If you work for a living (and therefore don’t watch daytime TV), you probably don’t know that AARP is the big dog in peddling insurance to seniors, especially Medicare-related insurance. House Republicans recently issued a fascinating investigative report showing how AARP uses its reputation as an advocate for seniors to endorse insurance products, and stands to reap huge gains from the Obamacare law. However, recent history suggests that AARP could benefit from Paul Ryan’s idea to provide seniors with vouchers to purchase Medicare insurance in the private market and create a system of private accounts for Social Security. Welcome to the world of unintended consequences.
While AARP supported the Obama/Pelosi healthcare law, many forget they also supported George W. Bush’s Medicare Part D prescription drug benefit. That was shrewd: according to the House Republican report, AARP’s Part D plan (offered through UnitedHealth Group) has the most Medicare enrollees; 80% more than the next-highest insurer, Humana. I’m sure when the Part D law was passed in 2003 (with GOP majorities in the Senate and House), Republicans were unaware they were handing a windfall to AARP.
AARP is the Medicare Part D MVP because its brand is so strong (thanks to those daytime ads you’re not seeing) and trusted by seniors. It’s a brilliant strategy to use with a group of people who are very risk adverse and unwilling to gamble on their health or prescription drug insurance.
Of course, you’d have to read the fine print (did you buy your glasses, grandma?) to know that when AARP “endorses” a particular insurance product, it gets a fee from the insurance provider. Plus, to get AARP’s endorsed “Medigap” insurance, you have to pay AARP membership dues too — a double payday!
Although AARP opposes Ryan’s Medicare voucher idea, the organization’s dominant position in the Medicare-related insurance market gives AARP an excellent platform from which to sell health insurance to seniors. It will be interesting to see what AARP does if Ryan gets a pilot program for vouchers. Will AARP jeer on the sidelines or capture a business opportunity?
Back in 2005, AARP also loudly opposed Bush’s Social Security personal accounts plan, which would have set aside a portion of workers’ Social Security taxes in personal savings accounts, while reducing traditional Social Security benefits. Ryan has proposed his own personal accounts plan, but what neither Ryan nor Bush have mentioned is that some of the biggest beneficiaries of any such plan would be financial management and insurance companies. Under a personal accounts system, the federal government would contract with a financial management firm to buy and sell stocks, bonds, etc., and upon retirement, workers would use their personal accounts to purchase an annuity. The fees, even if tiny on a per-transaction basis, would add up to billions of dollars, as a result of the hundreds of millions of annual transactions.
Ryan often points to the federal employees’ Thrift Savings Plan (TSP) as a model for his personal accounts plan. TSP has contracted with BlackRock (a Wall Street trust company) for asset management and MetLife for annuities. (Notably, BlackRock’s PAC contributed $2,400 to Ryan’s reelection campaign last year, and MetLife’s PAC contributed $2,000, with thousands more coming from other parts of the insurance industry.)
AARP is already in the annuity business, in partnership with New York Life (whose PAC contributed $5,000 to Ryan’s campaign last year). It’s easy to see how AARP could easily expand that to reach millions of newly created “personal account” annuity customers. Plus, AARP could reap more members and fees from the expected explosion in demand for financial advice (yes, it’s in that business too, with Charles Schwab). More power and wealth for AARP — is that what Ryan wants?
House Republicans have done a valuable service for America: revealing AARP’s massive business enterprise that hides behind its touted mission of advocacy for seniors. But the AARP story is also an excellent example of how Republicans unintentionally enriched a liberal advocacy organization. Will Paul Ryan help history repeat itself?
Joanne Butler is a senior economics fellow at the Caesar Rodney Institute of Delaware. You can email her at firstname.lastname@example.org.