Three Republican congressmen are asking the IRS to investigate
whether AARP, the powerful senior lobby and
health care reform
supporter, should be stripped of its tax-exempt status.
At issue is whether there's a conflict of interest between the
group's mission to advocate for seniors and the money it makes from
endorsing insurance products.
As a result of provisions in the health care reform law, AARP
stands to make an additional $1 billion through royalties on
insurance products branded with the organization's name over the
next 10 years, according to a 29-page report released March 30 by
Republican members of the U.S. House Ways and Means Committee.
"AARP enjoys a privileged tax-exempt status, but in many cases
AARP resembles a for-profit entity," said Ways and Means Oversight
Subcommittee Chairman Charles Boustany of Lousiana in a statement.
Wally Herger of California, chairman of the Ways and Means Health
Subcommittee, and Rep. Dave Reichert of Washington prepared the
AARP counters criticism
In an April 1 joint hearing of the Ways and Means Health and
Oversight Subcommittees, AARP CEO Barry Rand said the organization
was disappointed in the substance and title of the report, "Behind
the Veil: The AARP America Doesn't Know."
"There is no veil," Rand told subcommittee members. "Quite
frankly, we disagree with each of the conclusions drawn in this
Democrats said the report was politically motivated, noting that
Republicans lauded AARP's endorsement of the Medicare Modernization
Act of 2003, which created a private Medicare drug benefit.
"But now, since AARP worked to help enact health reform and will
surely oppose Republican plans to convert Medicare to a voucher,
privatize Social Security and block grant Medicaid, Republicans
want to bring them down," said Health Subcommittee Ranking Member
Pete Stark of California in a statement.
AARP, which had revenues of $1.4 billion in 2009, makes money
from royalty payments for products it endorses, membership dues,
publication advertising and grants, and uses the proceeds to
support its lobbying efforts and programs, such as free tax
counseling for seniors. The Republican report takes issue with the
organization's reliance on royalty income from insurers, which it
says comprised almost 46 percent of AARP's revenue in 2009, and its
support of health care reform, which could add to profits for the
Insurance sales resulting from health care reform
Among many provisions, health care reform will cut government
subsidies of Medicare Advantage plans, which provide Medicare
coverage for hospital and outpatient care and additional services.
The Obama administration projects the subsidy cut will prompt
seniors to buy Medigap policies, which are supplemental health
insurance plans that pay for costs not covered by Medicare Parts A
AARP earns the largest portion of royalty income from
Medicare-related insurance plans offered by UnitedHealthcare,
including Medicare Advantage and Medigap policies. But financial
agreements are structured differently for each, the report says.
AARP earns a flat royalty fee for endorsing the insurer's Medicare
Advantage plan and a per capita fee for each AARP-branded Medigap
policy sold by UnitedHealthcare.
When seniors migrate to Medigap plans, the report estimates AARP
will earn $55 million to $166 million in 2014 alone.
But in a conference call with reporters, AARP officials said
revenues don't drive the group's policy positions, and that it had
not studied how health care reform would impact demand for Medicare
Advantage and Medigap plans. AARP supported the end of subsidies
for Medicare Advantage plans to protect the long-term solvency of
Medicare, said David Certner, the group's legal counsel and
legislative policy director.
About three-fourths of Medicare beneficiaries pay higher
premiums in order to subsidize the one-quarter of beneficiaries
enrolled in Medicare Advantage plans, he said.
IRS investigation possible
It's difficult to project how long an investigation would take
if the IRS launches an inquiry.
"It's certainly not something that will happen in a week," says
New York University School of Law professor Jill Manny, who runs
the National Center on Philanthropy and the Law.
Should the IRS take action, it could pursue an examination,
which would involve requesting and reviewing information from AARP,
or a full-blown audit. Regardless, stringent confidentiality rules
will prevent the IRS from revealing if it's conducting an
"The public will not know anything about the investigation until
it is complete, unless AARP reveals information," Manny says.
In testimony before the House Ways and Means Health
Subcommittee, tax law expert William "Bill" Josephson said he would
need more time to study the complex legal and accounting issues in
the report to express an opinion, but he thinks further
investigation is warranted by the committee, the IRS and the
Government Accountability Office.