WASHINGTON — In late 2003, when the Bush administration was struggling to get its Medicare prescription drug program through Congress, a timely endorsement by AARP helped turn the tide in its favor. But the program has become more than just a legislative victory for the influential lobbying group and its pro-senior-citizen agenda.
The private insurance plan carrying AARP's label is emerging as the leading choice of Medicare beneficiaries signing up for drug coverage. With at least 1.8 million members and counting, the AARP plan has the potential to generate royalty revenues amounting to tens of millions of dollars for the organization.
For The Record
Los Angeles Times Wednesday March 08, 2006 Home Edition Main News Part A Page 2 National Desk 1 inches; 53 words Type of Material: Correction
Medicare drug benefit -- An article in Section A on Saturday about AARP's endorsement of a Medicare prescription drug insurance plan said the seniors' advocacy group "provides a range of services to its members, including tax preparation assistance and safe driver education." Membership is not necessary in order to use those AARP services.
Before this year, Medicare did not cover outpatient prescriptions. Now seniors can buy coverage through dozens of private plans -- 47 in California alone -- each with its own list of preferred drugs and coverage policies. Medicare pays about three-fourths of the cost of the insurance, and monthly premiums, averaging $25, cover the rest.
The success of the AARP plan is understandable in a market where seniors face new, often confusing, choices and many beneficiaries are unsure which to trust. But it has revived charges of a conflict of interest between AARP's roles as a public policy advocate and a private business enterprise.
"They can't have it both ways," said Rep. Pete Stark (D-Fremont). "It would be like Consumer Reports investing trust fund money in Chrysler and then promoting Chrysler cars. You can't claim to be a disinterested advocate if you're peddling insurance to make a profit and pay your overhead."
AARP spokesman Steve Hahn rejects such criticism. "There are no limos in the garage," he said. "Any money AARP makes will get plowed back into the services our members want."
AARP, a nonprofit organization, is the largest, most influential body in Washington representing seniors. It provides a range of services to its members, including tax preparation assistance and safe driver education.
To help finance its activities, the organization long has sold various types of insurance. It derives more income from its businesses than from the $12.50 annual dues paid by each of its 35 million members.
Medicare has not released a breakdown of drug-benefit enrollment by plan, but evidence suggests seniors have gravitated to a few plans -- either those bearing recognizable names such as AARP and Blue Cross-Blue Shield, or plans with very low monthly premiums, such as those offered by Humana.
Thanks in no small part to its partnership with AARP, UnitedHealth has built a commanding lead in enrollment, according to preliminary figures from major insurers and an analysis by Lehman Brothers' Equity Research.
The AARP MedicareRx plan has at least 1.8 million members, according to UnitedHealth and AARP, making up more than half of the total enrollment of 3.2 million in all the Medicare-related plans offered by UnitedHealth.
After the AARP beneficiaries, the largest UnitedHealth contingent comes from the 840,000 members enrolled under PacifiCare. UnitedHealth, based in Minnesota, recently acquired the California insurer.
Humana, based in Louisville, Ky., ranks second in overall enrollment, and has 1.7 million members in its plans.
The success of the AARP MedicareRx plan "is something to be very proud of," said UnitedHealth spokesman Dominick Washington. "AARP is a brand and an organization that people trust."
However, neither UnitedHealth nor AARP would disclose the terms of their deal. Hahn, the AARP spokesman, said no royalty checks had arrived because the government had to approve the financial arrangements of the plan.
During the congressional debate about the Medicare drug benefit, AARP said it had not decided whether it would sponsor a plan. The decision was announced last year, and Hahn said it reflected the wishes of AARP members.
UnitedHealth has a long-standing relationship with AARP, managing its mail-order pharmacy and underwriting so-called "Medigap" policies that supplement Medicare benefits.
AARP usually charges such insurers annual fees; these amount to about 4% of the premiums collected, according to the organization's financial statements.
If that's also the case with the drug plan, AARP's income could range well into the tens of millions of dollars, according to Robert Laszewski, a former insurance executive who is now a consultant on health policy. "It ain't nickels and dimes," said Laszewski, who noted that the deal could involve advertising fees and other payments in addition to royalties.
AARP should make a full disclosure, said Larry Noble, executive director of the Center for Responsive Politics, a nonpartisan group that tracks the influence of money in the political system.