Bloomberg News.

AARP Insurance

Boustany also said that AARP was an insurance company, or at least acting like one. The report makes the same claim, comparing AARP’s revenue from health insurance to profits by health insurers. The report does not include insurer revenue.

Of AARP’s $1.09 billion in 2009 revenues, $657 million was from royalties from products licensed by AARP, according to the tax documents. That includes insurance products sold by Minnetonka, Minnesota-based UnitedHealth Group Inc. (UNH); New York- based MetLife Inc. (MET); Richmond, Virginia-based Genworth Financial Inc. (GNW); and Hartford, Connecticut-based Aetna Inc. (AET) UnitedHealth had revenues of $87.1 billion in 2009.

While it endorses insurance products, AARP doesn’t underwrite risk, have salesmen, or administer benefits, said AARP spokesman Drew Nannis. Most insurers fulfill some or all of those functions.

“AARP is no more an insurance company than we are a travel company, or an online photography company,” Lee Hammond, AARP President, said in a conference call with reporters.

Lobbying Efforts

The AARP is one the largest lobbying groups in the U.S., with $1.09 billion in revenue in 2009, according to documents filed with the IRS.

AARP lobbied for policies that would benefit its bottom line, not its members, according to the report. Cuts to Medicare Advantage, the private version of Medicare run by health insurers, would push more people into the program’s supplemental products such as one provided under AARP’s brand, which offers extra coverage on top of the government’s Medicare program.

David Certner, AARP’s top lobbyist in Washington, said that the group supported the cuts to Medicare and Medicare Advantage in the health law as a way to extend the life of the program, which provides health coverage to Americans ages 65 and over. “We’re concerned about the long-term solvency of Medicare and its financial condition. We want to make sure Medicare is paying out proper rates,” he said during a conference call with reporters discussing the report.

Law Not Beneficial

Certner said that supporting the health-care law ran counter to his organization’s financial interests. The law will eliminate the need for a product AARP offers with Aetna, called AARP Essential Premier, Certner said. AARP Essential Premier is a comprehensive insurance policy targeted at people ages 50 to 64, according AARP’s Website.

The law sets up insurance “exchanges” where people can buy subsidized coverage in 2014. Certner said AARP’s top officials haven’t decided whether to work with an insurer to sell a product through the marketplaces.

Aetna spokesman Fred Laberge didn’t immediately return an e-mail requesting comment.

AARP spent $22 million -- the sixth-most of all advocacy organizations -- on lobbying the federal government in 2010, according to the Washington-based Center for Responsive Politics. The U.S. Chamber of Commerce, a representative of American business interests and an opponent of the health-care overhaul, spent the most at $132 million.

This isn’t the first time Republicans in Congress have focused on the AARP. In 1995, Senator Alan Simpson, a Wyoming Republican who led the Senate Finance Subcommittee on Social Security and Family Policy, conducted a similar line of inquiry.

In his 1995 hearing, Simpson said that the organization wasn’t deserving of its nonprofit status, spent large sums on lobbying, and made a profit on licensed products, such as supplemental health insurance, sold to its members.

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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