Monday, February 19, 2007

Congressman Waxman Ought to Ask AARP How Much Money It's Making on Medicare Part D

House Oversight and Government Reform Committee Chair Henry Waxman recently sent a letter to the CEOs of the 12 largest Part D insurers. In it, he asked them to provide the Committee with information on their Part D profit, drug discounts, rebates, and administrative costs.

Two of these insurers--Kaiser Permanente and Highmark--are "not-for-profit" insurers.

I am more curious about another "not-for-profit" that has had a lot to do with Part D--AARP.

The 2003 Medicare Modernization Act, that established the latest version of Medicare Advantage and created the new Medicare Part D drug benefit, would not have become law without AARP's last minute intervention in that Congressional debate. You might recall that the bill passed the House only after the then Republican leadership kept the vote open until 4 am. Part D almost died a couple of days later in the Senate when a cloture vote, that allowed the Senate to move on the bill, barely carried.

Part D was headed for defeat when, at the last moment, AARP jumped in and tilted a very close vote in favor of creating the new drug benefit.

AARP is one of the biggest winners in the Part D business. At year-end, almost 3.2 million seniors bought the AARP Part D drug plan.

AARP isn't telling us how much money they are making off the product--in commissions, administrative fees, and advertising in its periodicals.

Why not? It is a transparent not-for-profit organization that exists solely to serve its members isn't it? Why the big secret?

If the average Part D premium for the AARP program is just $1,200 per senior, those 3.2 million purchasers of the AARP Part D plan are developing $3.8 billion in revenue for the insurer.

Public Citizen says their overall "royalties" have historically been 2.9% of insurance premium. That would mean $3.2 billion in Part D premiums would get them more than $90 million a year in payments.

Now, I don't know what AARP is collecting on Part D--because they aren't saying. They did say in their 2005 financial report that they collected $379 million in "royalties" including those from all of their insurance programs. They also collected another $23 million in investment income on the "premium float." That was the year before Part D went into effect.

I know of someone who should be asking them--Henry Waxman.

Mr. Chairman, if it's OK to ask two "not-for-profit" health insurers how much they are making on Part D, why can't you ask the non-profit who had the huge hand in creating Part D in the first place--AARP?

Don't be fooled by the "not-for-profit" moniker. The world is full of non-profit institutions that perpetuate themselves and take care of their own narrow special interests (universities, hospitals, insurance companies...). AARP's net assets (or retained profits) at the end of 2005 were $339 million. You just have to wonder what kind of boost Part D will give that number when their 2006 results are published.

There is even a report that the insurer and AARP lost money on the Part D program in the first year because of start-up marketing costs. If that is true, so what? That's why they are called "start-up costs." Now that 3.2 million people have purchased the coverage their marketing costs have plummeted.

Conflict of interest is usually a big deal in Washington, DC. These days they are sending Congressmen to jail who get their day job too mixed up with their side business ventures.

Why should AARP get a free pass?

This sounds like just the sort of question Henry Waxman does a good job of asking.


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