Analyzing the Trump Administration’s Proposed Insurer Bailout

The more things change, the more they stay the same. On a Friday, the Trump administration issued a little-noticed three paragraph statement that used seemingly innocuous language to outline a forthcoming bailout of health insurers—this one designed to avoid political controversy prior to the president’s re-election campaign.

Republicans like Sen. Marco Rubio (R-FL) quite rightly criticized President Obama for wanting to bail out health insurers via a crony capitalist boondoggle. They should do the same now that Trump wants to waste billions more on a similar tactic that has all the stench of the typical Washington “Swamp.”

Explaining the President’s Drug Pricing Proposal

At present, drug manufacturers pay rebates to PBMs in exchange for preferred placement on an insurer’s pharmacy formulary. PBMs then share (most of) these rebates with insurers, who pass them on to beneficiaries. But historically, PBMs have passed those rebates on via lower premiums, rather than via lower drug prices to consumers.

For instance, Drug X may have a $100 list price (the “sticker” price that Manufacturer Y publicly advertises), but Manufacturer Y will pay a PBM a $60 rebate to get Drug X on the PBM’s formulary list. It sounds like a great deal, one in which patients get the drug for less than half price—except that’s not how it works at present.

Instead, the PBM uses the $60 rebate to lower premiums for everyone covered by Insurer A. And the patient’s cost-sharing is based on the list price (i.e., $100) rather than the lower price net of rebates (i.e., $40). This current policy hurts people whose insurance requires them to pay co-insurance, or who have yet to meet their annual deductible—because in both cases, their cost-sharing will be based on the (higher) list price.

The Policy and Political Problems

The administration’s proposed rule conceded that the proposed change could raise Medicare Part D premiums. The CMS Office of the Actuary estimated the rule would raise premiums anywhere from $3.20 to $5.64 per month. (Some administration officials have argued that premiums may stay flat, if greater pricing transparency prompts more competition among drug manufacturers.)

The rule presents intertwined practical and political problems. From a practical perspective, the administration wants the rule to take effect in 2020. But the comment period on the proposed rule just closed, and the review of those comments could last well beyond the June 3 date for plans to submit bids to offer Part D coverage next year.

The political implications seem obvious. The administration doesn’t want to anger seniors with Part D premium increases heading into the president’s re-election bid. And while the administration could have asked insurers to submit two sets of plan bids for 2020—one assuming the rebate rule goes into effect next year, and one assuming that it doesn’t—doing so would have made very explicit how much the change will raise premiums, handing Democrats a political cudgel on a hot-button issue.

Here Comes the Bailout

That dynamic led to the Friday announcement from CMS:

If there is a change in the safe harbor rules effective in 2020, CMS will conduct a demonstration that would test an efficient transition for beneficiaries and plans to such a change in the Part D program. The demonstration would consist of a modification to the Part D risk corridors for plans for which a bid is submitted. For CY2020, under the demonstration, the government would bear or retain 95% of the deviation between the target amount, as defined in section 1860D-15(e)(3)(B) of the Social Security Act (the Act) and the actual incurred costs, as defined in section 1860D-15(e)(1) of the Act, beyond the first 0.5%. Participation in the two-year demonstration would be voluntary and plans choosing to participate would do so for both years. Under the demonstration, further guidance regarding the application process would be provided at a later date.

To translate the jargon: Risk corridors are a program in which the federal government subsidizes insurers who incur large losses, and in exchange insurers agree to give back any large gains. I explained how they worked in the Obamacare context here. However, unlike Obamacare—which had a risk corridor program that lasted only from 2014-2016—Congress created a permanent risk corridor program for Medicare Part D.

It all sounds well and good—until you look more closely at the announcement. CMS says it will “bear or retain 95% of the deviation…beyond the first 0.5%.” That’s not a government agency sharing risk—that’s a government agency assuming virtually all of the risk associated with the higher premium costs due to the rebate rule. In other words, a bailout.

Déjà Vu All Over Again

The use of a supposed “demonstration project” to implement this bailout echoes back to the Obama administration. In November 2010, the Obama administration announced it would create a “demonstration project” regarding Medicare Advantage, and Republicans—rightfully—screamed bloody murder.

They had justifiable outrage, because the added spending from the project, which lasted from years 2012 through 2014, seemed purposefully designed to delay the effects of Obamacare’s cuts to Medicare Advantage. Put simply, the Obama administration didn’t want stories of angry seniors losing their coverage due to Obamacare during the president’s re-election campaign, so they used a “demonstration project” to buy everyone’s silence.

In response to requests from outraged Republicans, the Government Accountability Office (GAO) conducted multiple reviews of the Medicare Advantage “demonstration project.” Not only did GAO note that the $8 billion cost of the project “dwarfs all other Medicare demonstrations…in its estimated budgetary impact and is larger in size and scope than many of them,” it also questioned “the agency’s legal authority to undertake the demonstration.” In other words, the Obama administration did not just undertake a massive insurer bailout, it undertook an illegal one as well.

The current administration has yet to release official details about what it proposes to study in its “demonstration project,” but, in some respects, those details matter little. The real points of inquiry are as follows: Whether buying off insurance companies and seniors will aid Trump’s re-election; and whether any enterprising journalists, fiscal conservatives, or other good government types will catch on, and raise enough objections to nix the bailout.

Congress Should Stop the Insanity

On the latter count, Congress has multiple options open to it. It can obtain request audits and rulings from GAO regarding the legality of the “demonstration,” once those details become public. It can explore passing a resolution of disapproval under the Congressional Review Act, which would nullify Friday afternoon’s memo.

It can also use its appropriations power to defund the “demonstration project,” preventing the waste of taxpayer funds on slush funds and giveaways to insurers. Best of all, they can do all three.

Republicans objected to crony capitalism under Democrats—Rubio famously helped block a taxpayer bailout of Obamacare’s risk corridor program back in 2014. Here’s hoping they will do the same thing when it comes to the latest illegal insurer bailout proposed by CMS.

This post was originally published at The Federalist.

Ocasio-Cortez Wants Congress to Stop Pretending to Pay for Its Spending

Get used to reading more storylines like this over the next two years: The left hand doesn’t know what the far-left hand is doing.

On Wednesday, incoming House Speaker Nancy Pelosi (D-CA) faced a potential revolt from within her own party. Rep.-elect Alexandria Ocasio-Cortez (D-NY) and several progressive allies threatened to vote against the rules package governing congressional procedures on the first day of the new Congress Thursday, because of proposed changes they believe would threaten their ability to pass single-payer health care.

What’s Going On?

Ocasio-Cortez and her allies object to Pelosi’s attempt to reinstate Pay-as-You-Go (PAYGO) rules for the new 116th Congress. Put simply, those rules would require that any legislation the House considers not increase the deficit over five- and ten-year periods. In short, this policy would mean that any bill proposing new mandatory spending or revenue reductions must pay for those changes via offsetting tax increases and/or spending cuts—hence the name.

Under Republican control, the House had a policy requiring spending increases—but not tax cuts—to be paid for. Pelosi would overturn that policy and apply PAYGO to both the spending and the revenue side of the ledger.

Progressives object to Pelosi’s attempt to constrain government spending, whether in the form of additional fiscal “stimulus” or a single-payer health system.

However, Pelosi’s spokesman countered with a statement indicating that the progressives’ move “is a vote to let Mick Mulvaney make across-the-board cuts.” Mulvaney heads the Office of Management and Budget, which would implement any sequester under statutory PAYGO.

Regardless of what the new House decides regarding its own procedures for considering bills, Pay-as-You-Go remains on the federal statute books. Democrats re-enacted it in 2010, just prior to Obamacare’s passage. If legislation Congress passed  violates those statutory PAYGO requirements (as opposed to any internal House rules), it will trigger mandatory spending reductions via the sequester—the “across-the-board cuts” to which Pelosi’s spokesman referred.

To Pay for Spending—Or Not?

Progressives think reinstituting PAYGO would impose fiscal constraints hindering their ability to pass massive new spending legislation. However, the reality does not match the rhetoric from Ocasio-Cortez and others. Consider, for instance, just some of the ways a Democratic Congress “paid for” the more than $1.8 trillion in new spending on Obamacare:

  • A CLASS Act that even some Democrats called “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of,” and which never went into effect because the Obama administration could not implement it in a fiscally sustainable manner;
  • Double counting the Medicare savings in the legislation as “both” improving the solvency of Medicare and paying for the new spending in Obamacare;
  • Payment reductions that the non-partisan Medicare actuary considers extremely unlikely to be sustainable, and which could cause more than half of hospitals and nursing homes to become unprofitable within a generation;
  • Tax increases that Congress has repeatedly delayed, and which could end up never going into effect.

A Bipartisan Spending Addiction

An external observer weighing the Part D and Obamacare examples would find it difficult to determine the less dishonest approach to fiscal policy. It reinforces that America’s representatives have a bipartisan addiction to more government spending, and a virtually complete unwillingness to make tough choices now, instead bequeathing massive (and growing) amounts of debt to the next generation.

In that sense, Ocasio-Cortez and her fellow progressives should feel right at home in the new Congress. Republicans may criticize her for proposing new spending, but the difference between her and most GOP members represents one of degree rather than of kind. Therein lies the problem: In continuing to spend with reckless abandon, Congress is merely debating how quickly to sink our country’s fiscal ship.

This post was originally published at The Federalist.

How AARP Made BILLIONS Denying Care to People with Pre-Existing Conditions

On Wednesday, the U.S. Senate voted to maintain access to short-term health coverage. Senate Democrats offered a resolution disapproving of the Trump administration’s new rules regarding the more affordable plans, but the resolution did not advance on a 50-50 tie vote.

Because short-term plans need not comply with Obamacare’s restrictions on covering prior health ailments, Senate Democrats used the resolution to claim they will protect individuals with pre-existing conditions. But what if I told you that, in the years since Obamacare passed, one organization has made more than $4.5 billion in profits, largely from denying care to vulnerable individuals with pre-existing conditions?

You might feel surprised. After all, didn’t Obamacare supposedly prohibit “discrimination” against individuals with pre-existing conditions? But what if I told you that the organization raking in all those profits was none other than AARP, the organization that claims to represent seniors? Then the profits might make more sense.

Obamacare and Pre-Existing Conditions

Even though an article on AARP’s own website states that, as of 2014, “insurance companies [are] required to sell policies to anyone, regardless of their pre-existing medical conditions,” that claim isn’t quite accurate. Obamacare exempted Medigap supplemental insurance plans from all of its “reforms,” including the prohibition on “discriminating” against individuals with pre-existing conditions.

As a 2011 Washington Post article noted, individuals can apply for Medigap plans when they first turn 65 and become eligible for Medicare. “However, when Congress created this protection in 1992…it exempted disabled Medicare beneficiaries under age 65, a group that now totals 8 million people.”

In other words, the most vulnerable Medicare beneficiaries—those enrolled because they receive Social Security disability benefits—often cannot obtain Medigap coverage due to pre-existing conditions. And because traditional Medicare does not provide a catastrophic cap on patient cost-sharing (Medigap plans often provide that coverage instead), disabled beneficiaries who want to remain in traditional Medicare (as opposed to Medicare Advantage plans offered by private insurers) may face unlimited out-of-pocket spending.

The Post article conceded that Obamacare “does not address this issue. A provision to provide disabled Medicare beneficiaries better coverage was dropped from the legislation during congressional negotiations because it would have increased Medicare costs, according to a House Democratic congressional aide.” That’s where AARP comes in.

Why Didn’t AARP ‘Show Congress the Money’?

In July 2009, the Congressional Budget Office (CBO) analyzed a House Democrat bill that, among other things, would have made Medigap coverage available to all individuals, regardless of pre-existing conditions. CBO stated that the Medigap provisions in Section 1234 of the bill would have raised federal spending by $4.1 billion over ten years—a sizable sum, but comparatively small in the context of Obamacare itself.

Contrary to the anonymous staffer’s claims to the Washington Post, if House Democrats truly wanted to end pre-existing condition “discrimination” against individuals with disabilities enrolling in Medicare, they had an easy source of revenue: AARP. As Democrats were drafting Obamacare, in November 2009, the organization wrote in a letter to Rep. Dave Reichert (R-WA) that AARP “would gladly forego every dime of revenue to fix the health care system.”

Since that time, AARP has made quite a few dimes—about 45,090,743,700, in fact—from keeping the health care system just the way it was.

Billions in Profits, But Few Principles

A review of AARP’s financial statements shows that since 2010, AARP has made more than $4.5 billion in income from selling health insurance plans, and generating investment income from plan premiums:

AARP makes its money several ways. As the chart demonstrates, a large and growing percentage of its “royalty” money comes from United Healthcare. United Healthcare sells AARP-branded Medigap plans, Part D prescription drug coverage, and Medicare Advantage insurance.

However, as a 2011 House Ways and Means Committee report made clear, in AARP receiving royalty revenues, not all forms of coverage are created equal. While the organization receives a flat fee for the branding of its Part D and Medicare Advantage plans, it receives a percentage (4.95 percent) of revenue with respect to its Medigap coverage. This dynamic means Medigap royalties make up the majority of AARP’s revenue from United Healthcare, giving AARP a decided bias in favor of the status quo, even if it means continuing to discriminate against individuals with disabilities.

AARP’s Deafening Silence

So if in the seven years since Obamacare’s enactment, AARP has earned more than enough in profits and investment income to offset the cost of changes to Medigap, and AARP publicly told Congress that it would gladly forego all its profits to achieve health care reform, why didn’t AARP make this change happen back in 2010?

AARP occasionally claims it supports reforming Medigap, normally in response to negative publicity about its shady business practices. But by and large, it avoids the subject entirely, preferring to cash in on its Medigap business by flying under the radar.

As I previously noted, in the fourth quarter of 2016 AARP lobbied on 77 separate bills, including such obscure topics as lifetime National Park Service passes, but took absolutely no action to support Medigap reform.

So the next time a liberal Democrat wants to get on his or her high horse and attack conservative policy on pre-existing conditions, ask why they support AARP making $4.5 billion in profits by denying care for individuals with disabilities. Then maybe—just maybe—one day someone could get AARP to put its money where its mouth is.

This post was originally published at The Federalist.

What You Need to Know about President Trump’s Drug Pricing Plan

On Friday, President Trump gave a Rose Garden speech outlining his plan, entitled “America’s Patients First,” to combat rising drug prices. The plan incorporates policy ideas included in the president’s budget earlier this year, new proposals, and additional topics for discussion that could turn into more specific ideas in the future.

What’s the Problem?

Surveys suggest public frustration with the cost of prescription drugs. While such costs represent a small fraction of overall spending on health care, several dynamics help the prescription drug issue gain disproportionate attention. First, in any given year, more Americans incur drug costs than hospital costs. Whereas only 7.3 percent of Americans had an inpatient hospitalization in 2013, more than three in five (60.7 percent) had prescription drug expenses.

With more Americans incurring drug costs, and paying a larger percentage of drug costs directly from their pockets, the issue has taken on greater prominence. The rise of coinsurance (i.e., paying a percentage of drug costs, rather than having those costs capped at a set dollar amount) for pricey specialty drugs exacerbates this dynamic.

What Are the Proposed Solutions?

In general, ways to address drug prices fall into three large buckets.

Controlling costs through competition: These solutions would involve bringing down price levels by encouraging generic competition, or substituting one type of drug for another.

Shifting costs: These solutions would alter who pays for drugs among insurers, pharmaceutical benefit managers (PBMs), or consumers. While they may make drugs more “affordable” for consumers, they will not change overall spending levels. In fact, if done poorly, these types of proposals could actually increase overall spending, by encouraging individuals to increase their consumption of costly brand-name drugs.

Drug company and PBM stocks went up Friday following the blueprint’s release, largely because the plan eschews actions in the second bucket. The president’s plan includes a few tweaks to the system of “rebates” (de facto price controls) the Medicaid program uses, but includes none of the major Democratic proposals to use blunt government action to drive down prices.

In fact, the plan criticizes foreign price controls, attacking the “global freeloading” by which other countries gain the research and development benefits of the pharmaceutical industry without paying their “fair share” of those R&D costs. While the plan frequently mentions the disproportionate share of costs American consumers pay, it includes few specific proposals to rebalance these costs to other countries. It also remains unclear whether, if successfully implemented, any such rebalancing would successfully lower prices in the United States.

Other competitive proposals include giving Medicare Part D plans more flexibility to adjust their formularies mid-year to respond to changes in the generic drug marketplace, and prohibiting Part D plans from including “gag clauses.” These clauses prohibit pharmacies from telling consumers that they would actually save money by paying cash for certain drugs, rather than using their insurance.

In the cost-shifting bucket lie several of the proposals incorporated into the president’s budget. For instance, a cap on out-of-pocket expenses for the Medicare Part D prescription drug benefit would provide important relief to seniors with very high annual drug costs. However, to the extent that such a proposal would encourage seniors to over-consume drugs, or purchase more costly brand-name drugs, once they reach such a cap, this proposal could also increase overall Part D spending.

In a similar vein lie proposals about PBMs passing drug rebates directly to consumers at the point of sale. In most cases, PBMs had previously passed on those savings indirectly to insurers in the form of lower premiums. Giving rebates directly to consumers—a practice some insurers have begun to adopt—would provide relief to those with high out-of-pocket costs, but could raise premiums overall, particularly for those with relatively low prescription spending.

What’s Next?

The plan raises more questions than it answers—quite literally. The last and longest section of the blueprint includes 136 separate questions about how the administration should structure and implement some of the proposals discussed in the document.

Some proposals, while eye-catching, seem ill-advised. For instance, the proposal to “evaluate the inclusion of list prices in direct-to-consumer advertising” raises potential First Amendment concerns—government dictating the content of drugmakers’ communications with patients. Moreover, with many Americans viewing health care as a superior good, some consumers may view a more expensive product as “better” than its alternative. In that case this proposal, if ever implemented, could have the opposite of its intended effect, encouraging people to consume more expensive drugs.

The plan did not include the heavy-handed approaches to the prescription drug issue—Medicare price “negotiation” and drug reimportation—that Democrats favor, and that President Trump endorsed in his 2016 campaign. The document also makes clear the iterative nature of the process, with additional proposals likely coming after feedback from industry and others.

But to the extent that Washington has become consumed by the midterm elections fewer than six months away, the high-profile event Friday allowed Republicans and the president to say they have a plan to bring down drug prices—an important political objective in and of itself.

This post was originally published at The Federalist.

How a CBO Error Could Cost the Pharmaceutical Industry Billions

Government officials often attempt to bury bad news. Aaron Sorkin’s “The West Wing” even coined a term for it: “Take Out the Trash Day.” So it proved last week. A Congressional Budget Office (CBO) document released quietly on Thursday hinted at a major gaffe by the budget agency and its efforts to conceal that gaffe.

In a series of questions for the record submitted following Director Keith Hall’s April 11 hearing before the Senate Budget Committee, CBO admitted the following regarding a change to the Medicare Part D prescription drug program included in this past February’s budget agreement:

When the legislation was being considered, CBO estimated that provision would reduce net Medicare spending for Part D by $7.7 billion over the 2018-2027 period. CBO subsequently learned of a relevant analysis by the Centers for Medicare and Medicaid Services and incorporated that analysis in its projections for the April 2018 Medicare baseline. The current baseline incorporates an estimate that, compared with prior law, [the relevant provision] will reduce net Medicare spending for Part D by $11.8 billion over the 2018-2027 period.

As I wrote at the time, the provision attracted no small amount of controversy at its passage—or, for that matter, since. The provision accelerated the closing of the Part D “donut hole” faced by seniors with high prescription drug costs, but it did so by shifting costs away from the Part D program run by health insurers and on to drug companies.

The pharmaceutical industry was, and remains, livid at the change, which it did not expect, and tried to undo in the March omnibus spending bill. CBO didn’t just get its score wrong on a minor, non-controversial provision—it messed up on a major provision that will over the next decade affect both drug companies and health insurers.

Because the provision substitutes mandatory “discounts” by drug companies for government spending through the Part D program, it saves the government money through smaller Part D subsidies—at least on paper. (That said, the score doesn’t take into account whether drug manufacturers will raise prices in response to the change, which they could well do.) Because seniors actually spend more in the “donut hole” than CBO’s initial projections said, the provision will have a greater impact—i.e., cost the pharmaceutical industry billions more—than the February budget estimate says.

In its response last week, CBO tried to cover its tracks by claiming that “the $4 billion change…accounts for about 2 percent” of the total of $186 billion reduction in estimated Medicare spending over the coming decade due to technical changes incorporated into the revised baseline. But a $4.1 billion scoring error on a provision first projected to save $7.7 billion means CBO messed up its score by more than 53 percent of its original budgetary impact. That’s not exactly a small error.

Moreover, CBO didn’t come clean and publicly admit this error of its own volition. It did so only because Senate Budget Committee Chairman Mike Enzi (R-WY) forced the budget office to do so.

Enzi submitted a question noting that “CBO realized its estimate of a provision [in the budget agreement] was incorrect. Where is the correction featured in the new report?” CBO didn’t “feature” the correction in its April Budget and Economic Outlook report at all—it incorporated the change into the revised baseline without disclosing it, hoping to sneak it by without anyone calling the budget office out on its error.

Since that time, the purportedly “nonpartisan” organization realized it published an incorrect score—off by more than 50 percent—on a high-profile and controversial issue, changed its baseline to account for the scoring error, and said exactly nothing in a 166-page report on the federal budget about the change. If CBO won’t disclose this kind of major mistake on its own, then its “transparency efforts” seem like so much noise—a distraction designed to keep people preoccupied from focusing on errors like the Part D debacle.

To view it from another perspective: Any head of a private company whose analysis of a multi-billion-dollar transaction proved off by more than 50 percent, because his staff did not access relevant information available to them at the time of the analysis, would face major questions about his leadership, and could well lose his job. But judging from his desire to conceal this scoring mistake, the CBO director apparently feels no such sense of accountability.

Thankfully, however, members of Congress have tools available to fix the rot at CBO, up to and including replacing the director. Given the way CBO attempted to conceal the Part D scoring fiasco, they should start using them.

This post was originally published at The Federalist.

The Insurer Bailout Inside the Senate Budget “Deal”

I noted in my prior summary of the Senate budget “deal” that, as with Obamacare itself, Senate leaders wanted to pass the bill so that we can find out what’s in it. And so it proved.

My summary noted that the bill includes a giveaway to seniors, by accelerating the process Obamacare started to close the Part D prescription drug “donut hole.” I also pointed out that this attempt to buy seniors’ votes in the November elections by promising them an extra benefit in 2019 might backfire, because encouraging seniors to choose more expensive brand-name pharmaceuticals over cheaper generics will raise overall Medicare spending and increase premiums.

How the ‘Donut Hole’ Currently Works

The Part D prescription drug benefit Republicans and the George W. Bush administration created in 2003 included a “donut hole” to reduce the bill’s overall costs. During his 2000 presidential campaign, Bush proposed creating a limited drug benefit that provided only catastrophic protection for seniors with very high costs.

But political pressure (to give “benefits” to more seniors) and actuarial concerns (if the federal government covered only catastrophic costs, only very sick people who would incur those costs would enroll, creating an unstable risk pool) prompted Republicans to expand the Part D program. The “donut hole” resulted from these twin goals of providing basic coverage to seniors and catastrophic coverage for those with high medical costs, with the coverage gap or “donut hole” occurring between the end of the former and the start of the latter.

As part of their “rock-solid deal” with the Obama administration, the pharmaceutical industry and Democrats agreed to close the “donut hole” as part of Obamacare. The law required branded drug manufacturers to provide 50 percent discounts for seniors in the “donut hole,” with the federal government gradually increasing its subsidy (provided through Part D insurers) and beneficiaries’ co-insurance gradually declining to 25 percent (the same percentage of costs that beneficiaries pay before reaching the “donut hole”).

The budget “deal” changes the prior law in several ways. First, it reduces the beneficiary co-insurance from 30 percent to 25 percent in 2019, thus filling in the “donut hole.” But in so doing, it also increases the manufacturer’s “discount” from 50 percent to 70 percent, beginning next year.

That second change effectively shifts 20 percent of the cost of filling in the “donut hole” from Medicare, and insurers that offer Medicare drug plans, to drug manufacturers. In other words, it bails out health insurers, who in the future will have to bear very little risk (only 5 percent) of the cost of their beneficiaries’ drug spending.

No Crocodile Tears

That said, drug companies don’t have much reason to cry about the budget “deal” overall. The industry saw the repeal of Obamacare’s Independent Payment Advisory Board (IPAB), an important, albeit flawed, way to control skyrocketing Medicare costs. While Republicans in prior Congresses insisted on paying for legislation repealing IPAB, the party changed its tune at the beginning of this Congress—reportedly at the behest of Big Pharma.

The enacted legislation repeals the IPAB spending controls without a replacement mechanism to contain Medicare costs. This is total derogation of conservatives’ belief in reforming entitlements, and one enacted at the behest of drug company lobbyists.

Moreover, the budget “deal” included another huge win for pharma, by excluding legislation supported on both sides of the aisle to accelerate the approval of lower-cost generic drugs. Pharmaceutical lobbyists claimed the measure would lead to more lawsuits, and those objections meant the provision got left on the proverbial cutting room floor.

More Bailouts Ahead

Given that Kentucky-based health insurer Humana holds a large market share in the Medicare arena—with 5.3 million of the roughly 25 million seniors enrolled in stand-alone drug plans, and more enrollment in Medicare Advantage besides—and that Sen. Mitch McConnell (R-KY) has fought hard, and publicly, on behalf of Humana’s interests in the past, it doesn’t take a rocket scientist to ask whether the Senate majority leader proposed a backroom deal to help his insurer constituents.

Moreover, as we’ve previously reported, Republican leaders want to pass an even bigger bailout, this one for Obamacare, in next month’s omnibus spending agreement. One news outlet reported earlier this week that Republicans’ desire to bail out Obamacare—to “lower” premiums by throwing more of taxpayers’ money at the problem—has risen to such a level “that Democrats don’t feel like they have to push very hard” to ensure its enactment.

Insurer bailouts, measures to raise rather than lower health costs, and an abdication of any pretense of fiscal responsibility or restraint towards our looming entitlement crisis. The Republican Party circa 2018 is truly a pathetic spectacle to behold.

This post was originally published at The Federalist.

Lowlights of Senate “Budget” Deal

In the budget agreement announced Wednesday between Republican Sen. Mitch McConnell and Democrat Chuck Schumer, McConnell’s negotiating position can be summed up thusly: “Give us the money we want for defense spending, and you can run the rest of the country.”

The result was a spending bonanza, with giveaways to just about every conceivable lobbying group, trade association, and special interest possible. The unseemly spectacle resembles “Oprah’s Favorite Things:” “You get a car! You get a car! You get a car! EVERYONE GETS A CAR!!!”

Even reporters expressed frank astonishment at the bipartisan profligacy. Axios admitted that “there’s a ton of health care money in the Senate budget deal,” while Kaiser Health News noted that the agreement “appear[s] to include just about every other health priority Democrats have been pushing the past several months.”

Of course, McConnell and Schumer want to ram it through Congress and into law by Thursday evening—because we have to pass the bill to find out what’s in it.

Lowlights of the Health Legislation

Repeal of Medicare Spending Restraints: The bill would repeal Obamacare’s Independent Payment Advisory Board (IPAB), a board of unelected bureaucrats empowered to make rulings on Medicare spending. I noted last year that conservatives could support repealing the power given to unelected bureaucrats while keeping the restraints on Medicare spending—restraints which, once repealed, will be difficult to reinstitute.

Congressional leaders did nothing of the sort. Instead the “deal” would repeal the IPAB without a replacement, raising the deficit by $17.5 billion. Moreover, because seniors pay for a portion of Medicare physician payment spending through their Part B premium, repealing this provision without an offset would raise seniors’ out-of-pocket costs. While a Congressional Budget Office (CBO) score of the bill as a whole was not available as of press time Wednesday evening, this provision, on its own, would raise Medicare premiums by billions of dollars.

Big Pharma Giveaway: In a further giveaway to the pharmaceutical industry, the bill would close the Medicare Part D prescription drug “donut hole” a year earlier—that is, beginning in 2019 rather than 2020. Having failed to repeal Obamacare, Republicans apparently want to expand this portion of the law, in the hopes of attracting seniors’ votes in November’s mid-term elections.

Extension of an Unreformed SCHIP Program: The bill would extend for another four years the State Children’s Health Insurance Program—a mandatory spending program that Republicans extended for six years just last month. I previously explained in detail that last month’s reauthorization failed to include at least ten different conservative reforms that Republicans previously supported. By extending the program for another four years, the “deal” would prevent conservatives from enacting any reforms for a decade.

Back in 2015, Republican aides pledged that “Republicans would like to reform and improve this program, and the next opportunity will be in two years when we have a new President.” Not only have Republicans done nothing of the sort, the additional extension will prevent this president—and potentially the next one as well—from reforming the program.

Mandatory Funding for Community Health Centers: The bill provides for $7.8 billion in mandatory spending for community health centers over the next two years, once again extending a mandatory program created by Obamacare.

While many conservatives may support funding for community health centers, they may also support funding them through the discretionary appropriations process, rather than by replenishing a pot of mandatory spending created by Obamacare to subvert the normal spending cycle. The normal appropriations process consists of setting priorities among various programs; this special carve-out for community health centers subverts that process.

Mandatory Opioid Funding: The bill also provides $6 billion in mandatory spending over the next two years to address the opioid crisis. As with the community health center funding, some conservatives may support increasing grants related to the opioid crisis—through the normal spending process.

The Schumer-McConnell “deal” would bust through the Budget Control Act spending caps, increasing the amount of funds available for the normal appropriations bills. (Most of this spending increase would not be paid for.) Additional mandatory health care spending on top of the increase in discretionary funding represents a spendthrift Congress attempting to have its cake and eat it too, while sticking future generations with the bill in the form of more debt and deficits.

But Wait—There’s More!

Surprisingly, the bill does not include an Obamacare “stabilization” (i.e., bailout) package. But other reports on Wednesday suggest that will arrive in short order too. One report noted that Democrats want to increase Obamacare premium subsidies. They not only want to restore unconstitutional payments that President Trump cancelled last fall, “but to expand it—and to bolster the separate subsidy that helps people pay their premiums.”

Republican leaders want to pass a massive Obamacare bailout in the next appropriations measure, an omnibus spending bill likely to come to the House and Senate floors before the Easter break. In a sign of Republicans’ desperation to pass a bailout, Wednesday’s report quoted a Democratic aide as saying that corporate welfare to insurers in the form of a reinsurance package “has become so popular among Republicans that Democrats don’t feel like they have to push very hard.”

There are two ways to solve the problem of rising premiums in Obamacare. One way would fix the underlying problems, by repealing regulations that have led to skyrocketing premiums. The other would merely throw money at the problem by giving more corporate welfare to insurers, providing a short-term “fix” at taxpayers’ ultimate cost. Naturally, most Republicans wish to choose the latter course.

Moreover, in bailing out Obamacare, Republicans will be forced to provide additional taxpayer funding of abortion coverage. There is no way—zero—that Democrats will provide any votes for a bill that provides meaningful pro-life protections for the Obamacare exchanges. Republicans’ desperation to bail out Obamacare will compel them to abandon any pretense of pro-life funding as well.

Most Expensive Parade Ever?

Press reports this week highlighted Pentagon plans to, at President Trump’s request, put on a military spectacle in the form of a massive parade. Trump tweeted his support for the Schumer-McConnell deal on Wednesday, calling it “so important for our great Military.”

It’s an ironic statement, on several levels. First, the hundreds of billions in new deficit spending coming from the military buildup included in the agreement would make the parade the most expensive ever, by far. Second, Michael Mullen, the former chairman of the Joint Chiefs of Staff, called our rising debt levels our biggest national security threat, because it makes us dependent on other countries to buy our bonds. Given that statement, one can credibly argue that this deficit-driven spending binge will harm our national security much more than the defense funds will help it.

Time will tell whether or not the legislation passes. But if it does, at some point future generations will look back and wonder why the self-proclaimed “king of debt” imposed a financial burden on them that they will not be able to bear easily—if at all.

This post was originally published at The Federalist.

Just the Facts on Drug Negotiation

Congressional hearings often serve as elaborate theatrical productions. Members ask pre-written questions, receive formulaic answers, and in many cases use witnesses as props to engage in rhetorical grandstanding. The grandstanding element was on full display Tuesday during the confirmation hearing for Alex Azar, the Health and Human Services Secretary-designee. Sen. Claire McCaskill (D-MO) wanted to beat up on “evil” drug companies, and she wasn’t going to let facts get in her way.

McCaskill spent two minutes attacking pharmaceutical advertisements, including a reference to “the one for erectile dysfunction where they have them in two bathtubs,” before she tackled the issue of Medicare “negotiating” prices with drug companies. At this point she demonstrated ignorance on several issues.

Second, McCaskill failed to grasp that Medicare drug plans already negotiate with pharmaceutical companies, and that the discounts they obtain have helped keep overall premiums for the prescription drug Part D plan low. It may sound radical to McCaskill, who has spent practically her entire adult life working in government, but the private sector can negotiate just like the government, and probably do so more effectively than a government entity.

Third, McCaskill refused to believe that getting the government involved in “negotiating” drug prices would not save money. When Azar explained that removing a provision prohibiting federal bureaucrats from “negotiating” prices wouldn’t save money, McCaskill called his explanation “just crazy” and “nuts.”

It isn’t nuts, it’s economics. Even though McCaskill tried to lecture Azar on economics and markets at the beginning of her questioning, her queries themselves showed very little understanding of either concept. In a negotiation, the ability to drive a hard bargain ultimately derives from the ability to seek out other options. If Medicare must cover all or most prescription drugs, such that it can’t walk away from the proverbial bargaining table, it will by definition be limited in its ability to put downward pressure on prices.

But don’t take my word for it. As Azar pointed out to McCaskill, none other than Peter Orszag, who directed the Office of Management and Budget (OMB) under President Obama — said as much in an April 2007 Congressional Budget Office letter:

By itself, giving the Secretary broad authority to negotiate drug prices would not provide the leverage necessary to generate lower prices than those obtained by PDPs and thus would have a negligible effect on Medicare drug spending. Negotiation is likely to be effective only if it is accompanied by some source of pressure on drug manufacturers to secure price concessions. The authority to establish a formulary, set prices administratively, or take other regulatory actions against firms failing to offer price reductions could give the Secretary the ability to obtain significant discounts in negotiations with drug manufacturers.

Only the ability to limit access to drugs by setting a formulary or imposing  administrative prices, i.e. “negotiating” by dictating prices to drug companies, would have any meaningful impact on pricing levels. But this truth proved inconvenient to McCaskill, who admitted she “refuse[d] to acknowledge it.”

Instead, McCaskill continued haranguing him about the evils of drug companies. She pointed out that one congressman who helped negotiate the prescription drug benefit, Rep. Billy Tauzin (R-LA), “went to run PhRMA after he finished getting it through.”

Indeed he did. And as the head of PhRMA, he bragged about the “rock-solid deal” he cut with the Obama administration to help his industry. Big Pharma’s “deal” as part of Obamacare encouraged seniors to purchase costlier brand-name drugs instead of cheaper generics, which the CBO concluded would raise Part D premiums by nearly 10 percent. And who voted for that “rock-solid deal?” None other than Claire McCaskill.

As the old saying goes: If you have the facts on your side, pound the facts. But if you don’t, pound the table.

The facts indicate that McCaskill voted for a “rock-solid deal” with Big Pharma that raised premiums on millions of seniors, which actually makes her part of the problem, not part of the solution. Of course, that also makes her willingness to grandstand at Tuesday’s hearing, and her unwillingness to face facts she now finds politically inconvenient, less “crazy” than it first seemed.

This post was originally published at The Federalist.

Profits Before Principles: How AARP Wins When Seniors Lose

A report originally compiled by staff for Sen. Jim DeMint.

REPORT HIGHLIGHTS

  • AARP functions as an insurance conglomerate with a liberal lobbying arm on the side.  Independent experts and former AARP executives admit that the organization’s billions of dollars raised from its business enterprises – most notably the sale of health insurance plans – have compromised the organization’s mission and independence.
  • AARP depends on profits, royalties, and commissions to make up over 50% of its annual budget.  Membership dues from seniors account for only about 20% of AARP’s revenue.
  • AARP’s $458 million in health insurance revenue in 2011 would rank it as the nation’s sixth-most profitable health insurer.
  • The health care law, which AARP lobbied heavily for, could lead to over $1 billion in new AARP health insurance profits over the next decade by forcing seniors off Medicare Advantage plans into Medigap supplemental coverage.
  • AARP earns more profit the higher premiums rise on seniors in Medigap plans, charging a “royalty fee” of 4.95% of every premium dollar paid by seniors on these plans.
  • In 2011, AARP failed to disclose to its senior membership that it lobbied Congress to oppose Medigap reform, legislation that could lower senior premiums by as much as 60%, and save seniors $415 per year on average.
  • AARP could lose as much as $1.8 billion in revenue over ten years if Medigap reforms pass and successfully lower senior premiums.
  • Documents show close coordination between Obama Administration and AARP, including efforts to deceive the public.  In November 2009, a senior AARP executive wrote to the White House saying “we will try to keep a little space between us” on health care – because AARP’s “polling shows we are more influential when we are seen as independent, so we want to reinforce that positioning….The larger issue is how best to serve the cause.”
  • AARP has benefitted by supporting the Obama Administration’s unpopular health care law.  Unlike other forms of insurance, AARP’s Medigap insurance plans were exempted from many of the health care law’s mandates, including the ban on pre-existing condition discrimination.
  • The Obama Administration has not publicly criticized AARP’s business practices, even though it has publicly attacked other insurance companies with much smaller profit margins than those generated by AARP’s Medigap insurance.
  • Democrats continue to praise AARP – HHS Secretary Sebelius called them the “gold standard” for “accurate information” – even though AARP earns more profit the higher Medigap premiums rise for seniors.

Even though President Obama has criticized Republicans for placing seniors at the mercy of insurance companies, the health care law he signed allows organizations like AARP to continue discriminating against Medigap applicants with pre-existing conditions.

 

Introduction

The AARP bills itself as the nation’s premier senior advocacy group, but has opposed important reforms to Medigap supplemental insurance that would save seniors, on average, hundreds of dollars a year.

Why? There are $1.8 billion reasons.

The reforms currently being proposed to Medigap would drastically reduce the “royalty fees” AARP generates by peddling insurance to its members by an estimated $1.8 billion over ten years. If AARP supported these reforms, which are sure to save seniors money, the lobbying group would lose billions.

This report shows how the AARP has a history of being compromised by its lucrative insurance businesses.  The pressure group’s opposition to Medigap reform is just the latest instance where its financial enterprises have trumped the well-being of its members.

AARP is mounting a “You’ve Earned a Say” campaign to solicit member viewpoints about how to reform entitlements, but our examination of the organization’s actions over the years shows AARP executives, who seek to boost their bottom lines, always have the biggest say.

The AARP Empire

Founded in 1958, AARP is now an organization with an annual budget exceeding $1 billion.  The organization spent $206 million to acquire its headquarters building in Washington, DC more than a decade ago.[1]  According to its most recently filed tax returns, AARP spent more than $246 million on postage, and over $280 million on compensation in 2010.[2]  In that same year, AARP provided compensation of over $100,000 to 543 separate employees, including one senior executive who received nearly $1.2 million in compensation.[3]

While AARP claims to be a membership-driven organization, in reality most of its revenue comes not from member dues but from “royalty fees” generated from the sale of other products, namely health insurance.  “Royalty fees” are payments AARP receives for putting its brand name on certain products and services.  So while insurance companies provide a tangible product and service in exchange for the premiums they charge, AARP receives more than half a billion dollars per year for essentially playing the middle man.

According to its 2011 financial statements, more than half of AARP’s revenue came from royalty fees – over $704 million of its $1.35 billion in total revenue last year.[4]  Revenues from health insurer United Health Group comprised nearly two-thirds of AARP’s total “royalty fee” revenue, or $457.6 million.[5]  By comparison, in 2011 AARP generated only $265.8 million from membership dues – just over half the amount received from the sale of AARP-branded insurance products.[6]

AARP’s royalty fees have risen significantly in recent years, making the organization ever more dependent on the sale of insurance policies to fund AARP’s massive payroll.  Between 2001 and 2011, AARP’s total royalty fees rose by more than 350% – from $196.7 million in 2001 to over $704 million last year.[7]  Much of this increase comes from additional health insurance-related revenue.  Over the past five years, AARP has generated over $2 billion in revenue from United Health Group alone – $284 million in 2007,[8] $414 million in 2008,[9] $427 million in 2009,[10] $441 million in 2010,[11] and $458 million in 2011.[12]

AARP’s $458 million in insurance revenue in 2011 would rank it as the nation’s sixth-most profitable insurer, based on data collected by Fortune magazine.[13]  For instance, insurer Health Net generated only $204 million in net revenue last year – on over $13.6 billion in total revenue.[14]  By contrast, AARP’s $458 million in insurance-based “royalty fees” go directly to the organization’s bottom line.

AARP’s Questionable Insurance Practices

Even as it claims to be a non-profit advocacy organization, AARP has received criticism from many quarters for its heavy reliance on revenue from insurance sales.  Marilyn Moon, a former AARP executive, said “there’s an inherent conflict of interest” because AARP is “very dependent on sources of income.”[15]

AARP’s dependence on “royalty fee” income has resulted in numerous controversies over the years.  For instance, in 2008 a congressional inquiry[16] found that AARP was using potentially misleading language in its marketing materials; seniors thought they were buying comprehensive health insurance, but in reality purchased policies covering only a limited amount of health costs.  Following a public outcry, AARP ordered an investigation,[17] and eventually stopped selling these types of limited benefit plans.[18]

More recently, the tax implications of AARP’s significant “royalty fees” have come under scrutiny.  An investigation by several members of the House Ways and Means Committee last year raised questions about whether or not AARP’s licensing revenue should be considered “royalty fees” or “commissions.”[19]  If the revenue in question should in fact be classified as “commissions,” then AARP could owe significant amounts of back taxes on billions of dollars in revenue.  The Ways and Means members referred the matter to the Internal Revenue Service, and requested an IRS investigation.[20]

The Medigap Cash Cow

The Ways and Means member investigation also made clear that one of AARP’s prime sources of revenue is the sale of Medigap-branded supplemental insurance plans.  AARP does license Medicare Advantage plans, along with a Medicare Part D prescription drug plan.  However, AARP receives a flat financial payment from United Health Group for its Medicare Advantage and Part D plans, regardless of the number of people enrolled in each plan.  Conversely, AARP receives a percentage of total Medigap premiums paid – meaning that while AARP receives no financial benefits if its Medicare Advantage or Part D plan enrollment rises, it will receive a windfall if its Medigap plan generates additional customers, or those customers pay higher premiums.

The health care law includes more than $300 billion in cuts to Medicare Advantage.[21]  As a result of these payment reductions, enrollment in Medicare Advantage plans will be cut in half, with 7.4 million fewer seniors enrolled.[22]  Many of these 7.4 million seniors will need supplemental coverage through Medigap, to fund catastrophic expenses not covered by Medicare.

Because the health care law will have the effect of migrating millions of seniors from Medicare Advantage plans – which are less lucrative financially to AARP – to more-lucrative Medigap supplemental coverage, the Ways and Means member report concluded that the organization could receive a windfall exceeding $1 billion over the next ten years thanks to the law.[23]

Medigap Reform with Bipartisan Appeal

The potential Medigap-related windfall for AARP resulting from the health care law is not the only instance in which the organization’s financial interests have coincided with its policy positions.  In recent months, a renewed focus on reforming entitlements, and making Medicare more sustainable, has prompted new attention to various proposals to reform Medigap plans.  While these plans would benefit most seniors financially, they would harm AARP’s financial interests – so perhaps not surprisingly, AARP has decided to oppose them.

Under the proposals being discussed, the traditional Medicare program would be reformed to provide catastrophic coverage, while Medigap would provide limited supplemental coverage.  For the first time in the program’s history, seniors would know their Medicare costs would not exceed a set amount.  In exchange, Medigap supplemental coverage, which covers co-payments and deductibles, would also be reformed, so that seniors would face an out-of-pocket deductible not covered by insurance.

Reform to Medigap insurance plans has generated bipartisan appeal.  Versions of this reform have been proposed by the Simpson-Bowles Commission,[24] the Rivlin-Domenici commission on debt and deficits, [25] Sens. Tom Coburn (R-OK) and Joe Lieberman (D-CT),[26] and even President Obama’s most recent budget.[27]  Policy-makers in both parties believe that, by limiting first-dollar coverage of medical expenses through Medigap, seniors would serve as smarter purchasers of health insurance, such that overall spending in Medicare might decline modestly.

Although some seniors might pay slightly more out-of-pocket under these changes, a study from the Kaiser Family Foundation said that “the savings for the average beneficiary” under Medigap reform “would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing.”[28]  According to Kaiser, nearly four in five Medigap policy-holders would receive a net financial benefit from this reform – with those savings averaging $415 per senior each year – because creating a new deductible for all Medigap plans will cause premiums to fall.[29]

Under Medigap reform, seniors would spend much less money on premiums.  Just as with automobile insurance, or with Health Savings Account policies for individuals under age 65, adopting a higher deductible would yield significant premium savings for Medigap policies.  The Kaiser study found that under one proposed reform, Medigap premiums would plummet by an average of over 60%, from nearly $2,000 per year to only $731.[30]  Because less money from Medigap policy-holders would be diverted to administrative overhead, seniors would be able to keep their own money to finance their own health care.

AARP Wins When Seniors Lose

The overall premise of Medigap reform is simple: Less money going to insurance companies means greater financial savings for most seniors.

Unfortunately for AARP, things are not that simple.  As one independent financial adviser has said, AARP’s sales tactics are a “dirty little secret” that are “all about fattening the coffers of the organization.”  And the biggest “dirty little secret” of all is that AARP has a major financial incentive to keep premiums high for seniors.[31]

The House Ways and Means Committee members’ investigation last year found that AARP receives a percentage of each senior’s Medigap premium dollar.[32]  The organization’s “royalty fee” totals 4.95% of every premium dollar paid.  So, similar to a salesman pushing the most expensive product in order to receive a higher commission, regardless of the customer’s needs,  AARP has an incentive to sell more Medigap policies – and to sell the most expensive Medigap policies – even if seniors do not need the insurance.  The higher the cost of seniors’ Medigap policies, the more money AARP makes.

Based on AARP’s existing contractual arrangements and the Kaiser Family Foundation study projections, it is relatively simple to calculate the projected financial loss to AARP under Medigap reform.[33]   If premiums decline by more than $1,200 per year, as the Kaiser study predicted, AARP stands to lose an average of $62 in “royalty fees” for every senior enrolled in its Medigap insurance.  With nearly 3 million seniors enrolled in AARP’s Medigap plan, those numbers add up – over $181 million in one year, and $1.8 billion over the course of a decade.[34]  With the organization generating total revenue of $1.35 billion in 2011, Medigap reform would result in an immediate loss of over 13% of AARP’s annual revenue.[35]

AARP’s Covert Campaign to Kill Medigap Reform

Given its financial interest in keeping Medigap premiums high, it is perhaps unsurprising that AARP engaged in a covert lobbying campaign designed to kill Medigap reform, and keep its existing “royalty fee” regime in place.  Last year AARP wrote to members of the congressional “supercommittee” on deficit reduction, asking them not to include Medigap reforms – which, as noted above, would benefit four out of five Medigap policy-holders, but significantly harm AARP’s financial interests.

AARP published excerpts of their letter to the “supercommittee” on its website.[36]  But AARP has yet to put anything on its website indicating that the organization has been privately contacting Members of Congress, asking them not to reform Medigap – and preserve AARP’s lucrative Medigap commissions.

Two years ago, an AARP spokesman told CNN that the organization doesn’t lobby Congress on Medigap issues “at all.”[37]  While the organization is apparently trying to keep its actions secret, the fact remains that AARP is lobbying Congress against Medigap reform, opposing changes that will just so happen to save AARP members tens of billions, but that would also cost AARP billions.

AARP Works Against Its Members

Whereas last year AARP actively lobbied against Medigap reforms that would help its members but hurt AARP financially, three years ago the organization did NOT lobby for Medigap reforms that would help its members but could hurt AARP financially.  Specifically, even after enactment of the health care law, Medigap plans are still permitted to impose waiting periods on senior citizen applicants with pre-existing conditions.  AARP, despite its stated support for ending pre-existing condition restrictions,[38] imposes waiting periods on its own members applying for Medigap coverage[39] – and stood idly by as an attempt to end this practice within Medigap was stricken from the health care bill before it became law.

Section 1234 of House Democrats’ June 2009 health care discussion draft would have prohibited pre-existing condition discrimination for certain Medigap applicants – achieving one of AARP’s chief goals.[40]  However, last year the Washington Post claimed that the Medigap provision “was dropped from the legislation during congressional negotiations because it would have increased Medicare costs, according to a House Democratic congressional aide.”[41]

The Congressional Budget Office scored provisions eliminating pre-existing condition discrimination in Medigap as costing about $400 million per year.[42]  However, AARP had previously stated that the organization “would gladly forego every dime of revenue to fix the health care system.”[43]  As noted above, its $700 million in “royalty fees” last year far exceeds the $400 million annual cost of ending Medigap pre-existing condition discrimination.  It remains unclear why this provision was dropped from the bill, if AARP was so interested in foregoing profits in order to help its members.

In addition to allowing AARP to continue imposing waiting periods on Medigap applicants, the law enacted in March 2010 also exempted AARP’s lucrative Medigap policies from several other new insurance regulations.[44]  At a December 2009 hearing,[45] AARP’s Board Chair claimed to have no idea that legislation that she and the AARP had previously endorsed included numerous exemptions for Medigap plans, including an exemption from the ban on pre-existing condition discrimination.[46]

After the numerous Medigap-related exemptions included in the health care law were publicly exposed, AARP eventually endorsed legislative changes to end some of the exemptions.[47]  However, despite this public turn-around, AARP has yet to explain to the public why it allowed these exemptions to be enacted in the first place – if the organization is not motivated by its own financial interests, as it claims.  Moreover, the organization has not apologized to its members for failing to act and end pre-existing condition discrimination in Medigap plans two years ago, and the impact such failure has had on AARP’s own members.

Members REVOLT

Documents released by a House Energy and Commerce Committee oversight investigation reveal just how strongly AARP members opposed their organization’s behavior during the health care debate three years ago.  The files show overwhelming opposition from AARP members to the legislation, based on summaries of AARP call center activity:

July 23, 2009 – 77 members support; 1,031 oppose

July 28, 2009 – 36 members support; 4,174 oppose

July 29, 2009 – 23 members support; 2,656 oppose[48]

On a single day (July 28, 2009) during the height of the debate, 1,897 individuals cancelled their membership in AARP to protest its position on the health care bill.[49]

The documents also reveal that AARP members were well aware of the organization’s financial conflicts, and believed that these conflicts were influencing AARP policy.  One member from Oklahoma called in and complained that:

AARP has a conflict of interest between selling insurance and helping senior citizens.  Until it decides which one is more important, the $$$ or the people, it is deceiving old folks into thinking it works for their benefit.  Actually it works for the insurance companies [sic] benefit and interests, which is why it is so gung-ho on the health care reform bill….Not OK with me.[50]

Members also complained about “perceived partisanship on AARP’s part” – and the documents reveal this to be an accurate concern.  In November 2009, a senior AARP executive wrote to the White House saying “we will try to keep a little space between us” on health care – because AARP’s “polling shows we are more influential when we are seen as independent, so we want to reinforce that positioning….The larger issue is how best to serve the cause.”[51]  In other words, the organization was attempting to protect its image by publicly deceiving its members – acting detached in public, even as AARP was frantically lobbying behind the scenes to ram the legislation through for the good of the liberal cause.

AARP’s Misguided Political Focus

It is perhaps unsurprising that AARP would focus on “serv[ing] the cause” of liberalism, because many of its senior executives have strong liberal connections.  When the organization hired its current CEO, Barry Rand, one Capitol Hill publication noted that “New AARP Chief Gave Big to Obama.”[52]  Indeed, Mr. Rand has given tens of thousands of dollars in contributions to liberal Democrats over the years.[53]  Many other members of AARP’s executive team also have strong connections to liberal causes; the head of AARP’s government relations and advocacy program was a senior adviser in the Clinton Administration,[54] while other AARP key executives have worked for Sen. Ted Kennedy,[55] Rep. Geraldine Ferraro,[56] and the National Wildlife Federation, a liberal environmental group.[57]

The political philosophy of the organization’s leadership results in AARP mounting advocacy campaigns trumpeting liberal talking points that frequently have little basis in fact.  For instance, in September 2011 AARP released an advertisement with seniors claiming that “I paid into my Medicare,” and decrying any efforts to “cut our benefits.”[58]  However, the ad did not acknowledge what an Urban Institute study makes clear: Most seniors receive more in Social Security and Medicare benefits than they paid in taxes during their lifetime.[59]  An Associated Press story based on the Urban Institute study – “What You Pay for Medicare Won’t Cover Your Costs” – was initially placed on aarp.org, but was later removed from the website, perhaps because its conclusions represent inconvenient truths to AARP.[60]

Other ads run by the AARP during last year’s debt limit debate were also debunked as false and misleading.  In June 2011, the Washington Post’s “Fact Checker” column awarded an AARP ad four “Pinocchios” for “perpetuat[ing] the worse stereotypes about how easy it would be to balance the budget.  At a time when the nation’s fiscal crisis – amid the looming retirement of the baby-boom generation – demands informed and reasoned debate, the AARP misinforms its members about the choices the nation faces.”[61]

Of course, AARP has a financial interest in misinforming its members – because the organization derives much of its revenue from preserving the status quo.  In launching a “multi-million dollar” ad campaign featuring misleading claims, AARP made clear it wanted no changes to the existing Medicare benefit structure.[62]  As outlined above, changes to the Medicare benefit – such as Medigap reform – would cost AARP billions, while saving many seniors hundreds of dollars per year.  By blocking reforms that would dent its profits, AARP hurts seniors two ways – first, by preventing seniors from saving hundreds of dollars in Medigap premiums, and second, by leaving the Medicare program less solvent for future generations.

Democrats Encourage AARP’s Abuses

Even as AARP racks up billions of dollars in insurance profits by overcharging seniors for Medigap plans, Democrats encourage these abuses by giving AARP special favors, and ignoring its questionable sales tactics.  As noted above, the health care law exempted AARP’s lucrative Medigap insurance plans from the ban on pre-existing condition discrimination, thus allowing AARP to continue to impose waiting periods on individuals applying for coverage.  However, that’s not the only exemption that Medigap coverage received in the law; Medigap insurance was also exempted from:

  • The law’s $500,000 cap on executive compensation for insurance industry executives. [63]  Thanks to this exemption, AARP can continue to pay its senior executives more than $1 million in annual compensation.[64]
  • The tax on insurance companies that will total more than $14 billion per year.[65]   Medigap insurance received this exemption even though AARP generates more money from insurance industry “royalty fees” than it received from membership dues, grant revenues, and private contributions combined.[66]
  • The requirement imposed on other health insurance plans to spend at least 85 percent of their premium dollars on medical claims.[67]  Medigap policies are currently held to a far less restrictive 65 percent standard, and the difference can be used to fund higher profits to AARP paid out of the pockets of its senior citizen members.[68]

In addition to these numerous exemptions for Medigap insurance provided in law, the Administration provided a further exemption for Medigap coverage during the rulemaking process.  The Department of Health and Human Services’ rule on insurance rate review exempted Medigap plans from further scrutiny of their premium increases.[69]  In arriving at this determination, HHS concluded that insurance plans like Medigap coverage “do not appear to be a principal focus of the Affordable Care Act” – meaning that because Medigap plans were exempted from the law’s other regulatory requirements, they should be exempted from rate review as well.[70]

Obama Administration Hypocrisy

The frequent exemptions given to Medigap insurance – a product line where AARP holds the largest market share – directly contradict the claims made by Democrats about the 2,700 page health care law.  For instance, Department of Health and Human Services Secretary Kathleen Sebelius’ official biography claims that she “is implementing reforms that end many of the insurance industry’s worst abuses.”[71]  However, with respect to Medigap insurance, that claim is entirely false.  Because Medigap plans were exempted from the law’s new requirements, organizations like AARP can continue to discriminate against applicants with pre-existing conditions, and overcharge seniors in order to generate greater profits.

Even as the Obama Administration fails to acknowledge that the health care law exempts Medigap insurance from all of its new requirements, it has attacked conservatives’ Medicare reform proposals for granting too much power to insurers.  In her speech to the 2012 Democratic National Convention, Secretary Sebelius criticized Republicans for “let[ting] insurance companies continue to cherry-pick who gets coverage and who gets left out, priced out, or locked out of the market.”[72]  And in his speech to the same convention, President Obama said that “no American should have to spend their golden years at the mercy of insurance companies.”[73]  Given that the legislation President Obama signed into law exempted Medigap coverage for seniors from virtually all of its new regulatory requirements, it is more than a little hypocritical for his Administration to criticize others for leaving seniors to the mercy of insurers.

The Administration has yet to answer a basic question at the heart of the numerous exemptions granted to Medigap insurers in their 2,700 page health care law: If the law’s protections are so good, then why are seniors left out of its supposed benefits when it comes to their supplemental insurance?  Unfortunately, the answer could be that AARP has been unwilling to forfeit its profits, and so the Obama Administration has looked the other way as the organization continues to take advantage of seniors.

Kathleen Sebelius: Watchdog or Lapdog?

Even as it has been willing to politically strong-arm insurance companies with whom it disagrees, the Obama Administration’s Department of Health and Human Services has failed to confront AARP about its questionable business practices.  In March 2010, as the Administration was gearing up to ram through its health care law, Secretary Sebelius asked other insurers to “give up some short-term profits” for the nation’s good.[74]  At the time, estimates by Fortune magazine indicated that health insurer profits averaged about 2.2 percent.[75]  Yet Secretary Sebelius made no such request of AARP to give up some of its revenues – even though its Medigap profit margin was 4.95 percent, more than double that of the insurance industry as a whole.

Shortly after the health law passed, Secretary Sebelius undertook a publicity campaign to “encourage” insurance companies to ban rescissions and extend coverage to young adults under age 26 earlier than was required under the law.  While the Secretary made very public efforts to have insurance companies “abandon…efforts to rescind health insurance coverage from patients who need it most,” she made no attempt to encourage AARP and other Medigap insurers to stop discriminating against applicants with pre-existing conditions.[76]  At an implementation briefing to Congress shortly after the law passed, Senate Republican staff asked HHS officials why the Department was asking other insurers voluntarily to change their business practices, but was not asking AARP to stop discriminating against Medigap applicants.  While Jeanne Lambrew, head of the Department’s Office of Health Reform, promised to look into the matter, the Department never took action.

Rather than ask AARP to reform its business practices, Secretary Sebelius instead has blindly offered the organization praise.  In an October 2010 speech to the AARP convention, she hailed the organization as “the gold standard in cutting through spin and complexity to give people the accurate information they need to make the best choices.”[77]  Even though AARP has a strong financial conflict-of-interest in its Medigap insurance – because the organization earns more profit when seniors pay more in premiums – Secretary Sebelius still claimed that AARP constituted “the gold standard” in giving “accurate information.”

The National Association of Insurance Commissioners (NAIC) has previously expressed strong concerns about the percentage-based compensation model under which AARP receives much of its revenue.  In fact, Section 18 of NAIC’s Producer Model Licensing Act recommends that states require explicit disclosure by insurers, and clear written acknowledgement by consumers, of any percentage-based compensation arrangement, due to the potential for abuse.  As a former insurance commissioner, Secretary Sebelius should be well aware of the financial conflicts inherent when an organization like AARP receives a percentage of every Medigap dollar paid by seniors.  Yet the Secretary apparently ignored these concerns, and went on to praise AARP as a source of impartial advice, even though even former AARP executives have criticized the organization as hopelessly compromised by financial conflicts-of-interest.

In her time heading HHS, Secretary Sebelius has undertaken clearly political actions, including those that violated the law.  Just last week, the Office of the Special Counsel publicly released a report concluding that the Secretary engaged in political activity that violated the Hatch Act prohibitions on federal officials campaigning for partisan political causes.[78]  It is therefore quite reasonable to ask whether Secretary Sebelius has also engaged in a pattern of politically-motivated selective enforcement – attacking other insurers when convenient, but failing to examine AARP’s questionable business practices, because AARP supports the President’s liberal causes.

As noted above, AARP executives e-mailed the White House in November 2009 stating that “the larger issue is how best to serve the cause.”  It would thus appear that both AARP and the Administration recognize their political interests are aligned.  Certainly the Administration’s actions – exemptions for Medigap coverage included both in statute and in rulemaking; attacks on insurers with smaller profit margins than AARP; failure to criticize AARP’s percentage-based compensation model – are consistent with a governing philosophy that permits AARP to engage in questionable and abusive behavior towards seniors, so long as AARP funnels the profits from said behavior back into supporting the Administration’s liberal causes.

In April 2010, Secretary Sebelius wrote to insurers to stop rescinding insurance policies earlier than required under the law, encouraging them “not to wait until the fall to do the right thing.”[79]  America’s seniors have been waiting for years for Secretary Sebelius, and the entire Obama Administration, to do the right thing – to apply the law fairly, without regard to political persuasion.  Unfortunately, the facts suggest that the Administration has knowingly looked the other way, and failed to take on AARP over its business practices – because political advantage outweighs the need for impartial enforcement, or extending the supposed benefits of the health care law to senior citizens.

Conclusion

Though it purports to be a seniors advocacy organization, AARP functions in many respects as an insurance conglomerate with a liberal lobbying arm on the side.  Independent experts and even former AARP executives have admitted that the organization’s billions of dollars raised from its business enterprises – most notably the sale of health insurance plans – have compromised the organization’s mission and independence.  As one consultant put it: “Either you’re a voice for the elderly or you’re an insurance company – choose one.”[80]

As this report has demonstrated, AARP has acted against its members’ interest, but in its own financial interests, on several occasions during the major health care debates of the past several years.  First AARP endorsed a health care law that gave its most lucrative product offering – Medigap insurance – a major opportunity to solicit new members, exempted those Medigap plans from the law’s regulatory regime, and allowed AARP to continue imposing waiting periods on the sickest seniors looking to buy Medigap coverage.  More recently, AARP has engaged in a covert lobbying campaign designed to kill Medigap reforms that would benefit nearly four in five policy-holders and improve Medicare’s solvency – but could cost AARP billions.

This year, AARP has embarked upon a “You’ve Earned a Say” campaign, purportedly designed to solicit members’ opinions on ways to reduce the deficit.  However, the organization has yet to solicit members’ viewpoints about its own actions.  For instance:

  1. How many members know that senior AARP executives have received over $1 million in compensation from the organization – and that 543 individuals received over $100,000 in compensation last year?
  2. How many members know that AARP has generated over $2 billion in revenue from selling health insurance plans in the past five years?
  3. How many members know that AARP imposes waiting periods on Medigap applicants with pre-existing conditions – and stood idly by as provisions to eliminate Medigap pre-existing condition discrimination were stricken from the health care law?
  4. How many members know that nearly four in five Medigap plan holders would financially benefit from reforms, to the tune of several hundred dollars per year?
  5. How many members know that Medigap reforms that would help seniors could cost AARP billions of dollars in lost revenue?

At the very least, AARP should be up-front and honest with its members about the massive financial stake it has in this debate.  Better yet, the organization should start thinking less about its bottom line and more about its members, and endorse reforms that will help the vast majority of Medigap policy-holders.

 

[1]Behind the Veil: The AARP America Doesn’t Know, report by Reps. Wally Herger and Dave Reichert, March 29, 2011,  http://herger.house.gov/images/stories/pdf/20110329aarpreport.pdf, p. 6.

[2]AARP Inc., 2010 Internal Revenue Service Form 990, http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2010_990_aarp.pdf, p. 1.

[3] Ibid., pp. 8-9.

[4] AARP Inc., 2011 Consolidated Financial Statements,  http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2012-05/Consolidated-Financial-Statements-2011-2010-AARP.pdf, p. 3.

[5] Page 9 of the AARP 2011 financial statements notes that “the service provider United Healthcare Corporation accounted for 65% of total royalties earned in 2011 and 2010.”  65% of the total $704 million in royalties equates to $457.6 million received from United Healthcare.

[6] Ibid., p. 3.

[7] Letter from AARP Chief Operating Officer Thomas Nelson to Rep. Dave Reichert, November 2, 2009, pp. 3-4.

[8]AARP Inc., 2008 Consolidated Financial Statements,  http://assets.aarp.org/www.aarp.org_/TopicAreas/annual_reports/assets/AARPConsolidatedFinancialStatements.pdf, pp. 4-9.

[9]Ibid., pp. 3-9.

[10]AARP Inc., 2009 Consolidated Financial Statements, http://assets.aarp.org/www.aarp.org_/cs/misc/2009_aarp_consolidated_financial_statements_12_31_09.pdf, pp. 3-9.

[11] AARP Inc., 2010 Consolidated Financial Statements, http://www.aarp.org/content/dam/aarp/about_aarp/annual_reports/2010_aarp_consolidated_financial_statements_12_31_10.pdf, pp. 3-9.

[12] AARP Inc., 2011 Consolidated Financial Statements.

[13] Fortune 500, Health Care: Insurance and Managed Care, May 23, 2011, http://money.cnn.com/magazines/fortune/fortune500/2011/industries/223/index.html.

[14] Ibid.

[15] Gary Cohn and Darrell Preston, “AARP’s Stealth Fees Often Sting Seniors With Costlier Insurance,” Bloomberg December 4, 2008,  http://www.bloomberg.com/apps/news?pid=newsarchive&refer=&sid=a4OkPQIPF6Kg.

[16] Letter from Senate Finance Committee Ranking Member Chuck Grassley to AARP CEO William Novelli, November 3, 2008, http://www.grassley.senate.gov/news/upload/110320081.pdf.

[17] Robert Pear, “AARP Orders Investigation Concerning Its Marketing,” New York Times November 18, 2008,   http://www.nytimes.com/2008/11/19/us/19insure.html?_r=1.

[18] Emily Berry, “United Stops Selling AARP Limited-Benefit Insurance,” Amednews.com May 28, 2009,  http://www.ama-assn.org/amednews/2009/05/25/bisd0528.htm.

[19] Behind the Veil: The AARP America Doesn’t Know.

[20] Letter from House Ways and Means Committee Members Wally Herger, Charles Boustany, and Dave Reichert to Internal Revenue Service Commissioner Douglas Shulman, December 21, 2011,  http://waysandmeans.house.gov/uploadedfiles/letter_to_irs-shulman_12-15-11.pdf.

[21] Congressional Budget Office, score of H.R. 6079, Repeal of Obamacare Act, July 24, 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf.

[22] Robert Book and Michael Ramlet, What Changes will Health Care Reform Bring to Medicare Advantage Plan Benefits and Enrollment?, Medical Industry Leadership Institute- Carlson School of Management, October 2011, http://americanactionforum.org/sites/default/files/Embargoed_Book+Ramlet_MILI-Working-Paper_2011-10-13_Final.pdf.

[23] Behind the Veil: The AARP America Doesn’t Know, Table 4, p. 16.

[24] The Moment of Truth, report of the National Commission on Fiscal Responsibility and Reform, December 2010,

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf, p. 39.

[25] Restoring America’s Future, report of the Bipartisan Policy Center’s Debt Reduction Tax Force, November 2010, http://bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf, pp. 52-53.

[26] Overview of Coburn/Lieberman Medicare reform proposal, June 2011, http://www.coburn.senate.gov/public/index.cfm?a=Files.Serve&File_id=1ea8e116-6d15-46ba-b2e0-731258583305.

[27] White House Fiscal Year 2013 budget submission to Congress, February 2012, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf, p. 35.

[28] Kaiser Family Foundation, “Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” July 2011, http://www.kff.org/medicare/upload/8208.pdf, p. 8.

[29] Ibid.

[30] Ibid., Exhibit 2, p. 6.

[31] “AARP’s Stealth Fees Often Sting Seniors With Costlier Insurance.”

[32] Behind the Veil: The AARP America Doesn’t Know.

[33] Kaiser Family Foundation, “Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs,” Exhibit 2, p. 6.

[34] Behind the Veil: The AARP America Doesn’t Know, Table 2, p. 9.

[35] AARP Inc., 2011 Consolidated Financial Statements, p. 3.

[36] AARP Press Release, “AARP to Super Committee: Don’t Cut Medicare, Social Security Benefits,” October 19, 2011, http://www.aarp.org/about-aarp/press-center/info-10-2011/aarp-to-super-committee-dont-cut-medicare-social-security-benefits.html.

[37] Carol Costello, “150,000 Seniors In Revolt,” CNN American Morning January 6, 2010, http://www.cnn.com/video/?/video/politics/2010/01/06/costello.aarp.health.care.cnn.

[38] AARP Press Release, “AARP Thanks Senate for Passing Health Care Reform,” December 24, 2009,  http://www.aarp.org/about-aarp/press-center/info-03-2010/aarp_thanks_senateforpassinghealthcarereform.html.

[39] New York State Department of Financial Services, list of insurers offering Medicare supplemental coverage, http://www.dfs.ny.gov/insurance/caremain.htm#insurer.

[40] House Tri-Committee Health Reform Discussion Draft, June 19, 2009, http://democrats.energycommerce.house.gov/Press_111/20090619/healthcarereform_discussiondraft.pdf, p. 358.

[41] Susan Jaffe, “Medigap Supplemental Coverage Can Be Too Pricey for Younger Medicare Beneficiaries,” Kaiser Health News March 7, 2011,  http://www.washingtonpost.com/wp-dyn/content/article/2011/03/07/AR2011030703978.html.

[42] Congressional Budget Office, preliminary estimate of House Tri-Committee Health Reform Discussion Draft, July 7, 2009, http://democrats.energycommerce.house.gov/Press_111/20090708/cbomedicare.pdf, p. 4.

[43] Letter from AARP Chief Operating Officer Thomas Nelson to Rep. Dave Reichert, November 2, 2009, p. 4.

[44] Karl Rove, “ObamaCare Rewards Friends, Punishes Enemies,” Wall Street Journal January 6, 2011, http://online.wsj.com/article/SB10001424052748704405704576063892468779556.html.

[45] House Energy and Commerce Subcommittee on Health hearing, “Prescription Drug Price Inflation: Are Prices Rising Too Fast?” December 8, 2009, http://energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=7588.

[46] AARP Press Release, “AARP Endorses Affordable Health Care for America Act,” November 5, 2009, http://www.aarp.org/about-aarp/press-center/info-11-2009/affordable_health_care_act_endorsement.html.

[47] Letter to the Editor, Wall Street Journal, by AARP President Lee Hammond, January 11, 2011, http://www.aarp.org/about-aarp/press-center/info-01-2011/aarp_letter_to_theeditor.html.

[48] House Energy and Commerce Committee, investigation into closed-door Obamacare negotiations, supplemental materials for June 8, 2012 memorandum, http://archives.republicans.energycommerce.house.gov/Media/file/PDFs/060812relevantdocsmemoIII.pdf, pp. 63-68.

[49] Ibid., p. 73.

[50] Ibid., p. 79.

[51] Ibid., p. 88.

[52] Jeffrey Young, “New AARP Chief Gave Big to Obama,” The Hill March 12, 2009, http://thehill.com/business-a-lobbying/3963-new-aarp-chief-gave-big-to-obama.

[53] Ibid.

[54] “AARP Leadership Profile: Nancy LeaMond,” http://www.aarp.org/about-aarp/executive-team/info-2009/Nancy_Leamond.html.

[55] “AARP Leadership Profile: Debra Whitman,” http://www.aarp.org/about-aarp/executive-team/debra_whitman/.

[56] “AARP Leadership Profile: Kevin Donnellan,” http://www.aarp.org/about-aarp/executive-team/info-2009/Kevin_Donnellan.html.

[57] “AARP Leadership Profile: Cindy Lewin,” http://www.aarp.org/about-aarp/executive-team/info-2010/cindy_lewin.html.

[58] Michael Muskal, “AARP Ads: Hands Off Social Security and Medicare,” Los Angeles Times September 21, 2011, http://www.standard.net/stories/2011/09/21/aarp-ads-hands-social-security-and-medicare.

[59] Gene Steuerle and Stephanie Rennane, “Social Security and Medicare Taxes and Benefits Over a Lifetime,” Tax Policy Center, June 2011, http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf.

[60] While the Associated Press story from December 30, 2010 has been removed from the AARP website, it can still be found at http://www.cbsnews.com/2100-204_162-7197847.html.

[61] Glenn Kessler, “AARP’s Misleading Ad about Balancing the Budget,” Washington Post June 20, 2011, http://www.washingtonpost.com/blogs/fact-checker/post/aarps-misleading-ad-about-balancing-the-budget/2011/06/17/AGQKRsYH_blog.html.

[62] AARP Press Release, “AARP Launches New TV Ad Calling on Congress to Protect Medicare and Social Security from Harmful Cuts,” June 16, 2011, http://www.aarp.org/about-aarp/press-center/info-06-2011/aarp-launches-new-tv-ad-calling-on-congress-to-protect-medicare-and-social-security-from-harmful-cuts.html.

[63] Section 9014 of the Patient Protection and Affordable Care Act (PPACA) as amended, http://housedocs.house.gov/energycommerce/ppacacon.pdf, pp. 816-18.

[64] AARP Inc., 2010 Internal Revenue Service Form 990, pp. 8-9.

[65] PPACA, Section 9010(h)(3)(C) as amended, p. 815.

[66] AARP Inc., 2011 Consolidated Financial Statements,  p. 3.

[67] PPACA, Section 1001, p. 22.

[68] Section 1882(r)(1) of the Social Security Act, 42 U.S.C. 1395ss(r)(1).

[69] Department of Health and Human Services, Rate Increase Disclosure and Review, Final Rule, Federal Register May 23, 2011, http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/2011-12631.pdf, pp. 29966-67, 29985.

[70] Department of Health and Human Services, Rate Increase Disclosure and Review, Proposed Rule, Federal Register 23 December 2010, http://www.gpo.gov/fdsys/pkg/FR-2010-12-23/pdf/2010-32143.pdf, pp. 81007, 81009, 81026.

[71] Official HHS Biography of Secretary Kathleen Sebelius, http://www.hhs.gov/secretary/about/biography/index.html.

[72] Remarks by HHS Secretary Kathleen Sebelius at the Democratic National Convention, September 4, 2012, http://dyn.politico.com/printstory.cfm?uuid=CB187143-9624-3760-BC9CC2DBE9C60BD7.

[73] Remarks by the President at the Democratic National Convention, September 6, 2012, http://www.whitehouse.gov/the-press-office/2012/09/07/remarks-president-democratic-national-convention.

[74] Jane Norman, “Sebelius Urges Health Care Insurers to Trim Their Profits,” CQ HealthBeat March 10, 2010, http://www.commonwealthfund.org/Newsletters/Washington-Health-Policy-in-Review/2010/Mar/March-15-2010/Sebelius-Urges-Health-Insurers-to-Trim-Their-Profits.aspx.

[75] “Top Industries: Most Profitable,” 2009 Fortune 500, http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/.

[76] HHS Press Release, “HHS Secretary Kathleen Sebelius Urges Wellpoint to Immediately Stop Dropping Coverage for Women with Breast Cancer,” April 23, 2010, http://www.hhs.gov/news/press/2010pres/04/20100423a.html.

[77] Remarks of HHS Secretary Kathleen Sebelius at AARP Orlando@50+ Conference, October 1, 2010, http://www.hhs.gov/secretary/about/speeches/sp20101001.html.

[78] Office of Special Counsel, File No. HA-12-1989 (Kathleen G. Sebelius), September 12, 2012, http://www.osc.gov/documents/hatchact/Hatch%20Act%20Report%20on%20HHS%20Secretary%20Kathleen%20Sebelius.pdf.

[79] HHS News Release, “Momentum Building on Sebelius’ Challenge to Insurers to Ban Rescission Before Law Takes Effect in September,” April 28, 2010, http://www.hhs.gov/news/press/2010pres/04/20100428a.html.

[80] Cited in Dan Eggen, “AARP: Reform Advocate and Insurance Salesman,” Washington Post October 27, 2009,  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/26/AR2009102603392_pf.html.

 

Weekly Newsletter: September 22, 2008

  • Specialty Hospital Ban a Special-Interest Boondoggle Reports circulated late last week that restrictions on physician-owned specialty hospitals may be included in mental health parity legislation that could come to the House floor this week. While later press reports indicated that the specialty hospital provisions would be excluded from the mental health parity bill, legislative activity cannot be ruled out.

    Advocates of a specialty hospital ban state that restricting physician ownership will slow the growth of health care costs and improve the solvency of the Medicare program. However, a look at the record of the Democrat-controlled 110th Congress shows little attempt to control the growth of health spending or solve Medicare’s long-term funding shortfalls:

  • Democrats rejected an attempt to make wealthy seniors pay $2 per day more for prescription drug coverage—which would save Medicare $12.1 billion over ten years;
  • Democrats rejected reasonable reforms to the current medical liability reform system that would eliminate the need for defensive medicine practices that raise health care costs—saving the federal government more than $6 billion over ten years;
  • Democrats could not pass structural reforms to the current system of Medicare physician payments—choosing instead to pass a budgetary gimmick that will give physicians a 21% reimbursement cut in January 2010.Given these actions—and an impending floor vote on a bill (HR 758) that will likely increase health care costs by billions of dollars—conservatives may question why Democrats have passed up attempts to save Medicare more than $12 billion by charging billionaires like Warren Buffett more for their prescription drugs and instead remain fixated on saving one-tenth that amount by eradicating a free market for physician-owned facilities.

    Part of the answer may lie in the lobbying activities of entities like the American Hospital Association— which spent nearly $20 million last year alone, and nearly $153 million over the last decade, on federal lobbying activities. Despite the fact that, by one measure, specialty hospitals represent less than 1% of total Medicare hospital spending, traditional hospitals continue their attempts to eradicate this potential source of competition—going so far as to draw a rebuke from Health and Human Services’ Inspector General for “misrepresent[ing]” the IG’s conclusions in a document sent to Congressional staff. Despite— or perhaps because of—these deceptive lobbying practices, some conservatives may support efforts to maintain free markets in health care, and oppose any further efforts by Congressional Democrats to pass a specialty hospital ban.

Medicaid Fraud Will Not Be Addressed by Bailout

Last Tuesday’s New York Times highlighted the case of Staten Island University Hospital, an institution with a history of questionable billing practices—and now one of the largest fraud settlements against a single hospital. This week the hospital agreed to return nearly $90 million to respond to claims of overbilling government programs as a result of two whistle-blower lawsuits and actions by federal prosecutors. The lawsuits and charges alleged among other things that the hospital deliberately inflated bed and patient counts in order to obtain reimbursements from Medicare and Medicaid, and come after the hospital had reached two previous settlements—one in 1999 resulting in $45 million in Medicaid repayments, and another in 2005 resulting in $76.5 returned to Medicaid—with state authorities regarding fraudulent billing activity.

Many conservatives may not be surprised by these repeated instances of fraud and graft within the program, given that a former New York state Medicaid investigator estimated that 40% of all Medicaid payments were fraudulent or questionable in nature. However, this episode may only strengthen conservative concerns that a proposed “temporary” increase in federal Medicaid matching funds (HR 5268) would do nothing to combat this fraud and abuse before spending additional federal dollars. Indeed, given that a single hospital has settled more than $200 million in fraud claims, some conservatives may wonder whether, if the Medicaid program had appropriate anti-fraud efforts in place, an additional $10-15 billion “bailout” for states would even be needed at all.

Read the article here.