Wealthy AARP: One Country's Most Powerful Lobbies

Once known as the American Association of Retired Persons, AARP is one of the most powerful political lobbies in Washington.  It spent $21 million last year building up its close ties to Democrats in Congress and exerting massive political influence in Washington, D.C., and state capitals.  It takes in tens of millions of dollars in federal grants annually as a registered nonprofit charity and its for-profit corporation makes millions of dollars licensing the AARP brand name.  AARP reported revenue of over $1 billion and assets of $994 million in 2008. 

AARP enrolls anyone over age 50 as a member, which is why the group changed its name and why it has 39 million members.  For a low annual membership fee of $16,  AARP members enjoy discounts on everything from hotels to flowers.  But membership is actually a loss leader.  What really brings in revenue is the money AARP gets by licensing out its well-known name to for-profit companies, such as health insurers.

That means AARP is a player in the health insurance industry — a fact that complicates its support for the Obama healthcare overhaul that many critics say will harm AARP members.

For Seniors or Big Government?

AARP takes positions and joins or forms coalitions that are arguably unrelated to seniors.

In 2000, for instance, AARP opposed Proposition 38, a school-choice ballot initiative in California.  AARP California President Jacki Antee attacked the proposal, saying that “It would exempt voucher schools from all state educational standards, including a high school exit exam.  Teachers would not be required to have a teaching credential or even a college degree.”

In 2004, television host Bill O’Reilly reported on AARP’s policy stands:

“We found a very liberal philosophy.  For example, the organization favors strict gun control, entitlements for migrant workers and a progressive tax policy.  It says, ‘tax revenue sources should distribute the tax burden according to people’s ability to pay.’”

AARP also strongly favors the death tax, even though most polls show seniors are opposed to it. 

AARP did buck the Democrats by backing the Bush prescription drug plan, but it opposes personal retirement accounts that would seek to privatize Social Security, and it is supportive of proposals to raise the payroll tax. 

AARP’s liberal tilt has sparked the creation of at least two conservative seniors groups: The 60-Plus Association and the American Seniors Association.

History, Structure and Finances

AARP was founded by Dr. Helen Percy Andrus, the first woman school principal in California.  After retiring she became director of welfare for the California Retired Teachers Association.  Alarmed by the problems of aging teachers she launched the National Retired Teachers Association in 1947.  Eleven years later, Andrus founded AARP.

Today, AARP is a behemoth containing many legally separate components that are housed in its national headquarters, a brass and marble palace in downtown Washington, D.C. There are AARP offices in every state and 2,500 local chapters. 

The IRS classifies AARP as a 501(c)(4) non-profit that can lobby for legislation.  That means it does not have to pay taxes, but it cannot accept federal grants and donations to it are not tax-deductible.

But there is also the AARP Foundation, a 501(c)(3) public charity that has received nearly $400 million in federal funds since 2001.  There is also AARP Services, Inc., a wholly owned subsidiary that administers AARP’s lucrative partnerships with private insurers and other businesses.

AARP’s highest-paid employee in 2008 was CEO William Novelli (he has since left AARP), who received $788,957 in pay and another $216,423 in “other compensation from the organization and related organizations”—totaling more than $1 million.  Chief Operating Officer Thomas Nelson pocketed about $625,000 in total compensation in 2008.  In all, 18 AARP employees each received more than $250,000 in 2008 compensation. 

The Seniors Lobby

AARP lobbied heavily on healthcare reform, and in November it endorsed the more radical measure favored by the Democratic leadership in the House of Representatives.

AARP spent $49 million on lobbying in 2007 through 2009.  It pays lobbyists to petition Congress and federal agencies directly and for advertising campaigns such as “Divided We Fail,” a 2008 call for healthcare reform co-sponsored by AARP, Business Roundtable, National Federation of Independent Business and Service Employees International Union (SEIU).

AARP’s $27.9 million lobbying tab in 2008 made it the third-most prolific lobbying entity in the country.  Only the U.S. Chamber of Commerce and Exxon Mobil spent more. 

In 2009, AARP employed more than 60 in-house lobbyists.  Top lobbyist Nancy LeaMond was a Democratic congressional staffer and political appointee in the Clinton Administration.  Michael Naylor, AARP’s director of advocacy, is a former legislative director for Sen. Chris Dodd (D-Conn.).  Rhonda Sharon Richards, another AARP lobbyist, was Democratic staff director on the Select Committee on Aging under Sen. Barbara Mikulski (D-Md.).

At the end of 2009, AARP had three outside firms on retainer whose principal lobbyists previously worked for Democrats in Congress or have contributed to Democratic Party committees and campaigns. .

Unlike most lobbying powerhouses, AARP does not have a political action committee, but its Democratic tilt is clear. 

In the 2006, 2008, and 2010 elections (as of January 2010) AARP employees and executives had donated $96,000 to federal candidates or campaign committees.  About $90,000 of that money–more than 90%–went to Democratic candidates or committees.  President Obama raised $34,000 from AARP in the 2008 election while John McCain raised only $550.

AARP’s new CEO is Barry Rand.  A longtime Xerox executive, Rand was subsequently chairman and CEO of Avis and Equitant, a global provider of “outsourced management services.”  Rand, who is also chairman of the board of trustees of Howard University, gave the maximum allowed contribution to Obama in 2008 before he was tapped to run AARP. 

AARP Businesses

AARP’s role in the healthcare debate is complicated by the fact that it is an insurance broker.  The organization is not itself an insurer, but it funnels its membership list to for-profit insurance companies, and in exchange collects hundreds of millions of dollars annually in royalties.

In 2008, AARP brought in $1.14 billion in revenue.  Only $249 million—less than a quarter of the group’s total revenue—was from membership dues.  The overwhelming majority of AARP’s 2008 income—$653 million—came from “royalties” according to the organization’s tax returns.  The royalties came from several different product lines.  AARP-branded health-related offerings brought in about $425 million, while financial products and services generated about $205 million.

For instance, through AARP, a senior can buy “Medicare Supplemental Insurance,” also known as “Medigap” insurance, to cover healthcare expenses not covered by Medicare.  The product is really United Healthcare insurance, and United pays AARP for the right to sell its product under AARP’s name.

For members younger than 65, United sells the AARP Hospital Indemnity Insurance Plan, AARP Essential Health Insurance and AARP Essential Plus Health Insurance.  Aetna, meanwhile, sells AARP Essential Premier Health Insurance. 

The AARP MedicareRx Plan, also a United Healthcare product, is an insurance supplement for Medicare Part D, the prescription drug benefit.  Through its subsidiary SecureHorizons, United also sells AARP MedicareComplete, a Medicare Advantage plan.  Royalty payments for these products generated $425 million for AARP in 2008. 

AARP created AARP Financial Inc., which licenses and endorses credit cards, insurance and financial services. AARP Financial sells five mutual funds. It also administers IRAs, sells CDs, and provides financial advisory services to AARP members. 

New York Life sells AARP Life Insurance policies and annuities.  The Hartford sells AARP-branded auto and home insurance to AARP members.  Through other partners, AARP sells motorcycle and mobile-home insurance.  Chase offers an AARP Visa credit card. 

What’s Wrong With This Picture?

In the 1990s critics like former Sen. Alan Simpson (R-Wyo.) questioned how a nonprofit could rake in millions of dollars from profit-making commercial businesses while remaining tax-exempt.  Simpson held hearings on AARP activities at which he heard for-profit businesses complain that a nonprofit like AARP was engaged in unfair competition.  The adverse publicity forced AARP in 1994 to pay $135 million in back taxes and penalties.  It was fined by the U.S. Postal Service for misusing its nonprofit status.  And it prompted an IRS investigation that led to a 1999 ruling requiring AARP to split off its wholly owned—and taxpaying—corporate subsidiaries that fund AARP’s tax-exempt programs. 

In 2007, Arthur Laupus, who had been buying car insurance through AARP, reportedly discovered he was paying twice the average cost.  AARP, he learned, was taking a chunk of his premium before remitting it to the insurance company.  AARP’s royalties and fees, which ran to $497.6 million in 2007, drove up the costs of its premiums.

In addition, AARP holds clients’ insurance premiums for as long as a month and invests the money, which added $40.4 million to its revenue in 2007.

This article appears in the current issue of “Organization Trends,” a publication of Capital Research Center.